Malaysia to fork out RM2b for mega project termination


MALAYSIA is expected to spend RM2 billion worth of compensation due to the cancellation of mega infrastructure projects, including the Kuala Lumpur-Singapore high-speed rail (HSR).

Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed recently said the amount of compensation needed to be paid to Singapore is much lower than S$270 million (RM821.73 million).

For the Multi-Product Pipeline and Trans-Sabah Gas Pipeline projects, it was reported that contractors were paid RM8.3 billion or 88% of the total contract value of RM9.3 billion, even though only 13% of the projects were completed.

However, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had said Malaysia has yet to reach consensus with China over the amount of compensation to be paid relating to these projects.

In a parliamentary reply, Tengku Zafrul said the payment that can be claimed by China amounted to RM1.2 billion, according to preliminary works carried out by the contractors and verified by local technical experts.

The government, via the Housing and Local Government Ministry, reportedly on Dec 8 had disbursed RM172 million as compensation for 17 cancelled PR1MA (1Malaysia People’s Housing Programme) projects.

Minister Zuraida Kamaruddin said the full settlement of the compensation, which includes the pre-development, labour and delay costs, for all 32 cancelled projects is expected to be made by 2023.

Another project, which remained one of the biggest losers in recent years, is Forest City in southern Johor.

Built and financed largely by Chinese interests, the development of the project has slowed dramatically, with lower sales as a result of the Movement Control Order.

Another mega project that remains uncertain is the Melaka Gateway project, where its developer, KAJ Development Sdn Bhd (KAJD), has sought to reverse the Melaka government’s decision, terminating its three-year reclamation concession.

KAJD CEO Michelle Ong said the company has spent RM700 million on the project now, with 40% of the work done, and had managed to attract foreign direct investment worth billions of ringgit for the project to be carried out over the next 10 years.

Economists believed the billion ringgit losses could be utilised as incentives or stimulus for the people.

Asia Pacific Applied Economic Association VP Dr Baharom Abdul Hamid said it also can be used as grants or easy financing for small and medium enterprises, especially the nano and micro, which in turn could rejuvenate the economy.

“Information technology (IT) infrastructure projects could also be done to enhance the coverage, especially in rural areas and Sabah and Sarawak, in order to reduce IT inequality among the rakyat.

“Furthermore, these monies could also be used to fund upskilling and reskilling of the unemployed or underemployed,” he told The Malaysian Reserve (TMR).

“Now, we need to inject more stimulus packages. It is now very much worsened by new problems of funding billions to be used as compensation for projects cancellations.

“Our debt level is already at an alarming rate, if we glance at the debt-to-GDP ratio. The government is still not transparent enough on how to handle these deficits,” he added.

Another expert Dr Hoo Ke Ping cautioned that Malaysia is on the brink of bankruptcy, mainly because the long-term project will incur more debt.

He said the government is borrowing 60% of GDP for Budget 2021 and if they proceed with HSR and other long-term projects, debt level can easily reach 70% — resulting in bankruptcy.

“It doesn’t mean that the compensation money can be used for the people because the government doesn’t have the money, instead, the cancellation actually saves Malaysia from sinking into further debt.

“Rather than billions worth of projects, the government needs to focus on immediate concern to address the rising of unemployment issue and the need for more allocation to fight Covid-19,” he TMR.

Sunway University Business School economics Prof Dr Yeah Kim Leng said it is a painful one-off loss as the estimated compensation to Singapore translates to about RM25 per capita or about RM55 per working adult.

“The positive aspect is that the government debt level and debt servicing burden will be more manageable without the HSR.

“The compensation will have to be deducted from Budget 2021’s RM15 billion allocation. Depending on the initial allocation for the HSR, the rest of the mega infrastructure projects could be positively or negatively impacted,” he told TMR.

With the cancellation of HSR, Yeah said the focus of public infrastructure projects will now shift to the Rapid Transit System Link from Johor Baru (JB) to Woodlands, Singapore; Klang Valley Double Tracking Phase 1; Mass Rapid Transit Line 3; and the Gemas-JB Double Tracking.

“The RM15 billion allocations in the 2021 budget for these projects should be implemented quickly, but more importantly in an open and transparent manner, so that cost overrun and leakages are minimised,” he added.