Malaysia to go ahead with China-backed East Coast Rail link

Malaysia’s Daim Zainuddin puts the China-backed East Coast Rail Link back on track. Photo: Handout

KUALA LUMPUR, Apr 12, 2019, SCMP. Malaysia on Friday said it had a signed a fresh deal to proceed with the stalled China-backed East Coast Rail Link (ECRL), after months of false starts and contradictory statements from Prime Minister Mahathir Mohamad’s government on the future of the multibillion-dollar project, reported the South China Morning Post.

The prime minister’s office said constructing the first two phases of the rail link would now cost 44 billion ringgit (US$10.7 billion), down from the original cost of 65.5 billion ringgit.

The new agreement “will pave the way for the resumption of the East Coast Rail Link project,” the statement said. “This reduction will surely benefit Malaysia and lighten the burden on the country’s financial position”.

The prime minister’s long-time confidante Daim Zainuddin, acting as special envoy to the leader, was in Beijing to conclude negotiations.

In a press conference after the government announcement, Daim said the rail link’s length would be reduced by 40km to 648km. The cost of building each kilometre of the line would drop to 68 million ringgit from 98 million ringgit, the former finance minister said.

The 21.5 billion ringgit hair cut on the original deal was “enough to build two more Petronas Twin Towers,” he quipped, referring to the towers in Kuala Lumpur.

The 65.5 billion ringgit figure cited by Daim as the original cost of the project differs from the 55 billion ringgit price tag touted by Mahathir’s predecessor Najib Razak, who signed the original deal in 2016. Najib’s long-ruling coalition was defeated by Mahathir in elections last May.

Daim said further details on interest payments and financing would be released by Mahathir on Monday.
The rail link is a political hot potato for the prime minister, and Friday’s agreement is likely to ease growing pressures on his administration to deliver on election promises as its one-year anniversary nears.

Long time Malaysian politics observer Oh Ei Sun said the deal had to be welcomed as the country was “in dire need” of fresh foreign direct investment. “In that sense, China is probably the only game in town in terms of future investments as the US increasingly is looking inward while Japan and Europe are yet to pick up their own slack,” said Oh, a senior fellow of the Singapore Institute of International Affairs.

Soon after ousting Najib, Mahathir suspended work on the project citing an urgent need to renegotiate “unfair” terms his predecessor had agreed with the main contractor China Communication Construction Company (CCCC).

The government later veered towards cancelling the project but balked when it was faced with a huge cancellation fee.

Insiders say that complicating matters was the Chinese government’s reticence to see the end of a multibillion-ringgit project seen as a cornerstone of President Xi Jinping’s Belt and Road Initiative.
“The East Coast Rail Link is so important in China’s Belt and Road Initiative,” said Cheng Xiaohe, associate professor of international studies at China’s Renmin University.

“If it had been cancelled, the relations between China and Malaysia would have been downgraded significantly,” Cheng said.The professor said he believed Mahathir never intended to cancel the project, and instead had been seeking “a better deal from China”.

“I believe Mahathir at least partially got what he wanted,” he said.

“Government-to-government” talks – with Daim helming Malaysia’s team of negotiators – have been ongoing for months. Malaysia Rail Link, the Malaysian holding company that owns the project, is a wholly owned entity of the country’s finance ministry, and CCCC too is a state-owned firm.

Malaysian officials have given out mixed signals regarding the protracted negotiations.
At one point Mahathir’s economic affairs minister Azmin Ali said the project had been cancelled outright. The government later issued a “gag order” on officials, authorising only Mahathir to comment on negotiations.

The ECRL is the biggest of the China-backed infrastructure projects to have been cast into doubt by Mahathir, who questions the need for the rail link as well as its cost, and claims his scandal-haunted predecessor signed up in a blasé fashion.

Allies of Mahathir have claimed Najib signed up to the deals as a quid pro quo to Chinese firms that were bailing out massive losses at the 1MDB state fund, a scandal for which he is currently facing criminal charges.

Najib, who denies wrongdoing, claims to have endorsed the ECRL deal solely because it made good economic sense.

Apart from the ECRL, Mahathir’s government last year cancelled two China-backed pipelines costing 9.3 billion ringgit after it discovered that, while 90 per cent of the project’s costs had been paid, only 13 per cent of it had been completed.

Oh said the deal showed Beijing was “very keen” on the rail link as it was an opportunity to show its rail technology can be used outside the mainland. “Hopefully it will bring the two coasts of peninsular Malaysia closer,” Oh said. “It would be even better if it could engender the kind of economic stimulus [effect rails deals have had] in China,” he said.

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