MANY Sabahans were not aware of the Trans Sabah Gas Pipeline Project (TSGP) deal until it went viral. Minister Abdul Rahman Dahlan rubbished a message on social media alleging that prime minister Najib Razak had collateralised oil and gas blocks off Sabah to China for a loan of RM100 billion in the Trans-Sabah Gas Pipeline (TSGP) project.

Rahman clarified the project would be funded by a soft loan from the Exim Bank of China, and the loan amount was RM4.53 billion, not RM100 billion. China Petroleum Pipeline Bureau (CPP) will be the project’s engineering, procurement, construction and commissioning contractor for the 500km project.

TSGP is owned by Suria Strategic Energy Resources Sdn Bhd (SSER), a company wholly-owned by the Ministry of Finance. The government has guaranteed a RM4.53 billion loan to fund the entire cost of the project. There is no mention of Petronas’ involvement in this project, although Petronas has a monopoly over gas distribution and pricing in Malaysia.

Rahman said as land matters were strictly under state jurisdiction, the project would not be able to proceed without the engagement and cooperation between Sabah and the federal government.

The idea of building a gas pipeline across Sabah from Petronas SOGT in Kimanis to Lahad Datu is nothing new. It traces back to 2011 when Sabah Environmental Protection Association (SEPA) head Wong Tack led a successful campaign against the government to shelve the proposed 300MW coal fired plant in Lahad Datu.

Since then the government have been seeking alternatives to deliver power in the east coast to replace the ageing power plants. One of the alternatives is to build a gas fired 300MW powerplant. For that to happen, you need gas supply. After several studies, the solution was to build a regassification plant (RGT) to receive the gas feedstock. Petronas and the state GLC Sabah Energy were partners in the project.

In February 2016, Petronas and Sabah Energy announced that they have terminated the previously announced proposal to construct a RM1 billion liquefied natural gas (LNG) terminal due to uncertainty and security concerns from the Suluk invasion of Lahad Datu in 2013. The facilities were scheduled to be completed in 2015 and were meant to supply gas to an adjacent 300MW combined cycle power plant in Lahad Datu as their first customer.

In a related October 2016 filing with Bursa Malaysia, Ranhill announced that it had received a letter from the Energy Commission (EC) notifying it about the government’s approval for the proposed development of a 300MW combined-cycle gas-turbine power plant by a consortium of private companies.

“The consortium is instructed to commence negotiations with Petroliam Nasional Bhd (Petronas) and the company identified by the Government of Malaysia to develop the Trans-Sabah Gas Pipeline, to ascertain the terms and conditions of the gas supply required for the project,” Ranhill said.

“A letter of award will be issued by the EC after the terms of the gas supply agreement are determined,” it added.

There is no mention about Ranhill private equity partners. We hope that a state GLC is involved. In the case of Kimanis Power, Petronas-Yayasan Sabah JV, the state has 40% equity, giving good returns to Sabah foundation to continue giving scholarship, loans and carry out social programmes in the state. There is also no mention of the land acquisition costs and whether the state will sell the pipeline right of way (ROW) at current market price or at a concessional rate.

The key success factors for the project is whether the gas pricing agreement (GSA) can be settled quickly between Petronas and Ranhill, and what are the throughput charges to be paid to SSER for using the TSGP.

The power purchase agreement (PPA) agreement has also evolved over the years and it’s very different from the first generation of PPA. It’s no longer lucrative for new power players, having to contend with IRR of 9% or less.  Gas pricing, land acquisition costs, throughput fees, and EPCC challenges are the many hurdles to overcome for the project to be successful.

The economics to build a 500km gas pipeline to supply a single power plant in Lahad Datu is different from the supply of gas through SSGP to feed the nine LNG trains in Bintulu.

Another critical issue is whether the Environmental Impact Assessment (EIA) has been carried out. There is no information on the EIA and whether the public and people affected have been invited to give their feedback. The public is entitled to access the EIA report, if any. Looking at the map of Sabah, the pipeline route is likely to traverse the most sensitive part of the oldest tropical rainforest in the world, conservation areas and wildlife corridors.

Like the Lahad Datu coal fired power plant and the proposed Sukau bridge project, it has attracted world attention. Sabah’s conservation reputation and tourism industry will be at stake.

The TSGP project is an ambitious project. From the SSGP experience, it’s not going to be easy. The 520km 4.6 billion SSGP project from Kimanis to Bintulu had to deal with so many land compensation issues causing delay, Penans roadblocks, hundreds of river crossings, rock formations, steep elevations requiring helicopters to lift pipes, environmental issues and other challenges numerous to mention.

The SSGP project which started in 2008 was supposed to be completed after 36 months. It was only completed in 2014 due to delays and cost overruns. It is good to note that the TSGP project risk is taken up by the Federal government by way of guarantees. If the completion date is 36 months from now, the east coast will not see a new power plant until 2020 or beyond.

The cost benefit analysis of the TSGP project needs to be robust as there are no other industries at the receiving end now except for the POIC cluster and an overdue power plant. It takes time to develop an industrial cluster like KKIP or SOGIP. – November 16, 2017.

* Joe Samad has wide experience working for international companies and government GLC. He is interested in new technology applications in a shared economy and issues affecting the nation,  sharing his worldview across various media platforms.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.