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Malaysia in transition

Malaysia scrutinizes more China-funded infrastructure projects

A fraction of the work has been done but 90% of the budgets are gone

Malaysia's former Prime Minister Najib Razak and Chinese President Xi Jinping meet at the start of the Belt and Road Forum in Beijing, China, in May 2017.   © Reuters

KUALA LUMPUR -- Malaysia's Ministry of Finance is scrutinizing two gas pipeline projects worth 9.4 billion ringgit ($2.36 billion) after discovering there have been more payments made than work done.

One project is a 600km multiproduct petroleum pipeline connecting Melaka to Jitra for which the government has set aside 5.35 billion ringgit. The other is a 662km gas pipeline in Sabah with a budget of 4.06 billion ringgit. Contracts for both were awarded in November 2016 to China Petroleum Pipeline Bureau, a unit of state-owned China National Petroleum Corporation.

Minister of Finance Lim Guan Eng on Tuesday issued a statement saying his ministry was "shocked" to learn that 88% of the money has been paid out despite only 13% of the work being completed.

The projects were sealed by Suria Strategic Energy Resources, a wholly owned Ministry of Finance subsidiary that received 85% of the projects' financing from the Export-Import Bank of China.

Lim said that if necessary Malaysia will seek Beijing's assistance in tracing the flow of funds in China and that money laundering is suspected.

It is the norm for the government to pay off contracts based on work completed, not on a timeline. The two projects under scrutiny appear to be paying out funds based on a timeline. Work commenced in April 2017 and was expected to be completed in three years' time.

Further, treasury officials were kept in the dark as the contracts were negotiated by the Prime Minister's Department, then signed by the treasury head, who has since resigned.

Lim said Suria Strategic Energy Resources is run by the same people behind SRC International, a unit of the troubled state fund 1Malaysia Development Berhad. Malaysian investigators are probing the financial holdings of former Prime Minister Najib Razak and his wife, Rosmah Mansor, regarding funds missing from SRC International.

The latest revelations come days after the ministry pointed out that some funds provided by the same Chinese bank for the 688km East Coast Rail Link have apparently gone missing.

These announcements appear to come from the "red files" -- information and accounts that senior treasury officials including the auditor general were not privy to during Najib's time, as explained by Lim during his first day in the job on May 22.

The new government under new Prime Minister Mahathir Mohamad has made recovering market confidence its utmost priority, following the multibillion-dollar financial scandal at 1MDB that has tarnished Malaysia's reputation as one of the most liberalized economies in Southeast Asia. The government has opened up its books, revealing total debts and liabilities amounting to 1.087 trillion ringgit as of the end of 2017.

Via regular press briefings, the government has promised to go after corrupt officials, as it renegotiates contracts deemed not in the country's interests. It has also said that all contracts would be open to tender, unlike the previous administration's practice of negotiating with a select few, which raised the potential for graft.

"This government must deliver," Daim Zainuddin, one of Mahathir's trusted advisers, said in an interview recently.

Meanwhile, central bank governor Muhammad Ibrahim has offered to resign, according to Bloomberg. The finance minister said recently that funds from the central bank were used to service debt obligations of 1MDB.

The bank paid 2.06 billion ringgit to the finance ministry in 2017 for a plot of government land valued at the market price, a rare transaction between government bodies. Appointed on a five-year term in May 2016, career central banker Muhammad took over when predecessor Zeti Aziz retired.

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