Malaysia has reasons to walk away from ECRL
Too costly: People viewing a model of the ECRL routes in Kota Baru, Kelantan. Dr Mahathir has stated that the cost of the project is too high and the terms are not favourable to Malaysia. â" Bernama
ALREADY two railway projects â" including the prestigious high-speed rail (HSR) between Kuala Lumpur and Singapore â" have been scrapped, relieving at least RM100bil off the governmentâs expenditure .
The biggest test for Prime Minister Tun Dr Mahathir Mohamad and his Cabinet is the RM55bil East Coast Rail Link (ECRL), a project that has the backing of China. The latest development is that a staggering RM20bil has been drawn down from the RM55bil with only one year of work done.
It is almost certain that the ECRL will be scaled down. The question now is if it should be ditched completely and whether the Government has grounds for it?
It is a decision the Government has to make, taking into consideration the rejuvenated public support to reduce debt and cut down on projects that Malaysia can do without.
From what Dr Mahathir has revealed so far, the project has elements that allow Malaysia to walk away from the deal.
The 93-year-old Dr Mahathir did not mince his words when he described the contract as âstrangeâ because payments are based on a pre-determined timetable and not based on work done. The money does not come to Malaysia but is paid to the contractor in China who then disburses payments.
The 688-kilometre railway track project from Port Klang to Gombak and onwards to Kuantan and Pengkalan Kubor, which is the Malaysia-Thailand border in Kelantan, is viewed as part of the âOne Road One Beltâ initiative.
However, it is a project that Malaysia can do without for now, especially when it is saddled with a declared debt level of RM1 trillion. Compounding the matter is the demand for increased transparency and scrutiny on public projects, especially those that were awarded in an opaque manner by the previous government.
The ECRL has elements that raise questions, something that has been highlighted since November 2016 when the project was signed off. It is now being stated publicly by the new government.
Dr Mahathir has stated that the cost of the project is too high and the terms are not favourable to Malaysia. He wants to renegotiate if necessary. Compounding the issue is the curr ent drive that has roused the nationalistic spirit of the people to raise funds to be used to help reduce national debt.
Against such a scenario, can the Government afford to turn its eye away from the ECRL, given the controversies surrounding the project?
Simply put, it would be very difficult to carry on with the ECRL project currently and China should understand why. It has seen how governments in other countries wilt under pressure from the people on railway projects.
From Mexico to Hungary and nearby Indonesia and Myanmar, some railway projects awarded to state-owned companies from China have not taken off the ground or have stalled because of the demands for increased transparency and fear of the country being saddled with large debts.
In Indonesia, China signed an agreement for the US$5.5bil HSR project linking Jakarta to Bandung in January 2016. However, President Jokowi has not been able to get the land for the project that has drawn increased sc rutiny.
The government is now re-calculating the cost of implementing the project. Compounding the problem is the suspicions over Chinaâs involvement and fears over the cost that could leave the government with a huge debt it cannot afford.
In Mexico, the railway project from Mexico City to Queretaro was cancelled in 2014 due to transparency issues over the award of the job to China Railway Engineering Corp (CREC). For a similar reason, the European Union is investigating the Budapest-Belgrade rail project awarded to CREC.
In Myanmar, the government allowed a US$20bil railway job, connecting Yangon to Mandalay and awarded to CREC in 2011, to lapse three years later after opposition from the people.
There are issues with the ECRL project, starting from the speed in which it was awarded to the questionable process of selecting the contractor and the terms of the money being drawn down so far.
The Economic Planning Unit awarded the project to Chin a Communications Construction Co (CCCC) through direct negotiations in August 2016, which should not have been the case for public projects.
Malaysia Rail Link Sdn Bhd (MRL), the Finance Ministry-owned company set up to spearhead the project, was formed only a month after the award to CCCC. The experts responsible for implementing the project only started coming on board late October. They were employed on time to sign the loan agreement and see through the implementation. They did not have control on the terms of the agreement.
Under the loan agreement signed in November 2016, Chinaâs Export-Import Bank (Exim Bank) will provide 85% of the financing, with Malaysia forking out the remaining 15%.
The previous government would probably have consulted some experts on the cost and terms of the agreement. However, can they be held accountable now?
Certainly, the expert opinion did not come from MRL because the rail experts, including those from the private se ctor, came onboard much later.
Why has CCCC been allowed to draw down RM20bil just a year after work started? Where did the money go to? It included a sum as advance payment, which goes with what Dr Mahathir had said about the âstrangeâ terms of the contract.
Since November 2016, when the deal to implement the ECRL was signed, there have been reports of some funds meant for the project being diverted to settle debts associated with the infamous 1Malaysia Development Bhd (1MDB).
In the past, such reports were dismissed. But now they cannot be dismissed because all that was reported in the past has been proven to be true.
Also, there had been a relationship between 1MDB and companies from China a few months before the ECRL deal was sealed. In April 2016, China General Nuclear Power Corp emerged as the highest bidder for the power-generation assets of 1MDB, a deal that provided the fund with much-needed cashflow.
So far, CCCC from China and its Ma laysian entity have remained silent on the allegations surrounding the project. So has MRL.
The ECRL project has it benefits but it is over a long term.
There are suggestions that it should be stretched over 15 years instead of being completed within seven years, after which the Government has to start paying for the RM55bil debt.
And the RM55bil cost does not include land acquisition.
Out of the 688km of railway track, only one-third of the land belongs to the Government. The rest needs to be acquired.
Already, smallholders cultivating oil palm in Pahang, Terengganu and Kelantan are complaining that the Government would forcibly acquire the land for the ECRL project. Can the Government afford not to hear the voices of the people now?
Every government, especially Malaysiaâs, needs to cultivate a relationship with China. It is the second-largest economy in the world and held up global trade when the developed countries were in trouble d uring the 2008 crisis. This is something that the world will never forget about the prowess and responsible nature of China.
Malaysia needs China. There is no doubting that. China is strong in technology, artificial intelligence, e-commerce and has a huge consumer market. Moreover, it is a country that understands the Asian culture of doing business and is much better to deal with compared to the likes of the United States.
However, on the back of a wave of rejuvenated voices demanding accountability and transparency, Malaysia needs a platform for real diplomacy with China. The time for âdebt diplomacyâ is over and should be buried.
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