China-backed rail project axed by KL over high costs

A billboard featuring Malaysia's East Coast Rail Link project in Kota Sultan Ahmad Shah, Kuantan.
A billboard featuring Malaysia's East Coast Rail Link project in Kota Sultan Ahmad Shah, Kuantan.ST PHOTO: ARIFFIN JAMAR

KUALA LUMPUR • Malaysia's economics minister yesterday said the country will cancel the US$20 billion (S$27 billion) East Coast Rail Link (ECRL) project with contractor China Communications Construction Co (CCCC).

Datuk Seri Azmin Ali said at a media event that the cost of the project was too great, while giving an assurance that Malaysia would welcome all forms of investment from China on a case-by-case basis.

"The Cabinet has made this decision because the cost to develop the ECRL is too big and we don't have (the) financial capacity," said Mr Azmin.

The government was still determining how much to pay CCCC as the project cancellation fee, he said.

The interest on the project alone amounted to RM500 million (S$164 million) a year.

"We cannot afford to bear this, so this project needs to be terminated without affecting our good relationship with China."

Malaysian Prime Minister Mahathir Mohamad said last August that the rail project would be cancelled "for now", but the government has since said it was in negotiations with CCCC on the rail line's future.


Tun Dr Mahathir also announced in August the cancellation of another China-backed project, a natural gas pipeline in the East Malaysia state of Sabah.

CCCC did not immediately respond to a request for comment from Reuters.

Since coming to power last May, Dr Mahathir has repeatedly vowed to renegotiate or cancel what he calls "unfair" Chinese infrastructure deals authorised by his predecessor Najib Razak, whose near-decade-long rule ended in electoral defeat amid a massive financial scandal.

The ECRL project was the centrepiece of China's infrastructure push in Malaysia but work had been suspended pending discussions over pricing and amid graft accusations.

Malaysian Finance Minister Lim Guan Eng said last year that the cost of the ECRL project had been inflated, according to local financial newspaper The Edge.

The ECRL project is one of the biggest deals China has signed under its signature Belt and Road Initiative, as well as one of state-owned contractor CCCC's largest railway projects.

In November, the US-China Economic and Security Review Commission issued a report ranking the ECRL as the second-largest Belt and Road project by estimated cost, behind the US$21.4 billion Moscow-Kazan high-speed railway project in Russia.


A version of this article appeared in the print edition of The Sunday Times on January 27, 2019, with the headline 'China-backed rail project axed by KL over high costs'. Subscribe