Time-scale payments unheard of in construction sector: Experts
PETALING JAYA: The lopsided terms in two gas piping projects worth RM9.4 billion, which raised eyebrows in the market, have never been seen in the corporate financing scene in Malaysia, industry players say.
"I've never heard of a project that was funded according to time scale. That's highly abnormal," Proactive Consultancy Sdn Bhd consultant director Lee Keat Hin told SunBiz.
He said payments should only be made if the construction progress is able to meet the payment schedule.
"Why would the bank pay the contractor over 80% of contract value where only 13% work is done? Normally the banks will come and see the infrastructure projects, they have to make sure the work is done before they pay.
"Why would laying these pipes be so different from other similar projects? Can you imagine what will happen if the projects are abandoned after payments are made?" he asked.
The two projects are the 600km Multi-Product Pipeline (MPP) which connects Malacca and Port Dickson to Jitra, Kedah, and costs RM5.35 billion; and the 662km Trans-Sabah Gas Pipeline (TSGP) that runs from Kimanis Gas Terminal to Sandakan and Tawau, and costs about RM4.06 billion. Both projects are slated for completion in 2020.
A corporate finance head with a local bank, who declined to be named, concurred, saying the terms for the two deals are not within the norm.
"It's very exceptional, I'm also very curious as to how they can pay such a huge sum of money when the completion rate is so low. It's a red flag to me.
"The status of the progress needs to be certified by architects, so all these need to be in place for check-and-balance purposes before any money is drawn down," he opined.
The experts said even payments for other big-scale infrastructure projects such as the Mass Rapid Transit and the Light Rail Transit are made according to construction progress, which should not be exceptionally practised.
The one-sided payment terms for the MPP and the TSGP projects surfaced after Finance Minister Lim Guan Eng revealed contents of "red files" which were protected by the Official Secrets Act. The agreements were signed under the previous government and awarded to China Petroleum Pipeline Bureau back in November 2016.
Some 88% of the contract value or RM8.25 billion was paid out despite only 13% of construction progress after work started in April 2017.
Former prime minister Datuk Seri Najib Abdul Razak, in response to the matter, said the projects were negotiated on a government-to-government basis but did not explain why such terms were made.
The Ministry of Finance (MoF) did not rule out the possibility of money-laundering activity, citing the connection between Suria Strategic Energy Resources (SSER), the MoF unit undertaking the two pipeline projects, with SRC International Bhd, which was a unit of debt-ridden 1Malaysia Development Bhd (1MDB).
Lim and Malaysia Anti-Corruption Commission officers will make a visit to China to uncover the truth behind the abnormal payment method as well as to trace the funds that flowed into China.
MoF also highlighted that SSER president Datuk Mohammed Azhar Osman Khairuddin is a director of Putrajaya Perdana Sdn Bhd, a company linked directly with Low Taek Jho, or better known as Jho Low, who has been summoned to assist in the 1MDB investigation.