Malaysia has taken back more than U.S. $243 million from a Chinese state company to cover the portion of gas pipeline projects that Kuala Lumpur had paid for but were never completed, Prime Minister Mahathir Mohamad said Monday.
He said Malaysia had paid about 80 percent of the cost of two pipelines, which were being built by China Petroleum Pipeline Engineering Ltd. (CPP), but only 13 percent had been completed when his government ordered construction suspended in July 2018 and subsequently cancelled them.
At the time, Mahathir, who had taken office about two months earlier after a huge electoral upset, said the action was necessary because his administration had inherited a debt of 1 trillion ringgit ($243.5 billion) from the previous government.
“The government is entitled to the money since the project was canceled. We want money for the parts not implemented,” he told a press conference in Malaysia’s administrative capital on Monday as he fielded questions about the two pipelines.
As prime minister, Mahathir said he was responsible for the government’s action but did not reveal details of the recovery of the money that had been held by CPP in a Malaysian bank account.
“They (CPP) entered into a contract to build these pipelines from the government. They took 80 percent of the contract price. For the part they have not delivered, the government is claiming that back,” Mahathir said.
The prime minister said the move should not create tension with China.
“The thing is that the contract was not carried out in full,” he said. “I don’t see why China would feel unhappy. I am taking back money for work they have not done.”
Mahathir was responding to questions from journalists about a news report that the government had taken back more than 1 billion ringgit ($243 million) held by CPP amid a dispute involving the pipeline projects, located in the western part of peninsular Malaysia and Sabah state.
Over the weekend, the Singapore Straits Times cited sources saying that the Malaysian government had ordered banking giant HSBC to transfer funds in CPP’s Malaysian account to a company owned by the Ministry of Finance, Suria Strategic Energy Resources Sdn Bhd (SSER).
CPP officials, who previously said they would negotiate for reasonable compensation over the cancelled projects, claimed they were not given any reason for the transfer, the Straits Times reported.
“CPP firmly abides with the laws of Malaysia and is perplexed by the unilateral transfer of money without notifying CPP,” it said, according to the Straits Times. “Once we have further information, CPP will take the necessary and appropriate action to protect its rights. We hope that our Malaysian counterparts can resolve this with us through amicable means.”
When Mahathir’s government officially cancelled the pipeline projects last August, it also halted the East Coast Rail Link (ECRL). That was another Chinese-backed infrastructure project, which was part of Beijing’s One Belt, One Road (OBOR) initiative, a geopolitical strategy to build a modern-day Silk Road through a network of ports, railways, roads and trade routes that would connect China to markets in Southeast Asia, South Asia and beyond.
In April 2019, Mahathir announced that the rail link was back on track after his government had renegotiated its price by persuading Beijing to reduce the cost to U.S. $11 billion from the $16 billion originally agreed to by his predecessor’s government.
Finance minister denies involvement
Earlier on Monday, Malaysian Finance Minister Lim Guan Eng said his ministry was not involved in taking the $243 million back from the Chinese engineering firm.
“I would just like to say that the ministry of finance and I, we did not issue any instructions of seizure. So if there is any instruction of seizure, you should refer to enforcement agencies. That is all I want to say,” he told reporters in the lobby of parliament.
In June 2018, Lim revealed that Malaysia had paid 8.3 billion ringgit ($2.02 billion) for the two projects valued at 9.4 billion ringgit ($2.29 billion) even though only 13 percent of the work had been finished. Eleven months later, government officials said they were negotiating with China-based contractors on the total compensation amount to be paid by Suria Strategic Energy Resources related to the cancellation of the projects.
In 2016, then-Prime Minister Najib Razak’s government awarded the contracts for a 600-km (372-mile) petroleum pipeline along the western part of peninsular Malaysia and a 662-km (411- mile) gas pipeline in Sabah, in Malaysian Borneo.
In July 2018, reports surfaced that Mahathir was investigating to determine if Najib’s government had used funds earmarked for the pipeline projects to pay off debt incurred by state fund 1Malaysia Development Berhad (1MDB).
1MDB, founded by Najib in 2009 to spur national investment, has been subject to lawsuits and criminal investigations around the globe after billions of dollars allegedly went missing from the fund. U.S. Justice Department officials have described the 1MDB case as “the worst kleptocracy scandal in recent times.”