ECRL, gas pipeline cancellation to ease debt load

By P PREM KUMAR, NG MIN SHEN & ALIFAH ZAINUDDIN / Pic By TMR

The cancellation of the East Coast Rail Link (ECRL) project and two gas pipeline projects will provide some leeway to reduce the national debt load over the next few years.

With the federal government’s debt and liabilities exceeding RM1 trillion now, experts view Putrajaya’s move to backtrack from the infrastructure deals as a step in the right direction.

Asian Strategy and Leadership Institute’s (ASLI) Centre for Public Policy Studies senior director Lau Zheng Zhou said the deferment of the Chinese-funded projects is indicative of the new administration’s fiscal policy.

“I think the Pakatan Harapan-led government has other priorities, such as the rakyat’s welfare where it will be more important for their re-election prospect.

“Our public finance may also not be able to pay for these mega projects and keep other spendings. This is rewriting the social contract between the rakyat and the government,” Lau told The Malaysian Reserve (TMR).

Sunway University Business School Economics professor Dr Yeah Kim Leng said the government should allocate its existing resources to areas that are more productive and have economic multiplier effects.

“Until we can assure the project has a strong socio-economic impact that it is able to support itself like the North-South Highway, then we should be prudent. It is best that we revisit this,” Yeah said.

Prime Minister Tun Dr Mahathir Mohamad, who concluded his five-day working visit to China on Tuesday, announced the cancellation of the RM81 billion railway link that was intended to form part of China’s Belt and Road initiative.

Dr Mahathir said the projects would be cancelled until such time when Malaysia can afford them.

He told the Malaysian media covering his visit to Beijing on Tuesday that the projects are too expensive and the federal government might not be able to stomach such massive expenses at the current financial position.

“We might restart the projects later if we find them necessary, but even then, they must be at a lower cost.”

Dr Mahathir said all three Chinese leaders he met in Beijing — President Xi Jinping, Premier Li Keqiang and National People’s Congress chairman Li Zhanshu — had been briefed on the Malaysian government’s financial health and the leaders have accepted the explanations.

“We did not discuss on any particular projects, but in principle, I have explained our financial position and what the new government counts as foreign direct investments (FDIs).

“As far as the ECRL and gas pipelines are concerned, they are all cancelled because we cannot afford them,” he added.

Dr Mahathir noted that compensations would have to be paid to Chinese contractors due to the deferments, only because of the poor deal-making ability of the previous Barisan Nasional government.

“What kind of stupidity is it that to strike a deal without a proper exit clause. Exit clauses are supposed to be of mutual interests, but in these con- tracts, it burdens the Malaysian government.

“It is not the Chinese government or contractors to be blamed, but the previous Malaysian government.”

Shares of ECRL-linked stocks slid following the announcement. HSS Engineers Bhd plunged 18 sen or 16.37% to close at 94 sen on Tuesday with 36.65 million shares traded, while Gabungan AQRS Bhd fell 14 sen or 10.22% to RM1.23 with 19.23 million shares changing hands.

The short-selling of both HSS Engineers and Gabungan AQRS got both stocks suspended during Tuesday’s afternoon trade after the last done prices of both fell more than 15 sen or 15% limit from the reference prices.

George Kent (M) Bhd, earlier seen as a prime proxy for rail project rollouts, was down eight sen or 5.76% to RM1.31, with 12.4 million shares traded.

Lafarge Malaysia Bhd slipped five sen or 1.62% to RM3.03, with 337,000 shares traded. The firm in March won a RM270 million contract to supply cement to the local unit of China Communications Construction Co Ltd (CCCC) — ECRL’s contractor — for the project.

“This appears to be a knee-jerk reaction from investors — everyone is still focused on the headlines, but information is still scarce, so more clarity is needed,” Rakuten Trade Sdn Bhd research VP Vincent Lau told TMR.

According to Dr Mahathir, the Chinese contractors involved in the rail link would be compensated, while the ECRL and two gas pipeline projects in East Malaysia that were also cancelled could be restarted at a later date if necessary, but at a lower cost.

“However, all is not lost — there is a possibility that the funds saved from the cancellation will be channelled to other more pressing infrastructure projects like the Mass Rapid Transit Line 3 (MRT3), which is much-needed due to its connectivity,” Rakuten’s Lau added.

The potential revival of the MRT3 — which was cancelled in order to reduce the government’s debt burden — could breathe new life into stocks such as HSS Engineers, which was previously engaged as the independent consultant engineer for MRT3.