Malaysia to resume China-backed rail project after cost cut by a third to $10.7 billion

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Malaysia’s government said Friday it has decided to resume a China-backed rail link project, after the Chinese contractor agreed to cut construction cost by one-third.

The deal ended months of vacillating over the 688-kilometer (430-mile) East Coast Rail Link (ECRL), which connects Malaysia’s west coast by the busy waterway of the Malacca Strait to eastern rural states on the South China Sea coast and is a key part of China’s Belt and Road infrastructure initiative.

The prime minister’s office said in a statement it welcomed the signing of a supplementary agreement between Malaysia Rail Link Sendirian Berhad and state-owned China Communications Construction Company Ltd. (CCCC) to revive the project. The agreement covering engineering, construction and other aspects of the project followed months of negotiations.

It said the construction cost of the first two phases of the project will be cut to 44 billion ringgit ($10.7 billion), down one-third from the original cost of 65.5 billion ringgit ($15.9 billion).

“This reduction will surely benefit Malaysia and lighten the burden on the country’s financial position,” the statement said. Prime Minister Mahathir Mohamad will give further details at a news conference on Monday, it added.

Since winning elections last May, the ruling Pakatan Harapan government has axed or reviewed large-scale infrastructure projects to rein in a surging national debt that it blames mostly on corruption in the previous government.

The government last year suspended works on the rail link pending renegotiations. By that point, 14 per cent of the project had been completed.

In January, Reuters reported, citing sources, that contractor CCCC had offered to nearly halve the cost to save the project.

In March, Malaysia’s representative in the talks, Daim Zainuddin, said they could include commercial elements that would benefit the southeast Asian nation, but he did not elaborate.

Mahathir initially suggested the rail project will be called off because the high cost could burden the country with debts for decades. But he later said negotiations were ongoing and the government hadn’t made a final decision.

The project is largely financed by China and the main contract was awarded in 2016 to CCCC by former Prime Minister Najib Razak. Mahathir’s government has said the final cost could balloon to over 100 billion ringgit ($24.2 billion) but bids to terminate the project pose a challenge to the government, which has to pay compensation and risk angering China, Malaysia’s largest trading partner.

Apart from the rail link, the government last year also canceled 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.

Malaysia had also put a 10-billion dollar high-speed railway project linking Singapore and Malaysia on hold, which would have halved the amount of time taken to traverse the 300-kilometer route, from three hours to 90 minutes.

The government has said it is investigating whether any money in the rail project has been channeled by Najib’s government to repay debts at the 1MDB state investment fund. A massive financial scandal at 1MDB led to the shocking election loss of Najib’s coalition last May and Najib is currently on trial for multiple corruption charges linked to 1MDB.

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