KUALA LUMPUR (Reuters) - Malaysia's Prime Minister Najib Razak announced on Monday that Saudi Arabia's state oil company Saudi Aramco will invest $7 billion into an oil refinery and petrochemical project in Malaysia's southern state of Johor.
Najib said the decision was made before noon on Monday afterdiscussions between top executives from Saudi Aramco andMalaysia's state-owned energy company Petroliam Nasional Bhd(Petronas), the sponsor of the $27 billion Refinery andPetrochemical Integrated Development (RAPID) project.
Najib's statement marks a dramatic reversal in RAPID'sfortunes after industry sources familiar with the matter said inJanuary that Aramco planned to drop its participation in apartnership with Petronas in the project. At the time, Petronassaid it would move ahead in spite of Aramco dropping out. Najibdid not give any details on the change of heart.
"This is a significant investment and more details will beannounced tomorrow," Najib said at a brief news conference afterhosting a state luncheon for Saudi Arabia's King Salman and hisentourage.
"I just want to confirm that the agreement has been reachedand King Salman is satisfied that the deal will be signedtomorrow," Najib said.
Petronas and Saudi Aramco executives are scheduled to sign the agreement on Tuesday.
An industry source familiar with the matter says Aramco will buy a stake in RAPID's refinery, cracker and petrochemical operations. Aramco will also supply at least 50 percent of the crude that will be processed at RAPID, with an option to increase the supply, the source said.
The Aramco funding will help move RAPID to fruition and the desire of Saudi and Malaysian leaders to maintain close links between the countries likely helped cement a deal, said Subramanya Bettadapura, an oil and gas analyst with consultants Frost & Sullivan based in Kuala Lumpur.
"This investment confirmation would help bring the RAPID project to the commissioning stage," said Subramanya. "It's the goodwill of the Saudi king himself to invest and to maintain good ties with Malaysia, boost bilateral ties."
The RAPID project, located at Pengerang in Johor, isexpected to begin operations in the first quarter of 2019. RAPIDwill contain a 300,000 barrel-per-day oil refinery and apetrochemical complex with a production capacity of 7.7 millionmetric tonnes. The complex will sit alongside an existing oilstorage site at Pengerang.
Last year, Petronas sought proposals for a $7.2 billion loanfor the project, with separate guarantees from the company andAramco, Thomson Reuters IFR reported in June.
Besides the Petronas-Saudi Aramco deal to be signed on Tuesday, Malaysia and Saudi Arabia signed four other agreements dealing with bilateral trade, human resources, scientific and educational cooperation and a news-sharing agreement between the state news wires of both countries.
Malaysia is the first stop in a rare month-long tour of Asia by the Saudis seeking to build ties and draw more investments to the oil-rich gulf nation.
King Salman is also expected to visit Indonesia, Brunei, Japan, China, the Maldives and Jordan "to meet with the leaders of those countries to discuss bilateral relations and regional and international issues of common concern," a royal court statement carried on Saudi Arabia's state media SPA reported.
Reporting by Rozanna Latiff, Additional reporting by Florence Tan in SINGAPORE and Reem Shamseddine in Khobar, SAUDI ARABIA; Writing by Joseph Sipalan; Editing by Christian Schmollinger