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BC's Gas Export Hopes Face 'Scandal that Ate Malaysia'

Asian nation's PM, key to $36 billion LNG bid by Petronas, in corruption probe.

By Andrew Nikiforuk 24 Jul 2015 | TheTyee.ca

Andrew Nikiforuk is an award-winning journalist who has been writing about the energy industry for two decades and is a contributing editor to The Tyee. Find his previous stories here.

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The prime minister of Malaysia, who is central to British Columbia's liquefied natural gas development ambitions, is the subject of a major financial corruption scandal rocking his country.

Earlier this month The Wall Street Journal, citing documents from government probes, reported that investigators suspected that almost $700 million in cash had been wired through state agencies, banks, and companies linked to 1Malaysia Development Berhad (1MDB).

The company is a state-owned development vehicle chaired by Malaysian Prime Minister Najib Razak, who also serves as the country's treasury minister.

Investigators believe the $700 million eventually found its way into Najib's personal accounts and served as a slush fund for the last election. Malaysia has few rules on campaign donations or election spending.

Najib is the top authority overseeing Malaysia's state-owned oil company Petronas, whose massive potential investment in B.C. liquefied natural gas (LNG) was greenlit by the provincial legislature earlier this month.

Now, The Australian and other news sources are saying reports of corruption have paralyzed the Malaysian government. "The scandal that ate Malaysia" is how U.S. business news agency Bloomberg is dubbing the financial brouhaha.

The debacle threatens to undermine the nation's economy, according to an expert writing for East Asia Forum: "Malaysia's international credibility is on the line, as is its currency, access to foreign capital and future economic prosperity."

To date a task force investigating the 1MDB allegations has already frozen half a dozen bank accounts in Malaysia.

Petronas key to Clark's LNG ambitions

In May of 2014, Premier Christy Clark sat for a photograph with Najib, central to any deal she sought with Petronas. The meeting was part of an eight-day trip to Malaysia and Hong Kong to promote LNG development after Clark made election campaign promises that LNG would create 100,000 jobs and erase the province's debt.

This summer, in a special session of the legislature, the Clark-led BC Liberals hastily ratified an LNG deal with Petronas that guarantees the Malaysia oil giant low taxes and royalties as well as static regulations for 25 years.

That agreement in principle, the first and only so far with a multinational energy firm to develop and export LNG in B.C., likely will act as a template for any further LNG investments in the province.

Clark and her party claim the agreement will bring new revenue and $36 billion in investment, assuming Petronas is able to secure financing and goes ahead with its planned export facility in Prince Rupert.

The NDP opposition and other critics say it guarantees few jobs while giving away too much in potential tax and royalty revenues and tying government's hands in setting environmental and other regulations.

'Najib Razak very supportive': BC government

During her spring visit to Malaysia, in addition to taking an audience with the prime minister, Premier Clark and the trade mission she led toured Petronas facilities and met with Tan Sri Dato' Shamsul Azhar Abbas, then CEO of Petronas.

At the time the B.C. government reported that "Prime Minster Najib Razak has been very supportive and engaged with Petronas' investment in B.C."

It added that "Petronas is a substantial source of income for the Malaysian government, with 45 per cent of the government's income coming from the company's annual dividend."

The state owned company, established in 1974, operates with limited transparency. The state's largest single tax payer and revenue generator does not report to Parliament but only to the prime minister, Najib Razak.

No truth to accusations, says Malaysian PM

Amidst unfolding corruption accusations, Najib has denied taking any money for personal gain. In response to the scandal Najib's government has blocked access to a website, Sarawak Report, based in London, England. It regularly publishes material on the state of corruption in Malaysia.

Sarawak Report's website says its editor has been stalked by agents of the Malaysian government. The website also says it has "worked to draw attention to corruption in Sarawak and Malaysia, which ranks as one of the worst places in the world when it comes to corrupt exploitation of the people by the governing elite."

According to Bloomberg, a statement from the prime minister's office characterized the allegations in The Wall Street Journal as "political sabotage" motivated by "certain individuals to undermine confidence in our economy, tarnish the government, and remove a democratically elected prime minister."

In a separate statement, 1MDB, a state company now $11 billion in debt, said it "has never provided any funds to the prime minister."

Meanwhile opposition has called for Najib to step down while the task force proceeds with its investigation.

"With the attorney-general's confirmation [of an investigation], the WSJ allegation against Najib has assumed an even more serious character and import, sparking a political and government crisis of the first magnitude never seen in Malaysia's 58-year history," Lim Kit Siang, the opposition Democratic Action Party's (DAP) parliamentary leader, said in a statement.

'We got suckered': Past BC Lib chief of staff

Critics of concessions given by B.C.'s government to Petronas include LNG supporters such as Martyn Brown who served as former chief of staff to premier Gordon Campbell. He called the deal a gross "give-away" that undermines the sovereignty of the province.

"We got suckered," Brown told The Province.

Brown said Clark got played by a powerful multinational energy company that recognized that she was politically vulnerable due to unattainable LNG promises.

"They had her over a barrel," Brown said.

B.C. Natural Gas Minister Rich Coleman batted away Brown's criticisms, calling Petronas a "globally respected corporation" not tied to Malaysia's current political scandal.

As The Tyee reported earlier this year, Malaysia scores poorly on most transparency and corruption indices.

In 2011, for example, Berlin-based Transparency International reported that Malaysia scored, out of 28 nations, in the bottom half of its Bribe Payer's Survey.

More than half of 3,000 executives from 30 different countries said they had lost a contract in Malaysia because a competitor paid a bribe.

In 2013, two senior Petronas managers were charged with bribery. In 2015, Malaysia courts acquitted one executive, but convicted another for bribery and money laundering.  [Tyee]

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