(EnergyAsia, April 30, Monday) — Questions have begun emerging over the feasibility of a proposal by politically connected private businessmen to undertake an ambitious RM50 billion project that includes the construction of a large pipeline, two oil refineries and storage tanks in Malaysia.


The project, which does not have the backing of state energy giant Petronas, will include an oil pipeline to be built across peninsular Malaysia, allowing crude tankers to bypass the busy Straits of Malacca. There will be a refinery at each end of the 312-km pipeline in the states of Kedah and Kelantan, and storage tanks to hold the crude and oil products.


Tankers will offload crude from the Middle East in Kedah’s coastal town of Yan, and send it across the pipeline to Kelantan’s Bachok facing the South China Sea.


Deputy Premier Najib Razak, who announced the project, said it would reduce the region’s dependence on the increasingly congested Straits of Malacca, through which more than 90% of North Asia’s oil is delivered.


Mr Najib Razak heads a national committee whose ‘high-intensity’ investment projects includes Prime Minister Abdullah Badawi’s vision of a ‘northern corridor economic region’ comprising the northern states of Kedah, Perak and Kelantan.


The key players would include a joint venture formed by the National Iranian Oil Co (NIOC) and SKS Development, which is a private company controlled by Malaysian tycoon Syed Mokhtar Al-Bukhary. The other parties include construction firms, United Engineers Malaysia (UEM) and Merapoh Resources Corp, and Trans-Peninsula Petroleum.


UEM is a listed company controlled by a state-owned investment agency while TPP is a private company owned by former executives of Petronas. Both are interested to build the pipelines, while SKS and Merapoh Resources will lead in building the 200,000 b/d refinery in Kedah valued at RM7.7-billion.


The project’s supporters expect foreigners to provide 70% of the RM50 billion needed to implement the project. (US$1=RM3.42). They claim that construction of the Kedah refinery could start as early as August, with a completion deadline of end-2010.


Kedah officials said Chinese interests are ‘very keen’ to participate due to concerns over energy security. The others investors would be from the Middle East, including Saudi Arabia.


The full version of this story is available in the May issue of EnergyAsia Report.