Cabinet has decided to inject RM2.8 billion for the Tun Razak Exchange project (TRX) because abandoning it will result in having to fork out RM3.51 billion in compensation.
"It will also be an eyesore to have an abandoned mega-project in the heart of Kuala Lumpur," said Finance Minister Lim Guan Eng in a statement today.
The RM2.8 billion injected was on top of the RM3.688 billion transferred by the federal government to project owner TRX City Sdn Bhd (TRXC) since 2012.
In total, the federal government would have to fork out RM6.5 billion.
"Completing TRX will allow the full value of the project of at least RM7.6 billion to be realised. This will help to recoup and repay the TRXC borrowings, including sums misappropriated by 1MDB.
Lim added that of RM3.688 billion transferred to TRXC, RM3.067 billion had been misappropriated by 1MDB, mainly for 1MDB loan repayments.
"As a result of the misappropriation of funds, TRXC does not have enough money to fulfil its obligations as the master developer for TRX," he said.
Lim said the management of TRXC has been instructed to file reports with the 1MDB investigative panel and police regarding the misappropriated funds.
No change to deals
He assured that the Finance Ministry will ensure that the new injection of funds will be spent "prudently" to protect the interest of Malaysian tax-payers, and foreign and local investors in TRXC.
He said the government will also attempt some "value engineering" to try and bring down the cost of the project.
Ask if this meant renegotiating contracts, Lim said replied in the negative.
"We are looking at value of work done within the existing contract to make sure we get value for money because we don't want to have crony relationships between contractors and those monitoring the contract," he said.
Several major firms have already invested in TRX, including HSBC, Affin Bank, Tabung Haji, and Mulia Property Development.
What about Bandar Malaysia?
The Exchange 106 tower - in which the Ministry of Finance has a 51 percent stake - is set to be the tallest building in the country.
According to TRXC chief executive Azmar Talib, the Exchange 106 tower is currently 92 percent complete, whereas infrastructure works are about 80 percent complete.
Besides TRX, TRXC is also in-charge of another 1MDB linked development, Bandar Malaysia.
Lim, however, declined to comment further on Bandar Malaysia at today's press conference.
"It's all connected but I want to talk about TRX first. If TRX can be completed it can generate more confidence. First we want to reassure foreign investors (with TRX)," he said.
Asked if TRXC could have financed the project without resorting to a government bailout, Lim said would is difficult for TRXC to secure bank financing due to its association with 1MDB.
He said banks and investors would also want to see a commitment from the government.
“So, this is a project necessary to instill confidence that we want to see the project completed. After all, it is already 92 percent finished,” he said.
