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Cablegate: Malaysia: Sks Ventures Explains Its Iran Investments

VZCZCXRO9142
PP RUEHBC RUEHCHI RUEHDT RUEHHM RUEHKUK RUEHNH RUEHTRO
DE RUEHKL #0059/01 0271038
ZNY CCCCC ZZH
P 271038Z JAN 10
FM AMEMBASSY KUALA LUMPUR
TO RUEHC/SECSTATE WASHDC PRIORITY 3733
INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUCNIRA/IRAN COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHHMUNA/HQ USPACOM HONOLULU HI PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

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

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