Govt to negotiate compensation on cancelled pipeline projects with China firms

The cancelled pipeline projects are the Trans-Sabah Gas Pipeline and the Multi-Product Pipeline. (Bernama pic)

PETALING JAYA: The government is negotiating with China-based contractors on the total compensation to be paid to them following the cancellation of the RM9.4 billion pipeline projects.

China Petroleum Pipeline Engineering Co Ltd (CPPE) and Huanqiu Project Management (Beijing) Co Ltd (HQPMC) were paid RM8.3 billion, or 88% of the engineering, procurement, construction and commissioning (EPCC) contract value, despite only 13% of the work purportedly done.

The two projects are the Multi-Product Pipeline (MPP) in the peninsula and the Trans-Sabah Gas Pipeline (TSGP).

The payment was made by Suria Strategic Energy Resources Sdn Bhd (SSER), a subsidiary of the finance ministry, from borrowings guaranteed by the government.

Finance Minister Lim Guan Eng said the negotiation will also determine the sum that should be returned to SSER by the contractors after deducting total compensation cost from the total payment made.

“The Attorney-General’s Chambers (AGC) is heading the negotiation on behalf of the government and will be recommending to the government the next steps to take,” he said in a statement today.

Lim said the purported 13% of work done remains unaudited and unverified.

Earlier reports said MPP would have involved 600km of pipeline of various petrochemical projects from Melaka and Port Dickson in Negeri Sembilan to Jitra in Kedah at a cost of about RM5.35 billion.

TSGP would have involved the construction of 662km of pipeline from Kimanis Gas Terminal to Sandakan and Tawau in Sabah at a cost of about RM4.04 billion.

Lim said the projects would have been “extremely lucrative” for the contractors because payments were made based on timeline progress regardless of work progress done, if any.

He said the terms of the contracts, which were approved by former prime minister Najib Razak, were the “most generous in the world” where payments were made without having to do the corresponding work.

“The RM9.4 billion EPCC contracts for the pipeline projects and other associated contracts have been terminated.

“Together, the contracts were valued at RM10.4 billion,” he said.

On April 5, the Sessions Court in Kuala Lumpur fined SSER RM18 million for failing to comply with Bank Negara Malaysia conditions in relation to its bank borrowings.

SSER, which was fined RM3 million on each of the six charges, paid the penalty.