Malaysia had suffered a substantial price cut after China found a tanker-load of crude palm oil to be "biologically contaminated" above the acceptable level, industry sources confirmed today.

However, the sources could not place a figure on the price variation triggered off by the incident that occurred in early October.

This is believed to be the first time such an incident has happened in China, which is the largest importer of crude Malaysian palm oil with the import volume totalling some 1.8 million tonnes for 2002.

The figure is expected to go up this year.

"The reason given is that our palm oil did not comply with the standards stipulated by China's Food and Hygiene Act.

"They said the quality of our palm oil was suspect due to biological contamination found to be above the benchmark level," sources said.

"Industry practice is that if you don't meet the contracted terms, there will be a price variation or discount."

Industry sources did not discount the fact that the 'rejection' may be linked to the derailed multi-billion ringgit railway project that grabbed headlines a couple of weeks later.

Contractors from India and China - Ircon International Ltd and China Railways Engineering and Telecommunications (Cret) - were earlier promised the deal to lay and electrify 623-km of double-tracks in the northern (Ipoh-Padang Besar) and southern (Seremban-Johor Baru) sectors.

Showing unhappiness?

However, the government has neither confirmed nor denied if the three letters of intent given to Ircon, Cret and Japan's Mitsui & Co as signals and communications contractor, have been revoked.

The two stretches form part of the 5,500-km trans-Asia railway line connecting Singapore with southern China through several Asean countries.

"The timing seems to suggest that they (China) may have got wind of the impending award of the deal to a local consortium and decided to show their unhappiness this way. But we can't be sure of this.

"As for India, there have been other kinds of retaliation such as contracts not being given to Malaysian companies or just to make life miserable.

"For instance, one Malaysian company completed a tolled road project in India last month but has been unable to collect toll money although the road is already open to public."

Sources said the tanker-load of palm oil that got stranded in China - some 15,000-16,000 tonnes - was unloaded but for use in non-food products.

"The palm oil will be taken for industrial use like making candles and lubricants," said the sources, adding that China's huge import was also to make soap noodles because it is the largest consumer of the detergent industry.

Primary Industries Minister Dr Lim Keng Yaik had earlier warned of possible retaliation from India and China following the failed bid to secure the lucrative deal, which is Malaysia's largest infrastructure project to date.

Asked if the losses would be substantial now that the local consortium, Gamuda Bhd-Malaysian Mining Corporation Bhd JV (Gamuda-MMC JV), landed the big job, minus the counter-trade of palm oil as payment in kind.

"Although there are no losses per se following the major change in players, but at least there were guaranteed sales of a fixed quantity of eight million tonnes of crude palm oil over six years that was worth some RM12 billion," said the sources.

Works continue

Despite the government's controversial decision, industry sources said both Ircon and Cret were continuing with detailed on-site work, including soil testing and site inspection.

Gamuda-MMC JV announced its winning bid of RM14.5 billion, lower than the RM17 billion estimated by government consultants, on Oct 22 days before former premier Dr Mahathir Mohamad retired.

The sudden about-turn has raised more than eyebrows, prompting questions which the government adamantly refuses to answer.

Latest developments reveal that Ircon is in the running again for a sub-contract job involving the northern grid.

Several new players also seem to have joined the fray in an attempted undercutting of the original bidders.