PUTRAJAYA has paid RM630 million in interest so far to a Chinese bank for credit facilities taken to finance two gas pipeline projects during Barisan Nasional, which were later cancelled by the Pakatan Harapan government, said sources.

The interest payment to service an RM7.8 billion loan taken by Suria Strategic Energy Resources (SSER) from the Export-Import Bank of China (Exim Bank).

The Malaysian Insight understands that the government will fork out another RM675 million to service the loan.

SSER is a subsidiary of the Minister of Finance Inc, which was established by the Najib Razak administration in 2016 to carry out the project.

The two engineering, procurement, construction and commissioning (EPCC) contracts worth RM9.4 billion were put under “need-to-know basis” by the Najib administration until exposed by the PH government.

According to the Finance Ministry, 85% of the cost was meant to be financed through a ¥12.9 billion (RM7.8) loan from Exim Bank at an interest rate of 3.25% per annum.

Former finance minister Lim Guan Eng said the loan tenure was 20 years.

PH discovered that the contract contained lopsided terms, which will put the government at a loss.

Lim said the projects – labelled as red files – were hidden and could only be accessed by certain officials in the Finance Ministry.

The two projects were cancelled after the administration under Dr Mahathir Mohamad reviewed the contract terms.

PH also discovered that SSER paid RM8.25 billion, or 88% of the project cost of RM9.4 billion, to the contractor, China Petroleum Pipeline Engineering Company Ltd (CPPE) when work progress was only at 13%, as of March 2018, which is a year since the project was awarded on April 2017.

“For next year, the government will have to pay RM675 million in two tranches.

“The principal payment will be included in next year’s payment. As of (2020), only servicing the interest payment,” the source told The Malaysian Insight.

Of the RM675 million to be paid next year, RM240 million will be in interest while the principal payment will amount to RM435 million, the source said on condition of anonymity.

The contract stipulates that 85% of the project cost has to be paid on March 1, 2018.

“The payment schedule for the two contracts is based on a timeline milestone and not progressive work completion milestones,” Lim said while revealing details about the project in early 2018.

Formed in May 2016, SSER was chaired by then Treasury secretary-general Mohamed Irwan Serigar Abdullah. Irwan resigned in May 2018, two weeks after the 14th general election.

The revelation about the red files came about a month after PH unseated BN.

Najib denied Lim’s allegations that the project did not follow proper procedures.

The former prime minister said the two projects were linked to China’s commitment for imports amounting to US$2 trillion from Malaysia for a period of five years.

Lim dismissed Najib’s explanation, saying that there were no documents to support the claims.

Irwan inked the agreement without proper due diligence and legal advice from the government, Lim said.

The first project multi-product pipeline (MPP) entails the construction of a 600km petroleum pipeline between Jitra in Malacca and Port Dickson, valued at RM5.35 billion.

The trans-Sabah gas pipeline (TSGP), on the other hand, entails the construction of a 662km pipeline between the Kimanis gas terminal and Sandakan and Tawau, worth RM4.06 billion.

Lim also revealed that the MPP project did not secure the rights from Petronas to lay down pipes, as required by the law while the TSGP failed to get the land required for the project.

Following the cancellation of the projects, Dr Mahathir negotiated compensation to be paid by SSER to the Chinese contractor and the amount to be recouped.

SSER was fined RM18 billion in April 2019 for six offences of failing to comply with Bank Negara Malaysia’s conditions under the Financial Services Act 2013. – November 23, 2020.