EAST COAST RAIL LINK – MEGA PROJECT DESIGNED TO FAIL
ECRL folly bound to fail and burden the nation Jomo KS Malaysiakini | COMMENT | The East Coast Rail Line (ECRL) is being touted to Malaysians as a world-class “game changer” which will accelerate development in the East Coast states of Peninsular Malaysia. Unfortunately, there is little evidence that it will do so, and the rationale for such claims are dubious, to say the least. We have been told that RM55 billion is being invested in ECRL, which will be completed by 2024. All over the world, such mega-projects are notorious for cost overruns, and there is no reason to believe that this project will be the exception to the rule. The justification for the ECRL is that it will carry almost 60 million tonnes of freight yearly by 2035. This is incredible because even KTM only carries about 6 million tonnes per annum with its current nationwide network. If the projected massive surge in freight tonnage does not materialise, the project will lose even more, meaning that taxpayers for generations to come will have to massively subsidise the ECRL. ECRL is supposed to greatly benefit the country in so many incredible ways as to defy simple logic. But will there be enough passenger passen ger traffic to support a high1
speed rail link? What kind of cargo needs such a costly high-speed haulage connection. And which high-speed railway in the world stimulates so many businesses and jobs in all the towns it will pass through, as claimed. Will the ECRL be an expensive ‘white elephant’ paid for by Malaysians for many years to come? The Kemaman-Kuantan rail link, completed several years ago, has hardly been used to date. Are we supposed to be thankful that it cost much less than the ECRL? Even Wan Saiful Wan Jan, the libertarian chief executive of the Institute for Democracy and Economic Affairs (IDEAS) who endorsed the Forest City project in Johor Baru, found the ECRL claims difficult to swallow in a recent article arguing for improved governance generally, especially to manage investments from China. Honest critics are already being accused of wanting to deprive the East Coast states of development. But those with longer memories know how much Kelantan has been deprived of federal funds by Putrajaya, while Terengganu has been denied petroleum revenues and its investment fund was ‘hijacked’ to become the now notorious 1MDB. China firms to profit
Of course, the deal will be good for some Chinese state-owned enterprises. The contract was given to the China Communication Construction Company (CCCC) after direct negotiations, without any open tender, although Malaysian companies have delivered on rail projects before. CCCC will be required to subcontract to local firms, but will remain the main ma in contractor. As we should have learnt from earlier arrangements, foreign foreign firms find ways and means to bring their preferred partners in with them, using local partners to fulfil such requirements as meaningful technology transfer. The international success of Ingress (e.g., in Rayong, the ‘Detroit of Thailand’) contrasts sharply with the minimal development of Malaysian technological capacity and capabilities by many other Proton vendors due to their (mainly Japanese) principals’ practices. The ECRL will be funded by a loan from China’s state-owned Exim Bank, with the Malaysian government, i.e., taxpayers, serving as guarantor. Thus, the risk and liability will be completely borne by Malaysia. So, Malaysia will essentially be borrowing money from a China bank to pay a China company to build ECRL. Very little of the loan will get to Malaysia as the Exim Bank loan will be used to pay CCCC. Malaysians will bear all the risks for ECRL while the China firms are guaranteed profits by Malaysians.
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Whether or not the ECRL is profitable, we will still have to repay the loan with interest. Malaysia does not have to pay during the first seven years, but after that, we have to settle it within two decades. So financially, this is essentially a loan for which we Malaysians will exclusively bear all the risks. Economic cooperation?
To be clear, I am not against economic cooperation coo peration with China, and in the absence of other global initiatives to revive global economic progress, a creative, progressive and inclusive view of the Belt and Road Initiative is welcome. And Chinese railway construction companies have won contracts in open tenders all over the world due to their impressive record despite being relative latecomers. Also, the Chinese offer of long-term credit on concessional terms is much appreciated by many poor developing countries. But the recent rapid build-up of foreign debt and the corresponding build-up of ‘contingent liabilities’ guaranteed by the government should be of great concern. After all, all Malaysians are now taxpayers following the introduction of the Goods and Services Tax (GST). Several years ago, the Chinese ambassador to Tanzania publicly apologised for the misbehaviour of Chinese firms in Tanzania specifically and Africa more generally. Chinese officials are now more vigilant, but in China too, ‘state capture’ by private interests has been taking place as the rich are now influential members of the ruling party, which helps explain President Xi Jinping’s anticorruption campaigns. Last week, the Sri Lankan government leased its new Chinese-built harbour facilities for 99 years to the Chinese government after the new port could not attract enough traffic to make the port viable and the Colombo government decided not to spend its precious revenue to service the loan from China. This is a fate we should conscientiously seek to avoid. Malaysia should have learnt its lesson after the recent credit rating jolt following 1MDB’s failure to service its US$603 million (RM2.6 billion) first instalment payment due to Abu Dhabi’s IPIC. For most, ‘once bitten, twice shy’. Is this another case of ‘Malaysian Boleh’? JOMO KS received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. The views expressed here are entirely his own.
Saturday, 12 August 2017
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The real economics of ECRL BY GANESHWARAN KANA AND ANDGURMEET GURMEET KAUR
Rail link seen as game changer but cost is a concern.
TOK Bali, a fishing village in Kelantan with its beautiful sandy beaches and pristine blue waters has long been a hidden gem among well-travelled backpackers. But that may soon change. The idyllic town is one that is touted to potentially become a tourist hotspot, as it sits along the alignment of the East Coast Rail Link (ECRL), a multi-billion infrastructure project that promises many economic spin-offs. After almost a decade in planning, ECRL was launched with great pomp pomp this week. Touted as a key game-changer for the east coast states of Peninsular Malaysia, the interstate ECRL is expected to help the economy of the four states that it covers by an additional 1.5% per year over the next 50 years.
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On a micro level, more employment opportunities, particularly skilled jobs, will be made available to Malaysians. Domestic industry players especially in the construction sector, can now anticipate construction contracts to the tune of RM16bil, at least.
image: http://thesta http://thestar.com.my/busi r.com.my/business/business-ne ness/business-news/2017/08/ ws/2017/08/12/the-rea 12/the-realleconomics-ofecrl/~/media/f8aabb1751574bcaaa18e60c8430f89c.ashx?h=473&w=620
Another milstone:Najib checking out a train model at the ground-breaking ceremony this week.He called ECRL 'another milestore in the country's land public transport history". The ECRL is expected to benefit freight transport because it would link key economic and industrial areas within the East Coast Economic Region such as the Malaysia-China Kuantan Industrial Park, Gambang Halal Park, Kertih Biopolymer Park and Tok Bali Integrated Fisheries Park to both Kuantan Port and Port Klang.
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ADVERTISING Prime Minister Datuk Seri Najib Tun Razak called it “another milestone in the country’s land public transport history”. Despite the much highlighted economic benefits from the rail network, the venture is attracting its own share of controversies from the way the contract was awarded to the price of contract. For one, China’s state-owned China Communications Construction Company (CCCC) has been appointed for the construction of ECRL via a direct negotiation method. Detractors have labelled ECRL – at a cost of RM80mil per kilometre – as the world’s costliest rail project. Note that, the Gemas-Johor Baru double-tracking stretch costs RM45mil per km. ECRL, however, will go over hilly terrain and has several tunnels to be built.
image: http://thesta http://thestar.com.my/busi r.com.my/business/business-ne ness/business-news/2017/08/ ws/2017/08/12/the-rea 12/the-realleconomics-ofecrl/~/media/6c4105c27612464ebd8525bdd86d2939.ashx?h=595&w=620
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There are questions on whether the 688km rail venture, at RM55bil, will be financially feasible. Sources say the price tag is unlikely to have included land acquisition costs. They indicate that close to half of the land plots required for fo r the rail link sit on private land and would require land acquisition. At this point, the total land acquisition cost is unknown. No money in rail
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The concerns of the critics are understandable, given the fact that public infrastructure projects, namely rail projects are usually not commercially viable. A quick check on the finances of Malaysia’s very own Keretapi Tanah Melayu Bhd (KTMB) and a number of major rail operators abroad, affirms the fact that rail projects do not promise easy money. The loss-making KTMB which was corporatised in 1992, has not been able to financially sustain itself, resulting in the deterioration of its level of service despite attempts to turn around the company. According to the railway service operator’s latest publicly available audited report for financial year 2013, the group registered a total net loss of RM128.2mil. However, note that, the net loss had narrowed by 46% from RM238.5mil in the previous year. Had it not been for the government’s subsidy which kept it afloat, KTMB would find it difficult to continue its operations without a further raise of its fare. In India, where railway is a favoured mode of transportation, the Indian Railways has been incurring losses on passenger operations every year. Earlier this year, the lower chamber of the Indian parliament was told that the state-owned rail operator recorded a loss of Rs359.18bil (RM24.04bil) in the period of 2015 to 2016. This was slightly higher than its loss of Rs334.91bil (RM22.42bil) in the period of 2014-2015. On the other hand, China’s state-owned rail operator, China Railway Corp, was reported to have recorded a 58% increase in earnings last year despite huge losses in the first nine months. However, a zoom into its finances reveals that the high profit made was only possible due to a significant annual government subsidy. Similarly, Singapore’s SMRT Corp which manages the city-state’s rail operations posted a profit of S$7.4mil (RM23.33mil) in its financial year of 2016. This was on the back of a revenue of S$681mil (RM2.15bil), which rose by 4.1% year-onyear.
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While the rail operations saw higher ridership in that year, SMRT Corp would have registered a loss of S$9.6mil (RM30.26mil) for its rail business, if not for the net property tax refund of S$17.1mil (RM53.9mil). Considering the lack of commercial viability in such rail projects, ECRL would ultimately require assistance from the government in ensuring smooth operations, while maintaining an affordable service for its users. This is akin a crucial trade-off, to complement the government’s move to provide an integrated transportation system in Malaysia, which is long overdue. AmBank Group’s chief economist Anthony Dass tells StarBizWeek that that for every ringgit spent on capital projects such as transportation, it generates a return or multiplier effect of around 5% to 20%. In his estimation, he says the ECRL should create around RM50-55bil in terms of gross domestic product. “The impact of this project to the economy will be multilevel. Impact on the respective states’ GDP and national GDP will be evident, though the magnitude of the impact on the respective states is poised to vary. “On a longer term, once the entire project is completed, we expect strong benefits seeping into services related activities. Properties in the major towns is likely to enjoy more especially the port-connected towns, driven by logistics- and trade-related businesses. “Other areas would benefit from the movement of tourism. As for the smaller towns, they are more likely to enjoy from the spillovers of this connectivity through movement of people commuting to work and new areas of business growth especially in areas like the small and medium businesses,” says Anthony. High cargo projections
By the year 2040, an estimated 8 million passengers and a nd 53 million tonnes of cargo are expected to use the ECRL service annually as the primary transport between the east coast and west coast. By 2040, ECRL is projected to support a freight density of 19 million tonnes.
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The freight cargo projections of the rail network stands in stark contrast to the total cargo volume running through the entire Malaysian railways today. As of 2015, the entire Malaysian railways railways operations handled a sum of 6.21 million tons of cargo, according to a study related to the ECRL. To note, the revenue from the operation of the venture is projected to be obtained through a transportation ratio of 30% passengers and 70% freight. If the projections of ECRL are anything to go by, the planners are anticipating a ballistic growth in volume of cargo being moved along the tracks. Is this realistic? Socio Economic Research Centre executive director Lee Heng Guie remains concerned on the details of the project financing, albeit the expected trickle-down benefits of ECRL. “While ECRL has been identified as a high impact public transport project that will connect east coast states with the west coast, especially Greater KL and Klang Valley, the high cost of RM55bil requires further justification. More clarity on the cost structure and terms and conditions of the loan is needed to ease public genuine concerns. “It must be noted that the high costs, low profits and long gestation periods of transportation projects do not always make them financially viable. The financial viability of the ECRL would depend on the revenue generated to cover operating cash flow, including interest expenses. “As the loan will have a seven year moratorium, mo ratorium, the bunching of loan repayment together with interest payment will be substantial in the remaining 13 years,” he says. Lowering cost the key
In terms of funding, 85% of the total project value of RM55bil would be to be funded by Exim Bank of China’s through a soft loan at a 3.25% interest. The balance 15% would be financed through a sukuk programme by local banks.
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There is no payment for the first seven years, and the government starts paying after the seventh year over a 13-year period. At 3.25% interest per annum, the interest servicing bill for the project is huge. “Hence the main challenge to this project will be to bring down do wn cost as low as possible. The lower the cost, the lesser it would be the burden on the government’s balance sheet,” says an industry player. Echoing a similar view, Lee noted the ERCL project loan is expected to be treated as “contingent liability” as it will be taken by Malaysia Rail Link Sdn Bhd, a special purpose vehicle owned by the Ministry of Finance. This is also to ensure that the Federal Government will not breach the selfimposed debt to GDP ratio of 55%. As at end-March 2017, the Federal Government’s debt stood at RM664.5bil or 50.2% of GDP. At the end of the day, despite the concerns on the possible cost overrun in the ECRL project, proper management and efficiency in project delivery could lead to cost savings and ultimately lower overall expenditure for ECRL. History has shown that Malaysian companies can lower the cost, especially on rail projects compared to foreign players. In the late 1990s, a consortium of India and China state-owned companies were awarded the contract to build a double track electrified railway system from Padang Besar to Johor Baru. The cost was estimated at RM44bil and paid through crude palm oil. However, an MMC Corp Bhd-Gamuda Bhd-Gamuda Bhd joint Bhd joint venture managed to win the job in 2003 with a RM14.3bil proposal. However this project was shelved and subsequently continued after a lull of few years. ECRL is a seven year project to be built in stages. Many factors can come into play in that period like delay in construction and rise in material costs. However in the bigger picture, the infrastructure venture should not merely be seen from a commercial-viable lens alone. The trickle-down benefits on the
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economy and the Malaysian population should also be factored into the calculations. The lower the cost, the higher the multiplier effect.
Read more at http://www.thestar.com.my/business/businessnews/2017/08/12/the-real-economics-of-ecrl/#ZhbO33Ip6UxV9Ptu.99
Utusan can ask again, ‘Ap ‘ Apa a lagi Cina mahu?’ Yoursay Malaysiakini |
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YOURSAY | YOURSAY | ‘China funds almost 90% of the East Coast Railway Line.’ ha ve the cake and eat it. China funds Clever Voter: As they say, you cannot have almost 90% of the East Coast Railway Line (ECRL). They have the say on everything from food to procurement of materials, labour and suppliers. Almost all except one or two screwdrivers will be imported from China. Perkasa should know this. That has been the way things are done. What's interesting here is the lack of attention to the financial arrangement. It is expensive and opportunity costs are high. What's the point of complaining about signposts in Chinese language when someone is benefitting financially from once again a so-called national project? Grey Matter: This was exactly what happened in Sri Lanka. The leaders were
too busy allegedly enjoying their kickbacks that they forgot one day 95% of the country’s revenue ends up being used to repay the country’s debts. Then the Chinese could dictate terms to us and we would be like Laos and Cambodia, which did not want Asean to use strong words to denounce China's action in claiming territories in South China Sea. Even Malaysia did not protest although we had competing claims. Eventually, China will claim all the oil and gas reserves that we laid claim to. Sorry to say, Malays have no more 'maruah' (dignity).
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Wg321: In the 15th century, the Emperor of China gave protection to the
Malacca sultanate. Otherwise, Malacca would have been conquered by the powerful King of Siam and today Tanah Melayu will be just a province of Thailand like Yala, Narathiwat or Pattani. Today the new "Emperor of China" – that is, the Communist Party of China – saved Malaysia under PM Najib Razak from bankruptcy ban kruptcy as a result of 1MDB scandal and the government’s acute financial mismanagement of the country's resources. Iiiizzzziiii: Perhaps it is time for all Malaysians to wake up. We are where we are
today because we have done this to ourselves. Our so-called leaders have failed us miserably. Our national resources and wealth have been badly mismanaged due to corruption, cronyism, nepotism, abused of power, etc (too many to mention) after Independence. Today we are witnessing the effects of those who have destroyed the country. The social re-engineering policy introduced has been a disaster. The Malay supremacy, or whatever you want to call it, is just a nice slogan because this ethnic group lack the required discipline to build a prosperous future for all, safe themselves. So what is Perkasa barking about? They should take a deep look at themselves and their 'ketuanan Melayu' attitude. You had your chances, and you deserve what you get - scraps and handouts from China. Odin Tajué: Perkasa secretary-general Syed Hassan Syed Ali, it is plainer than
daylight that you all at Perkasa are just a bunch of cowards. When it came to the minority groups in Malaysia, you were braver than the lion and stronger than iron. You threatened and demonstrated and lashed out. Now that you are facing China, you only have the guts to squeal behind your wives’ sarongs. You didn’t march to the construction site and flex your f laccid muscles and exercise your mealy mouths to frighten the Chinese. Pawning the country’s dignity, you say? What dignity? Clearly, you all are delusional as well. Get used to it, busters. China is now your lord and master. Know your place and be subservient. Mahsuri: I would laugh but I realise that it will be our children and grandchildren
that will bear the cost of repaying China for the building of this costly railway line. We should all be crying.
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David Dass: Each nation sets its own priorities. We must set our own. The
ECRL project is part of China's One Belt One Road initiative. It may serve China's purpose. Does it serve our purpose? Did we conduct a viability study for it? Are there other projects that are more important to us at this point in time? Can we afford this project? What kind of debt burden do we incur? There are problems with Kenya, Sri Lanka, Kazakhstan, Pakistan and Russia over such China projects. We should be careful. Every major infrastructure project not only involves massive capital expenditure but also requires money for operations and maintenance. If there is insufficient revenue to service loans and meet operational expenses including maintenance expenditure, the government would have to find money elsewhere to help the railway. Blurblur: When the double-track line from Padang Besar was at the planning
stage, those who were in the logistic industry expressed concern as the volume of traffic from southern Thailand and the northern parts of Malaysia will not be sufficient to generate the freight revenue to pay for its operation. The nearest port by truck is less than four hours, in this case, Penang Port. Ipoh’s industrial areas are also less than four hours by road to Port Klang. Time and cost-wise, there is not much difference between road and rail. Can ECRL have enough volume/freight viable to pay the monthly interest on the massive loan, let alone pay the principal loan? Wira: Indeed, we do not have the economic activities nor the ridership from
those three east-coast states to justify such a project. The magnificent east coast highway is already a sufficient transport link for the movement of goods and people from those states to Kuala Lumpur and the west. RM2.6 Billion Turkey Haram: Yes, any one with some economic senses, would
know that railway business is not profitable. And with such huge financial cost of RM55 billion, one need not be a world-class economist econ omist to tell that it won't be profitable. But who cares? As long as the leaders can extract some cash out of the venture, what comes later is inconsequential to them. Anonymous 2475871497500343: Who builds the rail is not an issue. I just don't
trust the way government awarded the contract without an open-tender process.
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Who knows there was no any hidden cost added to the project, especially when there is a trust deficit de ficit for MO1 (Malaysian Official 1)? The above is a selection of comments posted by Malaysiakini subscribers. subscribers. Only paying subscribers can post comments. Over the past one year, Malaysiakinians have posted over 100,000 comments. Join the Malaysiakini community and help set the news agenda. Subscribe now. now. These comments are compiled to reflect the views of Malaysiakini subscribers subscribers on matters of public interest. Malaysiakini does not intend to represent these views as fact.
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10 reasons why we don’t need RM55b east coast rail link P Gunasegaram Malaysiakini |
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A QUESTION OF BUSINESS | BUSINESS | Why does the country need a double-tracked, electrified East Coast Rail Line (ECRL) from Port Klang on the west coast of Peninsular Malaysia to Kuantan and Tumpat on the east coast - 688 kilometres, to be built at a massive cost of RM55 billion? Especially since the earlier double-tracking project from Padang Besar, Perlis to Johor Bharu costing a massive RM36 billion is already one of the greatest, if not the greatest, infrastructure failures in Malaysia ever? Proceeding with such a dubious project raises many questions over the competency and integrity of the government which awarded this project p roject without a tender process to the China Communications Construction Company (CCCC), a
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China state-owned company which was barred from World Bank projects in 2009 because of alleged fraudulent practices in other countries. Also, by now, China’s efforts to further its its own interests under the One Belt One Road (OBOR) project is now well-known. Many, including this writer , consider it to be a thinly disguised plan using Chinese and other concessional financings which will strengthen China’s role in international trade, industry and connectivity, often at the expense of other countries. China’s vision for the ECRL seems to be for the link to provide connectivity via rail between Port Klang and Kuantan for cargo to be moved back and forth which will save transport costs for goods headed to and out of China. But at RM55 billion, the number of goods moved has to be astronomical for it to be economically feasible. Here are 10 reasons why that ECRL project should absolutely not proceed. 1. Economically not feasible. At RM55 billion, it’s the largest infrastructure
project ever for Malaysia. If we assume a required 10 percent rate of return on the investment, the ECRL has to generate an income, not revenue, of RM5.5 billion a year. Assuming income is even 20 percent of revenue, then revenue needs to be a massive RM27.5 billion! The impossible task ahead is illustrated by this: In 2016, Singapore’s port had a turnover of S$3.7 billion (RM11.7 billion) and a profit of S$1.2 billion. 2. Earlier RM36 billion double-tracking has failed spectacularly. Let’s look at the utter failure of the RM36 billiondouble-tracking venture initiated under the
Mahathir regime. Rail operator KTM had a revenue of RM1.1 billion in 2016 from which it obtained a cash flow of a mere RM166 million. Revenue is only 3 percent of the cost of double-tracking while operating cash flow is a mere 0.5 percent, not anywhere near enough to cover even interest expenses. For a 10 percent return on costs, cash flow needs to rise over o ver 20 times to RM3.6 billion a year. This is the backbone north-south route of Peninsular Malaysia. How is the ECRL going to fare any better? 3. Expensive. Not only is the ECRL extremely expensive in absolute terms, it is
also very expensive in terms of cost per km k m at RM80 million compared to the Gemas-Johor Bharu double-tracking stretch of RM45 million per km. However, this is not strictly comparable given that the ECRL goes over hilly terrain. But analysis is seriously hampered by the lack of information. 4. Unnecessary. Such a large investment can only be justified if there is a great
economic benefit. Economically it will depend on one major customer - China which is looking to export and import goods more cheaply by ferrying goods between Kuala Lumpur and Kuantan via a rail to cut shipping costs.
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5. Does not serve the country’s purpose. Such a move does not serve the
country’s purpose but instead represents the diversion of badly needed and scarce resources to a project that could potentially fail and fail big and will benefit China...
ECRL designed to fail, say opposition leaders Nora Jaswa Free Malaysia Today | Today | PPBM supreme council member Rais Hussin says decision to put so much money into project will have a negative impact on Malaysians in future.
PETALING JAYA: The East Coast Rail Link (ECRL) is a project designed to fail both financially and economically as Malaysia will eventually have to pay more for it, say opposition leaders. “The government said the project is worth RM55 billion and that 70% of the total will be financed by China and another 30% will be financed by Malaysia through the issuance of sukuk and bonds,” PPBM supreme council member Rais Hussin told FMT. “Whether from sukuk, bonds or loans from China, it will still incur some element of interest payment.
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“Given the reported seven-year grace period and 240-month instalment plan, let’s take 3% for ease of calculation. “The interest on the loan may even kick in seven years after the completion of the project, and this can amount to a total of RM99.6 billion.” Rais said the project’s cost of development alone was already around RM100 billion. He also questioned the government’s decision to put such a huge amount of money into the project. He said this would have a negative impact on the country and the people in future. “It is Malaysians who will end up having to ‘finance’ the project on behalf of the government. “Malaysians could end up having to bear the cost through more taxes possibly, especially if the government has to borrow money from external sources to make up for the losses,” he said. “Aside from Singapore’s MRT, no train systems in the world, even Japan’s highly-efficient Shinkansen bullet train, is making money. Why? “Because Singapore’s MRT does not recognise capital expenditure (capex) as part of the cost. In its balance sheet, the capex is the infrastructure provided by the government. Our RM55 billion is only capex. This does not include other incurring expenditure. “And Singapore went through all transaction processes leading up to the actual development of the project in a transparent manner, and it even awarded the contract through an open tender process,” Rais said. Meanwhile, Damansara Utama assemblywoman Yeo Bee Yin said it did n ot make sense for the government to spend so much on a project which could cost far less. “And why didn’t the government put the project up for an open tender? Why should it be awarded specifically to this China company?” she told FMT. Yeo said so far, the ECRL deal had been shrouded in secrecy and that the government must disclose its feasibility studies to be more transparent with the people. It has previously been reported that the ECRL returns would not justify the country’s investment as the cost was far more expensive than what had been reported.
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The ECRL project was awarded to China Communication Construction Co Ltd (CCCC) without an open tender. At RM55 billion, it is also deemed the most expensive railroad of its kind after being benchmarked against other rail projects around the world. Malaysia also received attractive financing terms for the ECRL, with 85% of the project financing, including a soft loan of 3.25% from China Exim Bank with a moratorium period of seven years, with the remaining 15% to be funded through a sukuk programme managed by local investment banks. It will be built by CCCC, a leading transportation infrastructure group, with Malaysia Rail Link Sdn Bhd (MRL) tasked as the project owner. The project is slated for completion by 2024.
ECRL – Milestone or tombstone? August 16, 2017 Whichever way you look at it, the ECRL is simply s imply bad for Malaysia. COMMENT
By Dennis Ignatius
The recently launched East Coast Railway Link (ECRL) project has been hailed as, a game changer; that it will most certainly be but not in the way that many expect.
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The ECRL now ties us to China in a way that jeopardizes both our political sovereignty and our economic future. It signals not only the ascendency of China in our national affairs but the stark failure of all our national institutions to safeguard our independence and sovereignty. It is the ultimate triumph of selfinterest over nationalism. Fantasy economics
Whichever way you look at it, the ECRL is simply s imply bad for Malaysia. It is based on exaggerated claims, unrealistic assumptions and terms that bring little benefit to Malaysia. The government is projecting, for example, that demand for freight capacity along the east coast corridor will rise to 53 million metric tons by 2030. How realistic is this given that the entire KTMB network today carries no more than 6.5 million metric tons annually? For freight demand to rise to the level the government is projecting, the east coast states of Kelantan, Terengganu and Pahang would have to experience an unparalleled economic great leap forward, surpassing even the present level of industrialization on the west coast in just about 18 years. If that is not fantasy economics, what is? And let’s not forget either that even KTMB, more than twenty-five years after it was corporatized, is still dependent on hefty government subsidies to survive.
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Bypassing Singapore
Going by some of the remarks made at the groundbreaking ceremony, the government is also hoping that the ECRL, which will connect the deep-water port of Kuantan to Port Kelang, will become “an alternate trade route” bypassing Singapore. Bypassing Singapore is, of course, a long cherished dream of certain ultra groups in Malaysia but that aside, the assumption is that the ECRL alternative is going to be competitive enough to persuade shipping companies to offload their cargo at Kuantan port, transport it by rail across the peninsula to Port Kelang and then reload it on container ships bound for other destinations. And all this to save, at the very most, a couple of days additional sailing time around the peninsula. Shipping industry sources say this is simply wishful thinking and yet more fantasy economics. Even Chinese shipping companies would be hard-pressed to justify using such a route. Perhaps that’s why China has itself shied away from making any firm commitment to use the ECRL. And what happens to the ECRL (as well as all our other expensive port projects being built with yet more PRC loans) if China and Thailand decide to go ahead with the Kra Canal project that they have been discussing for some time now? It wouldn’t be just a game changer; it would be game over for us.
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The most expensive railway in the world
In terms of cost per km, the ECRL is also going to be the world’s most expensive railway project, certainly the most expensive Chinese railway project ever built abroad. Chinese railway projects in Africa, for example, cost far less. The 752 km Addis Ababa – Djibouti rail link which was was inaugurated in 2016 cost RM15 billion. The 782 km Port Sudan – Khartoum railway cost RM6.4 billion. The 470 km Mombasa – Nairobi railway cost RM17.18 billion. The now abandoned 462 4 62 km high-speed railway project in Venezuela cost RM32 billion. The 668 km ECRL, on the other hand, will cost a whopping RM55 billion and that does not include land acquisition costs and the inevitable cost overruns. Even taking into account differences in terrain and other factors, the ECRL is clearly overpriced. Given the lack of transparency and our long h istory of corruption, one has to assume that “hidden costs” have pushed up the overall price of the project, making it even more of an eventual liability to taxpayers than it already is. Simply put, therefore, the ECRL is grossly overpriced, not financially viable and destined to become perhaps our costliest, most disastrous infrastructure debacle to date. Win-win for China
It is also doubtful that Malaysia will gain much in terms of spinoff and other economic benefits. In exchange for concessionary loans, Malaysia has had to surrender overall control of the project to China. Everything about the project – management, design, construction, technology, material, rolling stock and other equipment as well as a significant part of the labour force – will end up being sourced from China. Of course, there will be the usual token local participation, all cleverly structured to provide the illusion that the project will create good local jobs and provide a huge boost to the local economy. The reality is that Malaysian companies, labour and suppliers will be largely sidelined. In the end, the ECRL, like other PRC projects in Malaysia, is all win-win for China. It prioritizes China’s strategic interest, enhances China’s energy security, improves China’s lines of communication in the region, helps absorb China’s
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excess industrial capacity, boosts China’s exports and provides jobs for thousands of Chinese citizens. And all courtesy of Malaysian taxpayers who will have to spend money they don’t have on projects they do not need to advance another country’s interests at the expense of our own. A reckless venture
No responsible government would ever contemplate such a reckless, risky and perilous venture on such disadvantageous terms for such doubtful benefits. One has to wonder what nefarious agenda drives this headlong rush to embrace such dubious projects. Dennis Ignatius is a former ambassador.
ECRL not a game changer
COMMENT | At a cost of RM55 billion, with a mere seven-year grace period in which no interest needs to be paid before the repayment kicks in for the next twenty years or 240 months, Malaysia is in for a tough tou gh ride with the East Coast Rail Link (ECRL) between now and 2045.
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Assuming the periods mentioned above are right, given the east coast passenger load and at an interest rate of 3 percent per annum, the break even unsubsidised ticket price between Kuala Lumpur and Kota Baru will be about RM3,586, a return economy class air ticket to Siberia, Russia. Surely the ticket price cannot be at that level, hence subsidies will kick in. So much of doing away with subsidies! That's practically what Malaysia gets for agreeing to the ECRL that snakes its way from Port Klang through the mountain range of Titiwangsa to Pahang, Terengganu and onwards to Kelantan. Malaysia does not need such projects because the projected contribution to national growth is merely 1 percent to 1.5 percent. Prime Minister Najib Abdul Razak himself admitted this recently. Malaysia's gross domestic product is less than US$300 billion. Theoretically, that's a per capita income of US$10,000 per person. But the average debt of a Malaysian is US$5,000 and counting, due to the inability of the Federal government to manage the national debt. Between 2002 and 2016, Malaysia's per capita income remained at US$5000. In other words, under the premierships of Abdullah Ahmad Badawi and Najib, Malaysia has remained sordidly stagnant. Thus, what is the value of a railway project that traverses Peninsular Malaysia, when the economies of the east coast remain mired in poverty, oil and gas, and local agricultural produce? Just as the Padang Besar and Pasir Gudang double-track railway economy has been a grotesque failure, wasting close to RM36 billion, the ECRL looks likely to satisfy the supply chain of China alone...
Economist: With advances in shipping, ECRL is no ‘game changer’ Robin Augustin Free Malaysia Today | Today |
More shipping companies are opting for mammoth container vessels which usually dock at main ports in a region, and Singapore’s Tuas port will serve their needs more efficiently in Asean, says Hoo Ke Ping.
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PETALING JAYA: The East Coast Rail Link (ECRL) may not be the game changer it is touted to be as the growing use of mammoth container ships for maritime trade is changing how shipping companies operate, says a veteran economist. Speaking to FMT, Hoo Ke Ping said more shipping companies, particularly the five biggest container lines which controlled over 60% of the global market, were shifting towards using larger container ships. “The big container lines are moving towards using massive ships with capacities of 18,000 TEU which are much bigger than ships with capacities of 10,000 TEU.” TEU, which is short for twenty-foot equivalent unit, is the most common international standard for describing a ship’s cargo-carrying capacity. capacity. In a recent Bloomberg report, Seoul-based Shinyoung Securities analyst Um Kyung-a said the shipping industry was becoming more dominated by top players with big ships. She said the use of such large ships allowed companies to deploy fewer vessels and move more cargo in a single journey. She estimated that there were 58 carriers worldwide which could carry more than 18,000 containers, and that this number would likely double in just a few years. Mammoth ships will choose Singapore
Hoo said mammoth vessels like those with a 18,000 TEU capacity would only dock at main ports on their journey due to their size, and wouldn’t stop at different ports like smaller ships would. “It’s more economically viable for the mammoth ships plying the Malacca Straits to dock at one port rather than a few. “In this case, that port is likely to be Singapore’s Tuas port,” he said, referring to the mega port which is currently being developed. developed. The Tuas mega port will eventually be able to handle 65 million TEU per year. “So a ship which has a 18,000 TEU capacity is likely to end up in i n Tuas and unlikely to stop at Port Klang.
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“What they will do is dock at Tuas, and from there, feeder ships will take the cargo to various ports in the region, effectively serving over 600 million people in the region.” This, Hoo said, was because of the size and infrastructure at Tuas port, and the fact that Singapore was known for its efficiency. He added, this meant container ships could dock, unload cargo and move the cargo out of the port faster. “Even though Port Klang is one of the largest ports in the world, it and other ports in Thailand and Indonesia will be far behind the Tuas port.”
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