Saturday, July 7, 2018

Stop Work Orders

The Malaysian government has suspended work on three China infrastructure projects, including one regarded as the flagship for China's Belt and Road Initiative, the 688km East Coast Rail Link. 

The ECRL is Najib Razak’s typical epic endeavor he embarked upon when he was in power. 

The rail line venture is undertaken by Malaysia Rail Link Sdn Bhd, a unit under MoF with state-owned China Communications Construction Company as the main contractor – and awarded without soliciting any other bids. 

The railway connects Malaysia's main shipping hub which is Port Klang with Pengkalan Kubor in Kelantan. Construction started last year and is expected to finish in 2024. 

Construction costs are covered by loans from the Export-Import Bank of China. Critics have questioned the logic of borrowing this gargantuan sum of money from China to pay Chinese contractors – but the former administration brushed aside doubts in order to advance the project. 

Costs were said to be RM55 billion – but it now appears that they were grossly understated. According to Finance Minister Lim Guan Eng (left), the final price tag is actually RM81 billion. 

Also, the two mega-projects – the Multi-Product Pipeline and Trans-Sabah Gas Pipeline, costing RM9.4 billion. 

The MPP involves a 600km multi-product petroleum pipeline connecting Malacca and Port Dickson in Negeri Sembilan to Jitra in Kedah, costing about RM5.35 billion. 

The cost for TSGP, which was to build a 662km gas pipeline from Sabah Oil and Gas Terminal in Kimanis to Sandakan and Tawau, is about RM4.06 billion. 

Both these projects were to be managed by Suria Strategic Energy Resources Sdn Bhd, also a unit under MoF and the jobs awarded to China Petroleum Pipeline Bureau, a unit of state-owned China National Petroleum Corporation. 

Some RM4.71 billion and RM3.54 billion for the MPP and TSGP projects respectively had been drawn down and paid to CPPB, bringing a total of RM8.25 billion, or 87.7% of the total project value. 

The payments made also did not include an additional RM1 billion worth of contracts signed and awarded to Chinese companies comprising two consultancy agreements worth about RM312 million and RM213 million each, as well as a maintenance agreement worth RM476 million. 

Funding came from the same Chinese bank amounting to 85% of the project value, with the balance 15% to be raised via sukuk issuance. Both bank borrowings and sukuk were secured with federal government guarantees. 

Lim had reported that both deals were negotiated by the Prime Minister's Department without involving Treasury officials. 

Interestingly, he divulged that SSER are an offshoot firm established by the same people behind SRC International, a former subsidiary of 1MDB. 

He too had noted that SSER president Mohammed Azhar Osman Khairuddin, who is also a member of the company's board of directors, is a director of Putrajaya Perdana Sdn Bhd, a company linked directly with businessman Jho Low. 

It had been explained that the order to stop work would allow the government to “make a final decision on what to do with the projects” and “whether the projects can proceed… under existing provisions of the contracts that we find completely lopsided”. 

These projects were only suspended after a team of lawyers reviewed all contracts over the past month. 

Anyway, it is all not just about limiting excessive spending but reducing it as much as possible. And furthermore, there is a critical need to scrutinize all mega projects that are putting a massive strain on our finances. 

Equally important, we need to investigate their links, if any, to 1MDB. 

Of course, we should and we can expect the government to renegotiate these deals. 

Until then, the suspension notice issued by the MoF will remain. China should know they cannot take advantage of Malaysia. 

Yesterday, Belgium showed a little bit of everything a World Cup-winning team need in the 2-1 quarter-final victory over five time winners Brazil. 

The latter’s elimination ensured the semi-finals will be an all-European affair. For the first time since 2006.

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