[Disbursed Portion] China Eximbank disburses RMB 11.32 billion via loan for Trans-Sabah Gas Pipeline and Multi-Product Pipeline Construction Project (Linked to Record ID#62286)

China Eximbank provides RMB 12.87 billion (partially cancelled) loan for Trans-Sabah Gas Pipeline and Multi-Product Pipeline Construction Project in Malaysia in 2017 On March 22, 2017, Suria Strategic Energy Resources Sdn Bhd (SSER)— a special purpose vehicle that is wholly owned by the Government of Malaysia — signed a loan agreement worth RMB 12,877,000,000 (or RM 7,814,000,000) for the Trans-Sabah Gas Pipeline and Multi-Product Pipeline Construction Project.

The Government of Malaysia issued a sovereign guarantee in support of the loan.

The borrower was to expected to use the proceeds of the loan to finance 85% of the cost of two separate Engineering, Procurement, Construction and Commissioning (EPCC) contracts: an RMB 3.08 billion (RM 4.06 billion) EPCC contract for the Trans-Sabah Gas Pipeline (TSGP) Project that was issued to China Petroleum Pipeline Engineering Company Ltd (CPPE) on November 1, 2016 and an RMB 4.5475 billion (RM 5.35 billion) EPCC contract for the Multi-Product Pipeline (MPP) Project that was issued to CPPE on November 1, 2016.

As of May 27, 2019, the China Eximbank loan had achieved an 88% disbursement rate [RMB 11,320,000,000 (RM 6,869,000,000 or $1.65 billion) out of RMB 12,877,000,000]. The loan’s (principal) outstanding amount was approximately $1.656 billion (RM 6.9 billion) as of December 31, 2018.

Additionally, in January 2018, SSER signed a revolving credit facility (RCF) agreement worth RM 1.2 billion with CIMB Bank. The RCF, which carried an 18 month maturity and a 4.2% interest, was supposed to be repaid in full by July 2019.

However, SSER and CIMB Bank later discussed the possibility of SSER only having to make an RM 0.6 billion principal payment in 2019 with the remaining principal (RM 0.6 billion) being repaid in 2020.

The TSGP involves the construction of a 662 km gas pipeline from Kimanis Gas Terminal facilities to gas turbine power generation plants in Sandakan, Lahad Datu and Tawau.

The objective of the project is to install all required facilities such as pipeline, sub-transmission stations, remote control block valve stations and all other related equipment to transport 300 million standard cubic feet per day (MMscfd) of natural gas.

The MPP involves the construction of a 600 km multi-product petroleum pipeline connecting Melaka and Port Dickson to Jitra, Kedah. The ingresses are Melaka refinery, Port Dickson (HRC) refinery and Port Dickson (PETRON) refinery. The egresses are Sitiawan, Kulim and Jitra. The designed capacity of pipeline is up to 307,000 barrels a day (kbpd).

CPPE and Huanqiu Project Management (Beijing) Co Ltd (HQPMC) were the contractors responsible for implementation. The MPP and TSGP commenced in April 2017.

However, the Malaysian Government referred the projects to the country’s anti-corruption authorities when it learned that 88% of the value of the two EPCC contracts was paid by SSER despite the fact that the TSGP only achieved an 11.4% (unverified and unaudited) completion rate and the MPP only achieved a 14.5% (unverified and unaudited) completion rate.

It also terminated the two EPCC contracts with CPPE on September 6, 2018.

Then, on January 15, 2019, Bank Negara Malaysia (BNM) — the Malaysian central bank — issued two summons detailing 6 charges against SSER for failing to abide by Section 214 (2) and (5) of the Financial Services Act 2013. The 6 charges were: 1.

The disbursement of loan of 88% of project value was not in accordance with the progress of the MPP at 13% of work done, which remains unverified or unaudited. 2. The failure to ensure good and effective governance practice in the management and implementation of the MPP. 3. The failure to obtain BNM’s approval for changes in the project timeline of the MPP. 4.

The disbursement of loan was not in accordance with the progress of the TSGP. 5. The failure to ensure good and effective governance practice in the management and implementation of the TSGP. 6. The failure to obtain BNM’s approval for changes in the project timeline of the TSGP.

On April 5, 2019, the Sessions Court fined SSER RM 3 million for each offense committed for a total of RM 18 million penalty. SSER paid the fines. Then, in July 2019, the Malaysian government was reportedly negotiating to reclaim funds from CPPE.

Several months later, in September 2019, Datuk Amhari Efendi Nazaruddin, a special officer to former Prime Minister Najib Razak, testified before the country’s High Court, that Razak had sent him on a ‘secret mission’ to Beijing to seek a China Eximbank loan agreement for the MPP and TSGP but that the Prime Minister’s true intention was to use the proceeds from the China Eximbank to bail out the deeply-indebted 1MDB (state investment fund).

Then, in early October 2021, Malaysia's Finance Minister Tengku Zafrul revealed to parliament that the TSGP had been revived under Muhyiddin Yassin’s Perikatan Nasional (PN) government on February 10, 2021.

Since the controversial announcement of the TSGP’s resumption, multiple concerns regarding the project’s transparency and financial viability have resurfaced.

Pakatan Harapan’s leaders have demanded a thorough investigation by the Malaysian Anti-Corruption Commission regarding the project’s revival, emphasizing that they were 'extremely shocked' by Muhyiddin’s decision.

In November 2023, the Finance Minister revealed to parliament that on September 21, 2022, the Cabinet met to further discuss the viability of the projects.

The Cabinet agreed in principle that an additional agreement for the purpose of resuming the TSGP project needed to be signed between SSER and CPPB based on the terms and conditions agreed by both parties. The MPP project, on the other hand, would only be considered after further studies are carried out.

In addition, the decisions regarding the compensation plans should be made through joint negotiations between the governments of Malaysia and China. Record ID#62285 captures the portion (RMB 11,320,000,000) of the China Eximbank loan that was disbursed. Record ID#62286 captures the cancellation of the funding for the MPP and the TSGP (RMB 12,877,000,000).