Malaysia’s new government has highlighted a possible China connection in the 1MDB scandal, linking the problems at the graft-tainted state investment fund to two Beijing-backed pipeline projects that cost more than $1bn apiece.

Lim Guan Eng, Malaysia’s finance minister, said on Tuesday that the country’s previous government had agreed to make payments for the Chinese-built oil and gas pipelines “based almost entirely” on calendar dates rather than the projects’ progress.

Work on the three-year projects began in April 2017, but 12 months later only an average of 13 per cent of the construction had been completed, according to a government statement released on Tuesday.

However, almost 90 per cent of the projects’ value had been paid to the state-owned China Petroleum Pipeline Bureau, which won the mandate for both pipelines.

“We are strongly suspicious this is all part of the 1MDB scam,” Mr Lim said at a press conference.

“The attorney-general’s chambers have also confirmed that these contracts were signed despite numerous unanswered questions and red flags raised,” he added in a statement.

“The problem of course lies with the local treasury officials and the leaders who approved and signed not only the contract but also the payments [for the projects].” Mr Lim said.

The finance ministry has filed a report with the country’s Anti-Corruption Commission and said it might seek Beijing’s help to trace Malaysia’s payments. Recommended World Mahathir steps up action over Malaysia’s 1MDB fund Mr Lim’s announcement comes as the government continues an extensive investigation into the 1MDB scandal.

The probe was launched by prime minister Mahathir Mohamad, who in elections last month ousted Najib Razak, the former premier who set up the investment fund. Mr Mahathir has banned Mr Najib from leaving the country while police have searched properties used by the Najib family and confiscated a vast array of luxury goods and cash.

About $4.5bn is alleged to have gone missing from 1MDB. Mr Najib has always denied any wrongdoing. Malaysia’s new government is also putting relations with China under the spotlight, with Mr Mahathir vowing to review all Chinese projects and any “unequal treaties” — a contrast with his predecessor, who promised to fast-track more than $30bn of Chinese port, rail and other infrastructure projects.

The two projects at the centre of the latest scrutiny are a Rm5.35bn ($1.34bn) oil pipeline connecting the south-western towns of Malacca and Port Dickson to Jitra in northern Malaysia, and a Rm4.06bn gas pipeline in the island of Borneo, linking the Kimanis Gas Terminal to the cities of Sandakan and Tawau.

Malaysia secured 85 per cent of the projects’ value in funding from the Export-Import Bank of China, and has been planning a sukuk bond to cover the balance. Both projects were awarded to China Petroleum Pipeline Bureau.

Neither institution responded to requests for comment. The pipelines were overseen by Suria Strategic Energy Resources, a body run by Malaysia’s finance ministry and set up in 2016, when Mr Najib was in office.

Suria’s president, Mohammed Azhar bin Osman Khairuddin, is a director of Putrajaya Perdana, a construction and property development company that, according to the finance ministry, has ties to Low Taek Jho, a Malaysian financier and socialite who allegedly helped set up 1MDB.

Mr Low, who is better known as Jho Low, has said he was never an adviser to 1MDB and denied wrongdoing. Mr Khairuddin could not be reached for comment.

Responding to questions on whether the pipeline construction would continue, Mr Lim said: “We want them to do as much as they can. The problem is what if they stop work on their own? I think this is not in our interest.”

The Malaysian government is rethinking other infrastructure spending in an effort to slash public expenditure. Mr Mahathir has announced he will cancel a multibillion-dollar megaproject to build a high-speed rail network linking Kuala Lumpur and Singapore — one of Mr Razak’s flagship ventures.

Malaysia’s new government is reassessing another Chinese infrastructure project: the $14bn East Coast Rail Link connecting the country’s less-developed east coast to southern Thailand and the capital, Kuala Lumpur.

The governing coalition has labelled it as one of the most questionable projects in terms of value for money and benefits for the Malaysian people.

By Stefania Palma in Hong Kong
FT

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