Local Skepticism Grows Surrounding Chinese Pipeline Project in Malaysia

On November 9, 2017, the Malaysian government sought actively to refute claims made on social media that it had collateralized offshore oil and gas blocks in its northern Sabah fields in return for a $23.9 billion (RM100 billion) soft loan from China’s Export-Import Bank to construct the Trans Sabah Pipeline.  The government pointed out that the cost of the pipeline (and the Chinese loan) is only $1.08 billion (RM4.53 billion).  Despite the government’s immediate response to these online rumors, questions regarding Chinese involvement in the project continue to circulate in local media.

The Trans Sabah Pipeline aims to connect refineries in Malaysia’s Melaka province to the country’s energy-starved northern state of Sabah, where it is intended to meet the 30-year market demand for the strategically located northern peninsula (located between the South China Sea and Sulu Sea).  An engineering, procurement, and construction contract for the pipeline was awarded to China Petroleum Pipeline Engineering Co. (an engineering arm of China National Petroleum Corporation) on May 15, 2017.  CPP was awarded the contract by Suria Strategic Energy Resources Sdn Bhd, a special purpose entity set up and wholly-owned by Malaysia’s Ministry of Finance, established to see the project through.

Despite the government’s immediate denial of allegations accusing it of collateralizing key assets for a Chinese loan, Malaysia’s opposition, the Democratic Action Party (DAP), raised several questions regarding the implementation of the project, specifically pertaining to China’s role in this process.  DAP politician, Chan Foong Hin (who represents Sabah State) was particularly vocal in an opinion piece written in one of the country’s largest English-language newspapers, Borneo Today, where he cited concerns about the lack of a proper feasibility study for the project.  Other similar initiatives in this price range conducted studies prior to implementation.  Chan also argued against the lack of transparency surrounding the terms and conditions of the soft loan issued by the Export-Import Bank of China.  He pointed out that terms of the loan, including interest rate and repayment period, remain undisclosed.  He raises the unanswered question as to whether the burden of repayment will eventually fall on energy consumers in the state of Sabah, who have had no direct negotiating power in this deal.  The land acquisition processes (and consequent implications) for the 500-km pipeline also remain ambiguous.  These ambiguities and overall suspicions of the deal may have played a role in the online speculation and fanning of fear that emerged concerning possibly undisclosed concessions granted to Beijing.

Local politicians and the public have been increasingly wary of Kuala Lumpur’s dealings with Chinese companies since the bailout of 1MDB and subsequent investments in the country, such as the “Bandar Malaysia” development project that was ultimately withdrawn from the Chinese firms awarded the contract.