Trans-Sabah Gas Pipeline

The project owner of the TSGP is Suria Strategic Energy Resources (SSER), which is wholly owned by Malaysia’s Ministry of Finance. Established in 2016, the company was set up to oversee both the MPP and the TSGP projects. The Ministry of Finance took over the management of SSER in June, 2018, appointing a new chairman and executive committee in the wake of the revelation of the Ministry’s “red files”, which linked the MPP and TSGP projects to the 1MDB-linked scandal, scandals surrounding the MPP and TSGP projects. In January 2019, Bank Negara Malaysia (BNM) issued summons against SSER for the infringement of BNM conditions, and the company was fined a total of RM18 million ($4.3 million).

China Petroleum Pipeline Engineering Corporation (CPPE), a subsidiary of China National Petroleum Corporation (CNPC), led the project’s engineering, procurement, construction, and commissioning (EPCC) of the project. CPPE is a Chinese state-owned enterprise headquartered in Hebei, China, and has built a number of major pipeline projects, including the West-East Gas Pipeline, the TransAsia Gas Pipeline, the Shaanxi-Beijing Gas Pipeline and the Myanmar-China Pipeline.

Advance Payments to its Chinese Contractor

In a 2019 Ministry of Finance press statement, Finance Minister Lim Guan Eng stated that even though SSER had already paid out RM8.3 billion (USD $1.98 billion) to the contractors—representing 88% percent of TSGP’s total project cost—there was no significant development on the ground, with only 11.4% percent of land clearing completed. The request for a site visit to check on the progress of the pipeline was initially denied by the contractors; later, it was discovered that there was no progress on the pipes. Lim criticized the agreement and opined that payments based on a timeline’s progress rather than on work progress was illogical.

Infringement of BNM Conditions

In January, 2019, Bank Negara Malaysia (BNM) issued summons against SSER for the infringement of BNM conditions related to governance of the project. Six charges were issued under the failure to adhere to Section 214 (2) and (5) of the Financial Services Act 2013.

Connections to 1MDB Corruption Scandal

After Pakatan Harapn came into power in 2018, both gas pipeline projects under SSER—along with the ECRL project—were allegedly linked to money-laundering by the Najib administration to pay off 1MDB-related debts through the offering of lucrative contracts. A media statement by the Ministry of Finance in 2018 noted the possibility of 1MDB involvement and identified transparency issues related to corruption and mismanagement, including that the terms and details of these projects were never publicly revealed during Najib’s administration.

Lack of Feasibility Study and Environmental Impact Assessment (EIA)

The Democratic Action Party (DAP), one of Malaysia’s political parties, flagged the absence of a feasibility study for the TSGP. The party’s Secretary insisted on a feasibility study for the project and questioned the necessity of a loan with China instead of using private finance initiative options (PFI) or involving Malaysia’s state-owned oil and gas company PETRONAS. Without the publication of an EIA, or the knowledge that a proper assessment was conducted at all, it is difficult to gauge whether the project planners were aware of the TSGP’s feasibility issues and its potential for costly environmental mistakes that would later require modifications and legislative interventions. The TSGP also does not appear to have followed legally required processes for land acquisition from the state government of Sabah.

Transparency Gaps

Major information about the project is not available, including: its total cost, whether a feasibility study and EIA were conducted, whether land acquisition rules were complied with, and the terms of the loan taken out to fund this project.