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Malaysia to probe Najib government's $2-billion payments to Chinese pipeline firm

KUALA LUMPUR (Reuters) - Malaysia’s finance minister announced plans on Tuesday to report to the anti-graft agency upfront payments of billions of ringgit the previous administration made to a Chinese firm for two pipeline projects that have barely begun.

Malaysia's former prime minister Najib Razak arrives to give a statement to the Malaysian Anti-Corruption Commission (MACC) in Putrajaya, Malaysia May 24, 2018. REUTERS/Lai Seng Sin

Since taking office two weeks ago, Lim Guan Eng has been driving a campaign to expose financial scandals in the administration of former Prime Minister Najib Razak, unseated in a stunning election defeat last month.

Lim said Najib’s government had paid 8.25 billion ringgit ($2 billion) or 88 percent of the total value of two pipeline projects awarded to China Petroleum Pipeline Bureau (CCPB), although they are less than 15 percent complete.

“We have discovered that the payment schedules for the above contracts are based almost entirely on timeline milestones, and not on progressive work completion milestones,” Lim said in a statement.

In November 2016, CCPB won the contracts to build a 600-km (373-mile) petroleum pipeline along the west coast of peninsular Malaysia, and the 662-km (411-mile) Trans-Sabah Gas Pipeline in eastern Sabah state.

Lim said the contracts were negotiated directly by Najib’s office, and the former prime minister had ignored red flags raised by the attorney-general’s office on both deals.

In March 2017, the finance ministry raised 85 percent of the project funding from China EXIM Bank through a wholly-owned subsidiary, Suria Strategic Energy Resources (SSER). The rest was raised by issuing sukuk, or sharia-compliant bonds.

“Both the China EXIM Bank borrowings and the sukuk are secured with federal government guarantees,” Lim added.

In a statement posted on his Facebook page, Najib said the negotiations and execution of the two projects complied with the necessary procedures and laws.

The ex-premier said he welcomed an inquiry into the projects, but cautioned Lim against making “serious, politically motivated public allegations” that could negatively affect Malaysia’s foreign relations and international trade.

Telephone calls from Reuters to CCPB’s office numbers listed on its website were not answered.

Lim said he had ordered a report filed with the anti-graft agency, and the ministry would consider seeking China’s help to decide if moneylaundering figured in either deal.

Najib and his family were dogged during the last three years of his near-decade-long rule by a scandal over billions of dollars allegedly siphoned from state fund 1Malaysia Development Berhad (1MDB), and it became a key reason for his May 9 election defeat.

1MDB is also the subject of money-laundering investigations in at least six countries, including the United States, Switzerland and Singapore.

Najib has denied any wrongdoing.

Last week, Lim said Malaysia would have to pay debts of about 50 billion ringgit racked up by 1MDB.

Reporting by Joseph Sipalan and Liz Lee; Editing by Clarence Fernandez/Mark Heinrich