by ALIFAH ZAINUDDIN / graphic by TMR
PRIME Minister (PM) Tun Dr Mahathir Mohamad has described the renegotiated East Coast Rail Link (ECRL) deal as a “solution to our concern” as Malaysia seeks to avoid falling into China’s debt trap.
Dr Mahathir, who has been a strong critic of Chinese investments in Malaysia, said the agreement to cut the cost of the rail project by a third has eased some of the country’s financial risks.
The comment came two days after Malaysia and China agreed on a supplementary deal over the 640km line across Peninsular Malaysia, which was previously identified as one of several expensive China-backed projects which the country could not afford.
“If there are mega projects that we can give to the Chinese, we will. But our policy is to give mega projects to Malaysian companies and if they don’t have the expertise, they can call some foreign companies to come in,” Dr Mahathir said at a news conference in Putrajaya yesterday.
Construction on the rail link is now expected to resume next month, following its suspension in July last year.
According to Bernama, the new ECRL deal is a big win for the PM, setting Malaysia apart from other nations dealing with China.
Quoting an opinion piece written by chairman of LIU Post’s economics department Prof Panos Mourdoukoutas for Forbes, the article stated that Malaysia has dared to do something Sri Lanka, Pakistan and the Philippines did not: Bring Beijing back to the negotiating table to cut the cost of the investment projects assigned to Chinese contractors.
He said Dr Mahathir has made good on his election campaign promise to renegotiate China’s investments in the country, which have served the interests of Beijing more than they have served the interests of Kuala Lumpur.
“The ECRL is one of dozens of China’s infrastructure projects around the world — a bid to write the next chapter of globalisation and advance Beijing’s geopolitical agenda,” he said.
Meanwhile, the PM said the continuation of the ECRL at a RM21.5 billion discount is also proof that the initial deal was overblown to serve other interests.
Dr Mahathir said the Pakatan Harapan government’s success in lowering the project cost by 32.8% to RM44 billion from RM65.5 billion originally implies that the deal agreed under the previous administration was made to help repay dues of the controversial 1Malaysia Development Bhd (1MDB).
“We believe that was what happened because the price was so high and we could reduce it by as much as RM22 billion. Had the project been tendered out in the usual manner, we would have gotten a better price.
“But this was a lump sum given to a company from China through direct negotiation of the project with the Chinese government,” he added.
There have been suspicions that loans from the Export-Import Bank of China for the ECRL and two pipeline projects were used to help finance 1MDB’s debt obligations and purchase companies linked to fugitive businessman Low Taek Jho, or Jho Low.
The Wall Street Journal had even cited meeting minutes between Chinese and Malaysian officials, claiming that Beijing had allegedly offered to use its influence to stop the US probe into 1MDB in exchange for rail and infrastructure projects in Malaysia. China has since denied the allegation.
Industry experts have long estimated that the ECRL can be constructed for RM20 billion less compared to the initial RM60 billion contract sum.
“As you can see, they can do this thing with a much lower cost, so why the Malaysian government should agree to
the high cost is something that we cannot understand,” Dr Mahathir said.
Under the new deal, the proposed 640km rail line will be operated under a joint-venture (JV) company between Malaysia Rail Link Sdn Bhd and China Communications Construction Co Ltd (CCCC).
Dr Mahathir said this was done to ensure that 40% of the civil works are awarded to local contractors.
“In the original document, there was nothing about the Malaysian share of the construction, but now we have included participation by the Malaysian side in the construction of the rail,” he said.
The JV will manage, operate and maintain the ECRL rail network.
He said Malaysia’s presence under the JV will also allow the country to determine aspects of the line’s operations including ticket prices. Tun Daim Zainuddin, who had led a nine-month negotiation with China, estimated ticket prices to cost around RM500 without subsidies.
“The ticket price has not been worked out yet. We will have some say in determining the operations of the line, so we will have some influence on determining the ticket prices and others,” Dr Mahathir said.
The newly negotiated agreement will also see payment being made on a work-in-progress basis. As such, CCCC will refund a total of RM3.1 billion in advance payment for phase two of the ECRL.
“CCCC has agreed to refund part of the RM3.1 billion advance payment paid for phase two, double tracking and the northern extension under the original contract. RM500 million will be refunded within a week from April 12 and a further RM500 million within a month from April 12 or a total of RM1 billion.
“The balance will be settled within three months after deductions for verified claims due to abortive works, suspension and cancellation of the northern extension,” Dr Mahathir said.
It was reported that the government had spent nearly RM20 billion to build the railway. Finance Minister Lim Guan Eng previously said about half of the amount could be recovered if the project was cancelled, by redeeming an advance payment bond.