Malaysia scraps China-backed East Coast Rail Link plan over price
- Economy minister Azmin Ali admitted the government could not afford hefty interest rates demanded by high-profile ‘Belt and Road’ project
- Official insisted Kuala Lumpur would ‘still welcome all forms of investment from China’, but consider them on a ‘case-by-case basis’
PUBLISHED : Saturday, 26 January, 2019, 12:08pm
UPDATED : Saturday, 26 January, 2019, 11:32pm
Malaysia’s government has decided to cancel a US$20 billion rail project being built and financed by China after failed attempts to lower the price, a minister said on Saturday, ending months of speculation about the future of the controversial project.
Economic Affairs Minister Azmin Ali said Prime Minister Mahathir Mohamad’s government made the decision to scrap the East Coast Rail Link (ECRL) at a cabinet meeting this week.
The minister’s comments on Saturday – a recording of which was made available to
This Week in Asia – are the clearest indication yet that the Malaysian government has reached a final decision on the 688km rail link after expressing an interest in cancelling the project last May.
It was to have been built by the China Communications Construction Company and 85 per cent financed by the Export-Import Bank of China.
Saturday’s comments contrasted with the previous pronouncements of Malaysian officials, including Mahathir, who had hedged their positions by suggesting the project could still continue even though they preferred for it to be axed.
There also appears to be differences within the cabinet on the matter, as Finance Minister Lim Guan Eng reacted to Azmin’s comments by suggesting the decision was not final.
Two separate sources with knowledge of the matter confirmed that Azmin had expressed the government’s final position: that the existing contract with CCCC would be terminated.
The decision is likely to mean Malaysia will incur a cancellation penalty, the sources said.
Azmin said in the end, the project was just too expensive for the government, which was left with huge debts after taking over from the scandal-tainted administration of former prime minister Najib Razak last year.
“The cabinet decided to scrap the project because the cost of development is too high, and we do not have the financial capability at the moment,” Azmin told reporters, according to a recording released by his office.
“If this project is not cancelled, the interest that will need to be paid by the government is almost half a billion ringgit (US$121 million),” he said. “We cannot bear this right now, therefore the project needs to be cancelled without affecting our good relations with China. We still welcome all forms of investment from China but we will look into the matter on a case-by-case basis.”
When the project was awarded to CCCC in 2016 by Mahathir’s now-deposed predecessor, observers hailed it as one of the cornerstones of President Xi Jinping’s “Belt and Road Initiative”.
The issue has been in the spotlight since several news reports – citing anonymous sources – said the closely watched project had been axed.
However, government officials including Mahathir and Lim, the finance minister, refused to confirm if it had.
Upon his shock election victory in May last year, the 93-year-old prime minister identified the ECRL as one of several big-ticket China-linked infrastructure projects he planned to cancel because he felt they were too expensive and unnecessary.
As negotiations stretched on, Mahathir in early January suggested the project could carry on, if on a much smaller scale.
That plan failed, judging by Azmin’s confirmation of the cancellation on Saturday.
Najib, who offered the project without tender, has repeatedly said the Mahathir government would be making a mistake by cancelling the deal.
He has challenged Mahathir to make public the terms of the contract, which he says are favourable.
According to the former leader, the terms offered by the Chinese Export-Import Bank are highly competitive, with an interest rate of 3.25 per cent protected from exchange rate fluctuations and a seven-year deferment on payments.
Mahathir’s Pakatan Harapan bloc believes Najib, now facing dozens of criminal charges for his alleged role in the multibillion-dollar 1MDB scandal, endorsed Beijing-linked projects because of his enthusiasm to move the country closer to the Asian superpower.
Chinese companies bought assets from the 1MDB state fund in 2015 as the extent of its losses – allegedly through plunder – were made public.
Reviewing Chinese-linked projects was one of 10 things Mahathir’s government promised to do within the first 100 days of coming to power last year.
Following his meeting with Xi in Beijing last year, Mahathir said he had the assent of the Chinese government to review the projects, which he said Xi understood Malaysia needed to do.
