SKS
is small operation controlled by Syed Mokhtar al Bukhary, one of
Malaysia's wealthiest industrialists with a Forbes Magazine estimated
net worth of $2 billion. Much of Syed Mokhtar's personal wealth has been
acquired in dealings with the GOM and GOM-linked corporations. He
controls Malaysia Mining Corporation, DRB Hicom, Malakoff, and Gas
Malaysia among other significant Malaysian operations.
THE CORRIDORS OF POWER
Raja Petra Kamarudin
C O N F I D E N T I A L SECTION 01 OF 03 KUALA LUMPUR 000059
SIPDIS
STATE FOR EEB/ESC THAMMANG
STATE FOR EEB/TFS CBACKEMEYER
STATE FOR NEA/IR RWADHWANI
E.O. 12958: DECL: 01/26/2020
TAGS: ECON, EFIN, ENIV, ENRG, EPET, ETTC, IR, KNNP, MY
SUBJECT: MALAYSIA: SKS VENTURES EXPLAINS ITS IRAN INVESTMENTS
REF: A. 09 STATE 121808
B. KUALA LUMPUR 0037
Classified By: Econ Counselor Matt Matthews for reasons 1.4 (b) and (d)
1. (C)
Summary:
SKS Ventures (SKS) CEO Abang Iskandar Muas (Iskandar) met with Econoff
January 19 to discuss SKS plans to develop the Golshan and Ferdowsi gas
fields (G&F) in Iran.
Iskandar said that the GOM had
initially negotiated the deal with the GOI and handed the project to SKS
just prior to signing. Iskandar told us that development of the
G&F fields is going slowly because sanctions impeded National
Iranian Oil Company (NIOC) ability to perform basic due diligence
functions. He also stated that NIOC has been extremely difficult to
work with and that the initial buyback service contract signed in Dec.
2007 is the only commercial agreement between SKS and NIOC.
SKS’s
only investment over the past two years since the announcement was
limited to staff time from their 15 employees and air tickets for
meetings with a total value under $1 million, according to Iskandar. He
was pessimistic on prospects for the deal and said that SKS is
considering pulling out altogether.
However, he emphasized SKS
would need GOM approval prior to exiting the transaction because
Malaysian Trade Ministry and Foreign Ministry officials had encouraged
SKS to enter into the deal in the first place and had reconfirmed GOM
support for trade cooperation with Iran at a recent meeting.
Iskandar
also denied reports of SKS participation with NIOC in a refinery
projects in Syria and Indonesia and downplayed its deal with NIOC which
is under review in Malaysia.
End Summary.
2. (C)
Comment:
SKS is small operation controlled by Syed Mokhtar al Bukhary, one of
Malaysia's wealthiest industrialists with a Forbes Magazine estimated
net worth of $2 billion. Much of Syed Mokhtar's personal wealth has
been acquired in dealings with the GOM and GOM-linked corporations. He
controls Malaysia Mining Corporation, DRB Hicom, Malakoff, and Gas
Malaysia among other significant Malaysian operations.
Post
believes Iskandar is a credible interlocutor that provided an important
window on the GOM's role in the deal and SKS current thinking on the
transaction. Iskandar seemed genuinely frustrated that the G&F deal
turned out to be an empty business proposition due to NIOC incompetence
and Iran sanctions. Other oil and gas industry contacts have confirmed
the small size and scope of the SKS operation.
End Comment.
SKS Ventures
3.
(C) Econoff met January 19 with SKS Ventures (SKS) CEO Abang Iskandar
Muas (Iskandar) to discuss the SKS intentions to develop the Golshan and
Ferdowsi gas fields (G&F) in Iran and implications under the Iran
Sanctions Act (ISA).
Iskandar mentioned early in our
conversation that Ministry of International Trade and Industry (MITI)
Senior Director Wong had called him January 15 informing him that the
embassy had been trying to contact him and he needed to meet with us.
Econoff delivered ref A points and offered additional background on our
information request.
According to Iskandar, SKS has 15 full
time employees and works on projects outside of Malaysia for Syed
Mokhtar. Iskandar is an experienced O&G industry professional,
having worked for Shell Oil USA (based in Houston) for fifteen years in
Sarawak, Saudi Arabia (where he was VP for Finance and Human Resources),
and Kuala Lumpur prior to assuming his current position with SKS two
and one half years ago.
Iskandar fondly reminisced of his
frequent travel to the U.S. for business and family vacations prior to
assuming his position at SKS.
Golshan and Ferdowsi: G2G Agreement
4.
(C) Iskandar said the G&F deal grew out of government-to-government
negotiations between Malaysia and Iran during 2007. The GOM brought
SKS to the table late in the negotiations, according to Iskandar,
finalizing a buyback service contract between SKS and National Iranian
Oil Company (NIOC) in December 2007.
He added that SKS entered
into the agreement based on the GOM’s policy of expanding trade
cooperation with Iran and the belief that the business climate for oil
and gas (O&G) in Iran was improving during 2005-6.
Iskandar
said that the initial business strategy was for SKS to plan the
project, NIOC to perform physical due diligence (appraisals, seismic
analysis, feasibility studies, etc.), and, once the project was ready to
start, sell controlling interest, at a profit, to an international oil
company that could bring resources to develop the fields.
Iskandar
commented, "We have no wells, no drilling rigs, no facilities, no
experts, and no technology" to implement a project the size of G&F.
His explanation as to why the Iranians would enter in to a transaction
the size of G&F with such a small entity was, "in order to be
friendly to the government (of Malaysia)."
NIOC Difficulties
5.
(C) Working with NIOC, according to Iskandar had been "extremely
difficult." He added, "we should have taken a lesson from Petronas"
claiming that Petronas will not deal with NIOC any longer because NIOC
still owed a substantial amount of money to Petronas from its buyback
service contract for South Pars Phases 2 and 3.
Iskandar said
that NIOC has made no progress on its due diligence obligations at
G&F due to international contractors refusing to work in Iran
because of sanctions. He complained that SKS and NIOC also have not
reached any commercial agreements on the project in the last two years.
Iskandar stated, "We have no idea how we would be paid. NIOC
has not agreed to LNG and we have no interest in selling gas
domestically. Iran uses most of their gas to inject into their oil
fields to get more oil or to produce heavily subsidized electricity."
He
listed numerous other problems plaguing the project related to Iran
sanctions such as the inability to import LNG technology or hire expat
expertise, a low likelihood that Iranian LNG could be consistently sold
on the open market, and NIOC's lack of access to financing.
SKS Ready to Walk Away
6.
(C) Iskandar described the SKS agreement with NIOC on G&F as
"barely hanging on" and that SKS is currently deciding whether to stay
in or pull out, and added, "The decision will come sooner rather than
later." He viewed the buyback service contract as having "no commercial
value" at this time.
He noted though that Syed Mokhtar's
close connections to the Malaysian government mean SKS will not move on a
G&F decision without policy direction from the GOM. "We do not
want to be on the wrong side of the government and we have not heard
from PM Najib", according to Iskandar. However, he added that SKS has
"no money in the ground" in Iran, because the firm did not pay an
initial "signing bonus" as the buyback service contract did not carry
any vested rights to the gas.
He also stated that SKS
management is aware of the change in the international political
environment with regard to Iran and is "not entrenched," implying SKS
would quickly drop the transaction if permitted by the GOM.
Another View of the MITI Meeting
7.
(C) Iskandar offered a different account of the recent meeting between
MITI and Ministry of Foreign Affairs (MFA) officials and officers from
the three Malaysian companies listed in ref A. Iskandar said that after
the companies answered MITI queries on their Iran investments, the
companies, especially Petronas, pushed back at MITI and MFA asking "What
is the government's stance on trade cooperation with Iran?" and "Should
we adjust our investment strategies?"
MITI responded that the
GOM still supports trade cooperation with Iran, according to Iskandar.
(Comment: The MFA account of the meeting (ref B) was similar to
Iskandar's but omitted the companies' questions and MITI's response.
End Comment.)
Other Announcements Inaccurate
8.
(C) Toward the close of the meeting, Iskandar addressed recent Iranian
and Malaysian press announcements of SKS participation in other
transactions with NIOC. He stated that the GOM asked SKS to commission a
feasibility study on a project with NIOC. It involved a refinery
project in Kedah with a pipeline across the Malaysian Peninsula to
Terengganu.
Iskandar commented that the pipeline is
economically unwarranted and an Iranian partner likely makes the
refinery unfeasible. He added that recent announcements of SKS
participation in a refinery project in Syria with Iranian and Venezuelan
partners and SKS participation in an Indonesian refinery project with
Pertamina and NIOC are blatantly false.
He said that the first
SKS had heard of either project was in press reports. He explained that
SKS never issued denials of participation in the deals in order to
avoid embarrassment in case the government was involved.
KEITH