Malaysia has suspended three China-backed rail and pipeline projects worth about $22 billion because of excessive costs and is investigating whether part of a loan from a Chinese state-owned bank was used to benefit 1Malaysia Development Bhd., the scandal-hit state investment fund, the Financial Times reported.
Letters instructing the suspension of the East Coast Rail Link and two pipeline projects, worth more than $1 billion each, have been sent to their respective contractors, state-owned China Communications Construction Co. Ltd. and China Petroleum Pipeline Bureau, a senior finance ministry official told the FT.
CCCC said the letter did not indicate the suspension's duration and expressed concern about incurring extra costs and its 2,250 local staff, while CPPB declined to comment, the newspaper reported. CPPB is the pipeline arm of China National Petroleum Corp.
The pipeline projects are also reported to have direct links to 1MDB, from which an alleged $4.5 billion has been siphoned. The finance ministry suspects that part of the funds from Export-Import Bank of China that was secured by Suria Strategic Energy Resources, which oversees the pipeline projects, was misused to buy 1MDB-owned land to help repay the fund's debts, two sources familiar with the transaction told the newspaper.
"I don't confirm this because we don't have the money trail, but we suspect. The money trail is in renminbi, through the Chinese banking system," the FT quoted the senior finance ministry official as saying. China EximBank did not respond to the FT's requests for comment.
The Malaysian government is trying to reclaim at least about $754 million paid to CPPB for work that has not been completed, the official said, adding that the pipeline projects would likely be cancelled.
For the railway projects, Finance Minister Lim Guan Eng said a "drastic" cost reduction would be needed before Malaysia proceeds. The finance ministry computed the true cost of the project at $20 billion, $3.5 billion higher than the previous government's estimates, the FT reported.
In June, Prime Minister Mahathir Mohamad said Kuala Lumpur will review big-ticket infrastructure projects involving Chinese contractors. Mahathir, who took power in May, also resumed investigation on 1MDB that led to the arrest and filing of corruption charges against former Malaysian leader Najib Razak.