After months of conflicting signals and intense behind-the-scenes negotiations, the Pakatan Harapan government finally announced that it had reached agreement with China Communications Construction Company (CCCC) to restart the East Coast Rail Link (ECRL) project.
The renegotiated contract, which was immediately hailed as a breakthrough, brought down the cost of the project by a whopping RM25.5 billion, increased local participation and saw the creation of a new joint-venture company to operate and maintain the project.
In announcing the new agreement, Prime Minister Mahathir Mohamad made no secret of the fact that the government had only limited room to manoeuvre given the constraints imposed by the original government-to-government agreement signed by the previous government. As he put it, it was either pay termination costs of about RM21.78 billion or try to negotiate more acceptable terms.
Construction costs of the project have now been pared down to RM44 billion from RM65.5 billion by reducing the scope of the project – shortening the route, realigning the route to avoid costly tunnelling works through the Titiwangsa Range and reducing the number of stations along the route. The previously inflated construction costs of RM95.5 million per kilometre were also brought down to RM 68.7 million.
When the cost of land acquisition, rolling stock and the inevitable cost overruns are factored in, the final cost could climb to well over RM60 billion.
Still a bad project
While the new terms are, of course, a significant improvement, there is little cause for cheer given that we are still left with a scandalous, ill-conceived, unnecessary, and unviable infrastructure monster that will be a drain on the nation’s finances for decades to come.
As several economists have argued from day one, the relatively less developed east coast simply cannot sustain such an expensive rail network while hopes that it could serve as a “land bridge” is simply wishful thinking. Indeed, even at the original cost of RM29 billion, ECRL was found to be a losing proposition. The fact that the government is already talking about the need to subsidize ticket prices only confirms these suspicions. In the end, we shouldn’t be surprised if even freight costs are subsidized given that KTM, operating on the relatively more industrialized west coast, continues to be subsidized even after decades in business.
With rising national debt (now more than 50% of GDP) and the bailout of several failing or scandal-tainted groups like 1MDB, Felda and MAS, a monster project like ECRL is undoubtedly going to add significantly to the nation’s financial burden.
Interestingly, Mahathir himself complained just this week that the government’s ability to deliver on its election promises has been “hindered by financial constraints.” “We have a lot of problems. Believe me, we don’t have the money. It has been stolen, that is the main problem,” he was quoted as saying. In the light of this, can Malaysia really afford the ECRL even at the renegotiated price?
And what does it say to all the people who did their patriotic duty by donating to Tabung Harapan just a few months ago to help retire the national debt?
Making the most of a bad project
Of course, the government is now arguing, as Najib did, that the ECRL will result in some kind of great leap forward for the east coast. The prime minister, for example, called on state governments to “leverage the development and growth that will result from the construction of the ECRL.” Economy Minister Azmin Ali gushed enthusiastically about economic growth, job creation and new economic opportunities while others even talked up homestay and retail opportunities.
This is a far cry from their pre-election position. Mahathir himself poured scorn on the idea that the ECRL would generate much spinoff benefits. Using the North-South highway as an example, he argued that highways were better catalysts for economic development than railways.
While there will, of course, be some spinoff, would it be worth the huge investment that is being made? As economists like Professor Jomo have argued, investments in sanitation, flood alleviation and other local infrastructure would have done far more to boost economic conditions and lift living standards along the East Coast corridor than a hugely expensive railway system.
The appeasement option
It’s hard to escape the conclusion that in the end the government buckled under pressure from Beijing. Despite indications of corruption and malfeasance (grossly inflated costs, unusual payment arrangements designed to siphon off funds to cover 1MDB losses) that clearly pointed to collusion by PRC companies and possibly even senior PRC officials, it opted not to challenge the validity of the ECRL contract.
Admittedly, challenging China would have had massive consequences for our bilateral relations. China is not Singapore; it would have reacted forcefully to the loss of face and economic opportunity by bringing the full measure of its political and economic might to bear on us. It’s not something that a small country like Malaysia can easily shrug off.
At the end of the day, it was not a choice between cancellation or renegotiation but a choice between appeasing China or suffering the consequences. Given our growing economic dependence on China, the government appears to have opted to swallow its pride and bend its knee to China. Whether or not it was the right thing to do, only time will tell.
Thanks to Najib Tun Razak and the UMNO-BN regime, China’s role in our economy and influence over our nation will now grow exponentially at some cost to our sovereignty. And the people of Malaysia will end up paying for the privilege for decades to come. Pardon me if I don’t join the celebration.
[Dennis Ignatius |Kuala Lumpur |17th April 2019]