KL-China rail project on - with cost slashed to $14.5b

Tun Daim Zainuddin, special envoy to Malaysia's prime minister shaking hands with Dr Ning Jizhe, Vice Chairman of the National Development and Reform Commission, PRC after Malaysia Rail Link and China Communications Construction Company signed a supp
Tun Daim Zainuddin, special envoy to Malaysia's prime minister shaking hands with Dr Ning Jizhe, Vice Chairman of the National Development and Reform Commission, PRC after Malaysia Rail Link and China Communications Construction Company signed a supplementary agreement to resume construction of the suspended East Coast Rail Link in Malaysia. PHOTO: CHINA COMMUNICATIONS CONSTRUCTION COMPANY

East Coast Rail Link to go ahead under new terms, with view to improving bilateral ties

The multibillion-dollar East Coast Rail Link (ECRL) project is back on, after Malaysia and China agreed to proceed with it under a new set of terms, in a development set to improve strained bilateral ties and present Beijing with a strategic toehold on a vital infrastructure undertaking in the region.

After months of often protracted negotiations, representatives from both countries signed a supplementary agreement in Beijing yesterday. The ECRL will now be built at an estimated cost of RM44 billion (S$14.5 billion), down sharply from the original RM66.5 billion, which critics said was hugely inflated due to corruption when the project was awarded by the previous government in October 2016.

Tun Daim Zainuddin, Malaysia's chief negotiator, told reporters in Beijing after the signing that the ECRL would proceed with double-tracking and the total distance reduced by 40km from the original 688km. That refinement in the contract would effectively reduce the cost per km by RM30 million.

Under the new alignment of the proposed rail network, the ECRL will snake down along the east coast from Kota Baru in the north-east, to Kuantan before cutting across the peninsula to Port Klang on the west coast along the Strait of Malacca. The proposed feeder line to Gombak in Selangor is scrapped.

Mr Daim, who is Prime Minister Mahathir Mohamad's trusted economic troubleshooter, did not elaborate on the details of the project which the Malaysian government said would be disclosed at a news conference scheduled for Monday.

Shortly after wresting power in last May's general election, Dr Mahathir's Pakatan Harapan (PH) coalition government carried out a review on large projects that the previous government had committed to with China and found that many of the contract awards were hugely unfavourable towards Malaysia.

PH quickly suspended the projects, including the ECRL and two multibillion-dollar gas pipeline projects, a move that put a major strain on relations with China.

 
 
 

While the fate of the gas pipeline projects remains unclear, Malay-sian officials said Beijing has been insistent that the ECRL must proceed. That is because of its huge importance to China's Belt and Road Initiative (BRI) that involves infrastructure development stretching across some 70 countries.

The ECRL project represents China's single largest development commitment under the BRI and is set to play a major role in Beijing's geo-political ambitions. It will become a strategic land bridge connecting the South China Sea and the Strait of Malacca, one of the world's busiest trading routes.

Private economists and PH politicians had long been advocating the cancellation of the ECRL project because of the huge financial strain it would put on the country. But Dr Mahathir held the view that relations with China, Malaysia's largest trading partner, had to be managed carefully and dispatched Mr Daim to handle the talks.

The negotiations were not smooth, with Mr Daim - who served twice as finance minister in 1980s and 1990s - hit by setbacks.

In January, for instance, the Finance Ministry ordered Malaysia Rail Link, the state-owned entity that will own and operate the ECRL, to cancel the project with immediate effect. It also told Malaysia Rail Link to communicate the government's decision to state-owned China Communications Construction Company (CCCC) and Exim Bank of China.

But Malaysia was quickly forced to backtrack when it became apparent that any pushback from Beijing could have adverse implications. At stake were the possible suspension of large annual purchases of Malaysian palm oil by China. Kuala Lumpur could also have been liable to pay nearly RM20 billion in compensation if it cancelled the rail link.

Mr Daim stressed yesterday that the negotiations did not involve other issues such as palm oil.

Officials said yesterday's agreement would repair ties and ensure a warm reception in Beijing when Dr Mahathir attends the Belt and Road Forum later this month.

A version of this article appeared in the print edition of The Straits Times on April 13, 2019, with the headline 'KL-China rail project on - with cost slashed to $14.5b'. Print Edition | Subscribe