Malaysia's desire to hasten HSR construction one factor leading to project termination with Singapore

An artist’s impression of the High Speed Rail station in Batu Pahat for the terminated project.

KUALA LUMPUR - Malaysia wanted to bring forward the start of construction of the High-Speed Rail (HSR) to Singapore by two years, one of several changes for the 350-km link to Kuala Lumpur that resulted in the project being abandoned after Thursday's deadline lapsed.

Prime Minister Lee Hsien Loong and his Malaysian counterpart Muhyiddin Yassin announced the end of the project in a joint statement on Friday (Jan 1) morning.

"Both Governments had conducted several discussions with regard to these changes and had not been able to reach an agreement. Therefore, the HSR Agreement had lapsed on 31 December 2020," it said.

In Kuala Lumpur, a statement from Minister in the Prime Minister's Department Mustapa Mohamed said the Malaysian Government had proposed changes to the HSR project in the light of the impact of the Covid-19 pandemic on the country's economy.

Datuk Seri Mustapa said Kuala Lumpur has "explored a number of alternatives to reduce the cost" since late-2018, when a two-year extension to the 2016 bilateral agreement was agreed.

He explained that "this has become more urgent with the onset of the Covid-19 pandemic" that "adversely affected Malaysia's fiscal position".

"More importantly, the proposed changes to the project structure would have allowed us to leverage on the HSR project to accelerate Malaysia's economic recovery post the Covid-19 pandemic, by bringing forward the start of the construction phase by almost two years. This would have provided a much-needed boost to our construction sector and its supporting ecosystem," said Mr Mustapa, who is in charge of the Economic Planning Unit that oversees mega projects like the HSR.

Malaysia is in the midst of a recession caused by shutdowns aimed at curbing the spread of the coronavirus, with official estimates projecting a 3.5 to 5.5 per cent contraction of the economy for 2020.

In November, the Muhyiddin administration unveiled Budget 2021, Malaysia's largest ever at RM323 billion, in a bid to stimulate the economy.

However, this means a projected deficit of 5.4 per cent this year, slightly lower than the 6.0 per cent last year which saw extra spending on stimulus packages and lower tax collections.

Malaysia had in 2018 targeted to achieve a fiscal balance by 2023, a goal that has since been abandoned.

Singapore's Ministry of Transport, in a separate statement, said Malaysia has to compensate Singapore for costs already incurred, in accordance with the HSR agreement.

Mr Mustapa affirmed that "Malaysia will honour its obligations under the Bilateral Agreement. Both countries will initiate the necessary to determine the amount of compensation".

Malaysian news reports have also quoted unnamed sources as saying the Cabinet was planning to continue the project without Singapore's involvement and end the line in Johor.

Mr Mustapa said that whether Kuala Lumpur will proceed with an alternative HSR plan will now be subject to "a detailed study to explore all possible options".

He said "the new project structure" that had been proposed would "provide the Government the flexibility in financing options, such as deferred payments, public-private partnerships and the possibility of accessing financing at favourable rates".

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