Storm brewing over RM35b Johor-Taiwan oil deal in Pengerang

KUALA LUMPUR, July 15 — Johor has quietly agreed with a Taiwanese firm to undertake construction of a RM35 billion oil refinery in Pengerang, a business weekly reported, a decision that could risk triggering a second Lynas storm in Malaysia.

The Edge Business and Investment Weekly reported in its latest edition that the Johor government had inked an agreement with Taiwan’s CPC Corp last week with little fanfare despite Putrajaya’s eagerness to court foreign firms in its bid to push Malaysia into the ranks of high-income nations by 2020.

“A letter of undertaking was signed early last week between the state and Kuokang... [however] the formal announcement has to come from the Taiwan government, not from Johor,” the weekly quoted an unnamed executive close to the deal as saying.

The paper reported that CPC’s majority shareholder Kuokang Petrochemical Tehnology Co will be taking a lead in the construction as the word among industry players is that the Taiwanese company’s plant in Kaohsiung will be shuttered within three years due to long-standing complaints of pollution by the country’s environmental groups.

The project involves the building of a petroleum refinery complex capable of handling load of up to 150,000 barrels-a-day and a naphtha cracker with an annual capacity of 800,000 tonnes, the paper reported, adding that the project was still in early stages.

The Edge reported that state-run CPC had initially planned on building the oil refinery in Taiwan but was forced to relocate after the island nation’s president Ma Ying-jeou pulled his support for the project last year due to intense lobbying from domestic green groups.

CPC turned to Malaysia because it is closer than the Middle East and Johor is understood to have promised to transfer land for the company’s use, the paper reported.

But the multi-billion ringgit project may face equally strong opposition here as in Taiwan.

In April this year, a group of 578 fishermen initiated a lawsuit against the Johor government and its contractors to stop a RM5 billion Pengerang petrochemical hub from being built in their backyard, which they claim is affecting their livelihood.

The two projects, one by Petronas, and the other by Kuokuang, carry a combined investment value in excess of RM120 billion and could catapult Malaysia into position as Asia’s petrochemical hub.

But Minister of International Trade and Industry, Datuki Seri Mustapa Mohamed, told Parliament last month that no formal application has been submitted to his ministry for approval.

Unprecedented public anger against Australia miner, Lynas Corp’s RM2.5 billion rare earth refinery in Kuantan appears to be fertilising Malaysia’s green movement against big-money projects and the ruling Barisan Nasional (BN) government has been careful not to step on the toes of voters ahead of key national polls that must be called soon.

The controversial project is seen as major election fodder, particularly as the BN coalition had lost four states, including money-spinners Selangor and Penang, to opposition parties at the last general election in 2008.

Lynas’ bid to fire up its refinery, touted as the world’s biggest outside China, and meet a global demand, has since stalled while the federal government holds back on granting it the necessary permits that will allow it to begin operations.