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China to shave US$2.4 billion off cost of Malaysia’s East Coast Rail Link. But will it be enough?

 
The Chinese government has offered to cut 10 billion ringgit (US$2.45 billion) off the price of Malaysia’s
 controversial East Coast Rail Link in an effort to get the project back on track before world leaders gather in Beijing for a summit on the “Belt and Road Initiative”. Whether that will be enough to gain a green light for the long-stalled project is anyone’s guess.
Malaysia’s lead negotiator on the China-backed project, Daim Zainuddin, said last week that Beijing was hoping a revised deal could be finalised by April 2, weeks before Prime Minister Mahathir Mohamad heads to China for the April 25-27 meeting.
 

Daim said that in addition to the savings, revisions to the deal would ensure “a lot more comes [Malaysia’s] way”. Though Daim did not specify what he meant by this, the project has long faced accusations that its terms are biased in China’s favour. The rail link was among various China-linked projects that Mahathir either suspended or cancelled after his election in May last year. The 93-year-old leader had attacked the projects as inessential and costly and claimed his scandal-tainted predecessor Najib Razak had offered Chinese contractors a “sweetheart deal” as a quid pro quo for bailing out Malaysia’s state investment fund 

1MDB. 

Since then a question mark has hung over the rail link, with government ministers giving conflicting accounts over whether a deal was still a live option.

Daim said there was now reason for optimism. “We may be able to resolve this as soon as possible,” he said. “I have a good relationship with [the Chinese] as I have known them since 1971. Maybe they are comfortable with me. I am an old man,” said Daim, who was finance minister from 1984 to 1991 during Mahathir’s first stint as prime minister and is now chairman of the government’s Council of Eminent Persons.

However, experts criticised Daim’s comments as being “vague” and pointed out he had not given a definitive figure for the cost of the project, estimates of which have varied wildly according to the source.

Najib had originally claimed the project would cost 55 billion ringgit, but the most recent figure put forward by Mahathir was that the true cost of the 688km line would be 130 billion ringgit. Which figure Daim is using as a basis for his 10 billion ringgit reduction is unclear or – as Dr Ngeow Chow Bing of University Malaya’s Institute of China Studies put it – “a bit vague”.

Ngeow said Daim’s figure was surprising as he thought Kuala Lumpur was pursuing a greater reduction in cost. “So I am confused … [the contractor China Communication Construction Company] has already offered to halve the cost, which is already a reduction of more than 10 billion ringgit. Does he mean there would be a further reduction of 10 billion ringgit from the halved cost, or the original cost?”

Commenting on why Beijing might have suggested the April 2 date to finalise the project, Ngeow said “I suppose China feels confident that substantial progress has been made but perhaps there are still some small but substantive and difficult parts so a ‘deadline’ or something of the sort is needed to speed things up.”

Dr James Chin of Tasmania University’s Asia Institute also thought Daim’s announcement was unclear, and questioned whether there were “hidden” elements to the deal, such as the promise of other contracts in the future.

“The date shows that China wants to settle this quickly. One must assume the Chinese are worried that if they don’t settle, it may give other countries an example of how to deal with China,” he said.

Mahathir has previously indicated negotiations on the rail link might not wind up before the Belt and Road Forum, though he has said the project could continue on “an appropriate scale” depending on China’s attitude to dropping the price.

In January, Reuters reported that China had offered to nearly halve the cost of the project in order to preserve a main facet of its Southeast Asian infrastructure network.

The Malaysian government has been sending out mixed signals on the ECRL for months.

In January the government issued a “gag order” on officials, authorising only Mahathir to comment on negotiations.

In an exclusive interview with the South China Morning Post this month, Mahathir said he would approve the project if the Chinese agreed to a price he had in mind. He refused to divulge the figure.

The ECRL is the biggest of the China-backed infrastructure projects to have been cast into doubt by the Mahathir administration.

Besides the ECRL, Mahathir’s government last year cancelled two China-backed pipelines costing 9.3 billion ringgit after it discovered that, while 90 per cent of the project’s costs had been paid, only 13 per cent of it had been completed.

Mahathir’s predecessor Najib has denied wrongdoing, claiming to have endorsed the deals solely because they made good economic sense.