Malaysian pipeline developer in stake sale talks

Soraya Permatasari
Bloomberg News
27 Jun 07 [21 Jun 07]

Trans-Peninsula Petroleum, the developer of a $7 billion pipeline across Malaysia, is in talks to sell some of the venture to Middle Eastern oil producers to help them bypass one of the world’s busiest trade routes.

Overseas oil companies, which will be the pipeline’s biggest users, may own 70 percent, Syed Izhar, the deputy chairman of Trans-Peninsula, said by telephone in Kuala Lumpur. The company is talking to three to four Middle Eastern investors, he said, declining to identify them.

“We’re finalizing talks now” and an agreement may be reached in August, Syed Izhar said. “We’re not just talking about the pipeline, we’re also talking about storage.”

Investments by oil producers may help ensure the profitability of the 300-kilometer, or 186-mile, pipeline across northern Malaysia, providing Saudi Aramco and Kuwait Petroleum a shorter route to East Asia than through the Malacca Strait. The strait is the fourth-most prone to piracy, with 11 incidents including attacks against oil tankers recorded last year, according to the International Maritime Bureau.

“The success of the pipeline would depend greatly on who is the paymaster for this project, who are the buyers and the sellers,” said Wan Azhar Mustapha, an analyst at OSK Securities in Kuala Lumpur.

A plan by neighboring Thailand to build a $719 million pipeline near the island of Phuket has yet to materialize, more than seven years after it was first proposed.

Ranhill, the builder of the pipeline, may want to buy a minority stake, its executive director, Chandrasekar Suppiah, said in Kuala Lumpur on Monday.

The Malacca Strait is a narrow stretch of water between Malaysia and the Indonesian island of Sumatra. About 40 percent of global trade passes through the waterway. Most crude oil from the Middle East to Asia is shipped through this route. Ships using the passage carry half the world’s oil supplies.

The Malaysian prime minister, Abdullah Ahmad Badawi, approved the project last month, saying that it will help boost the economies of the states the proposed pipeline will run through. Trans-Peninsula, owned by two former officials of the state oil company Petroliam Nasional, was appointed the project’s promoter and developer.

The pipeline would have to traverse the Main Range, peninsular Malaysia’s most prominent set of mountains, running from the south toward Thailand. Syed Izhar said the state government of Kedah, on the west coast, has approved the project and may start relocating about 40 houses in August.

The first of three pipes, valued at about $2.3 billion, will be ready in 2011 and the project is due to be completed in 2014, Trans-Peninsula and Ranhill said last month. The pipeline, which will join Yan in Kedah to Bachok in Kelantan, will initially be able to transport two million barrels of oil a day.

Offshore mooring facilities will be built at both ends of the pipeline to accommodate very large crude carriers.

Building storage facilities will account for about 60 percent of the project’s cost, Syed Izhar said. The first storage facility, to be built in Kelantan on Malaysia’s east coast, will have the capacity of storing 60 million barrels.

The pipeline will cut the number of tankers passing through the Strait of Malacca and reduce cost by shortening travel time, The Business Times reported on Monday. The cost to transport oil may fall by $1.50 a barrel, Nazery Khalid, a researcher at the Maritime Institute of Malaysia, was cited as saying.

“Demand for an alternative shorter route does make sense,” according to a May 30 report by OSK Research. The pipeline will save three days compared with transporting oil through the 960-kilometer Malacca Strait, the report said.

Not everyone is convinced.

Opposition leader Lim Kit Siang from the Democratic Action Party wants the government to “freeze” the project.

“The project lacks transparency,” Lim said in a telephone interview in Kuala Lumpur and he questioned its approval without a feasibility and impact study.

Lim also questioned the capability of Trans-Peninsula, with a paid-up capital of 150,000 ringgit, or $43,500, to undertake the project. Syed Izhar said that Trans-Peninsula does not intend to own the project and may end up with “only 1 or 2 percent” stake.

The project needs “considerable more time to take off in view of the time consuming issues like land acquisition, environmental impact assessment and off-take agreements, to name a few,” Wan Azhar said.

Trans-Peninsula has said that it does not plan to build any refineries, though it is willing to supply crude to refiners. A separate project, which may cost an estimated $3.5 billion, is being proposed to develop a refinery in Kedah, according to an April 16 report in The Edge, a business weekly.

SKS Ventures, owned by the Malaysian billionaire Syed Mokhtar al-Bukhary, will build the refinery, Syed Izhar said.

“The promoters have, in principle, the right equity partners,” Ranhill’s Chandrasekar said, declining to name the potential investors. About 10 million barrels of oil, or 12 percent of the world’s daily output, pass through the Malacca Strait each day, according to the International Energy Agency.

“Until the ambitious pipeline project manages to rope in a significant stake holder and a financier, there will be a big question mark over the feasibility of the project,” Norziana Mohd Inon, an analyst at CIMB Investment Bank, wrote in a June 15 report about the Malaysian project

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