Malaysian oil pipeline developer plans stake sale

Jun 21, 2007 02:00 AM

Trans-Peninsula Petroleum, the developer of a $ 7 bn 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 shipping routes.
Overseas oil companies will be the pipeline's biggest users and may own 70 % of the company, said Syed Izhar, deputy chairman of Trans-Peninsula. The company, in talks with as many as four Middle Eastern investors, needs to secure funding and overcome political opposition to complete the project.

“We're finalizing talks now” and may get an agreement in August, he said. “We're not just talking about the pipeline, we're also talking about storage.”
The 300-km (186-mile) pipeline would save companies such as Saudi Aramco three days in transport time to China, the world's second-biggest oil user, and avoid the piracy-prone Malacca Straits where tankers were among 11 ships attacked last year. Neighbouring Thailand's plan to build a pipeline has yet to materialize, more than seven years after it was first proposed.

“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.
The Malacca Strait is a narrow stretch of water between Malaysia and the Indonesian island of Sumatra. About 40 % of global trade passes through the waterway. Most crude oil from the Middle East to Asia is shipped through this route.

Economic boost
Ranhill, the builder of the pipeline, may want to buy a minority stake, its Executive Director Chandrasekar Suppiah said in Kuala Lumpur on June 18.
Malaysian Prime Minister Abdullah Ahmad Badawi approved the project in May. 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.

East coast
The first of three pipes, valued at about $ 2.3 bn, will be ready in 2011 and the project is due to be completed in 2014, Trans-Peninsula and Ranhill said in May. The pipeline, which will join Yan in Kedah to Bachok in Kelantan, will initially be able to transport 2 mm 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 % 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 mm barrels.

“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-km Malacca Strait, the report said.
Companies could save 69 cents a barrel, or $ 1.38 mm a day, compared with shipping crude oil on Asian routes from the Persian Gulf on an Aframax tanker, according to OSK Research. So-called Aframax tankers carry about 600,000 barrels of oil.

It lacks transparency
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. “How can they approve the project” without conducting a study to determine its “feasibility, its viability and its impact on the environment”?

Lim also questioned the capability of Trans-Peninsula, with a paid-up capital of ringgit 150,000 ($ 43,500), to undertake the project. Syed Izhar said Trans-Peninsula doesn't intend to own the project and may end up with “only 1 or 2 %” 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.

Oil refinery
Trans-Peninsula has said it doesn't plan to build any refineries, though it is willing to supply crude to refiners. A separate project, which may cost an estimated $ 3.5 bn, is being proposed to develop a refinery in Kedah, according to an April 16 report. SKS Ventures, owned by 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 mm barrels of oil, or 12 % 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. Pipe coater Wah Seong and contractors and fabricators such as Dialog Group and Kencana Petroleum may benefit from the project, according to the CIMB report.

Source: Bernama
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