US$1.2b pulp project in doubt

US$1.2b pulp project in doubt

KUALA LUMPUR (Reuters): A Sino-Malaysian project to build a 4.6 billion ringgit (US$1.2 billion) pulp and paper mill in Malaysia's Sabah state is in jeopardy because of "equity problems", a government official said on Monday.

A Primary Industries Ministry official said problems at Innoprise Corporation, the investment arm of the state government's Sabah Foundation, threatened the development.

He added that Primary Industries Minister Lim Keng Yaik has canceled a trip to China in August to discuss the deal.

"If they cannot settle the equity issue I think China may move out," said the ministry official.

Environmentalists are hoping the deal, signed in 1997, falls flat. It aims to clear 240,000 hectares of jungle -- an area more than three times larger than Singapore -- on the island of Borneo.

Under the deal the Sabah and Chinese governments would each get 40 percent equity in the project with Malaysia's Lion Corp taking 20 percent.

In May, Lim said the mill would begin operating in Kalabakan, Tawau, on Sabah's east coast in 2004.

The new mill is supposed to produce 750,000 tons of raw pulp.