Malaysia says revised China deal shows costs were inflated
Malaysian Prime Minister Mahathir Mohamad gestures during a press conference in Putrajaya, Malaysia, Monday, April 15, 2019. Malaysia's government decided to resume a China-backed rail link project, after the Chinese contractor agreed to cut the construction cost by one-third. (AP Photo/Vincent Thian)
Malaysia's prime minister said Monday a Chinese company building a rail link across the Southeast Asian nation will jointly help to manage and operate the network, part of revised deal that will get the stalled project off the ground at a lower cost and ease strained relations.
The East Coast Rail Link across peninsular Malaysia was suspended after Prime Minister Mahathir Mohamad's alliance swept into power last May and said it would review large-scale infrastructure projects to rein in surging national debt that it blamed mostly on corruption in the previous government.
Canceling the project risked alienating China, Malaysia's largest trading partner, which considered the railway connecting Malaysia's west coast to eastern rural states a key part of its Belt and Road infrastructure initiative.
The project was revived last week after the contractor, state-owned China Communications Construction Company Ltd., agreed to cut the cost by one-third to 44 billion ringgit ($10.7 billion).
Mahathir said Monday the government chose to renegotiate the deal rather than pay compensation of 21.78 billion ringgit ($5.3 billion). He said the fact that the project cost can be reduced sharply by 21.5 billion ringgit ($5.2 billion) showed that the cost had been inflated when former Prime Minister Najib Razak's government awarded the main contract to CCCC in 2016.
The rail project will now cost 68.7 million ringgit ($16.7 million) per kilometer, down from 95.5 million ringgit ($23.2 million) previously, he said.
Under the new deal, Mahathir said CCCC will form a 50:50 joint venture company with Malaysia Rail Link to provide technical support and share the operational risk. He said CCCC's involvement as rail operator will help attract Chinese investment along the rail link corridor.
CCCC has also agreed to refund part of a 3.1 billion ringgit ($753.4 million) advance payment, with 1 billion ringgit ($243 million) to be paid over the next two months, he said.
Although the rail project will be shortened by 40 kilometers (24.8 miles) to 648 kilometers (402.6 miles), he said the double-track line will have 20 stations and cut through five states, instead of four previously. He said the new alignment will also mean avoiding having to tunnel through a mountain range in central Selangor state, which is the longest pure quartz dyke in the world.
The project, which is now slated for completion by the end of 2026 instead of 2024, is largely financed by China.
Mahathir said the government is still negotiating the loan amount with China's EXIM Bank but that it will be reduced substantially and this will result in paying less in interest on the loan.
He said the government is also "taking advantage of the agreement to work out the purchase of palm oil by China," but didn't give further details.
Officials said work on the rail link could resume by next month.
Apart from the rail link, Mahathir's government last year also cancelled two China-backed pipelines costing 9.3 billion ringgit ($2.3 billion) after discovering that 90 percent of the project's costs had been paid but only 13 percent of work had been completed.
The government has said it is investigating whether any money in the rail project had been channeled by Najib's government to repay debts at the 1MDB state investment fund. A massive financial scandal at 1MDB led to the election loss of Najib's coalition last May and Najib is currently on trial for multiple corruption charges linked to 1MDB.