ECRL deal with China to include palm oil buy

KUALA LUMPUR: The current re-negotiations on the East Coast Rail Link (ECRL) may see its construction price pegged at RM50mil to RM60mil per km as well as a commitment by the Chinese government to buy Malaysian palm oil and bring in projects, according to sources.

This means that the construction of the 688-km long ECRL, suspended last July after the new government found irregularities in the terms of the “lopsided” contract, would cost between RM34.4bil and RM41.3bil.

According to a source with technical know-how, China and Malaysia have agreed to this pricing: Constructing a rail track on normal terrain is about RM50mil per km; and for tunnelling at the Main Range and areas with challenging soil condition, the cost can be raised up to RM60mil per km.

Last Friday, Finance Minister Lim Guan Eng hinted that the ECRL could cost RM36bil, down from about RM55bil announced in 2016 by the previous administration and RM81bil estimated by the present government.

The Malaysian team negotiating with China is led by Prime Minister Tun Dr Mahathir Mohamad’s special envoy Tun Daim Zainuddin, who has indicated the ECRL deal would be finalised this month.

Daim, also Malaysia’s former finance minister, told reporters last month: “We are almost there. Just need to tighten the screws here and there.”

One source close to the Malaysian negotiating team tells StarBiz that for the price to be lower, the ECRL will adopt single-tracking and not double-tracking, as the passenger and freight traffic flow is expected to be low due to sparse population and low investments in the states of Pahang, Terengganu and Kelantan.

A single-track railway is a railway where trains travelling in both directions share the same track. A double-track railway involves running one track in each direction. The cheaper single track is for lesser-used lines.

“The Chinese really wants to see the ECRL coming into fruition, as this is a key project under President Xi Jinping’s Belt and Road Initiative. Their attitude has been very accommodating in the negotiations, though initially they were tough,” said the source from the Malaysian side.

The ECRL is of strategic importance to China because by using the Kuantan Port-ECRL-Port Klang route, its trading route and time to the west of Peninsular Malaysia could be cut short and there is no need to use Singapore Port.

The project will also benefit Malaysia as it will spur tourism and economic growth in the East Coast states.

Touted as a game changer for Malaysia, the ECRL is expected to reduce travel time from Gombak (in Selangor) to Kota Baru (in Kelantan) to under four hours, from 8-12 hours at present.

But the price tag of RM81bil would be too much of a burden for Malaysia due to the heavy debts of the government.

However, if Malaysia were to cancel the ECRL project unilaterally, it would have to pay about RM20bil in compensation to China.

According to the sources, the ECRL package under negotiation will include a commitment from China to purchase more local palm oil and to direct more Chinese investments into Malaysia.

“This is under bilateral talks now. We are talking about a package, not just the ECRL project. Top officials from the Primary Industries Ministry have joined the negotiation team,” says the source.

In fact, Daim had already hinted earlier on the inclusion of the commercial elements.

In an interview on TV3’s prime-time Bulletin Utama three weeks ago, Daim said the ECRL would have “new commercial elements that would have a greater impact on Malaysian companies and people”.

He said: “When we discuss, we negotiate and I like to make a commercial deal… a lot more (projects) will come our way and we will get more profit.”

Daim also said he had been in touch with the relevant parties in China and “both countries have reached a decision to finalise the agreement”.

But it is not immediately known how much palm oil China will commit to buy and the duration of the commitment.

President Xi made a pledge to former prime mnister Datuk Seri Najib Razak that Beijing would buy Malaysia’s palm oil “without upper limit” during the latter’s official visit to China in 2016, when bilateral ties were very close.

But since last year, China has slowed down its purchase of local palm oil and raised its offtake from Indonesia. Many see this as a response to the suspension of several China projects in Malaysia and attacks on Chinese investments by some key politicians.

The ECRL package will include China’s commitment to bring in investments in the manufacturing and high-tech industries needed for economic digitisation, says another source.

Last Friday, Lim hinted that the ECRL could include the state of Negri Sembilan, if negotiations with the Chinese government were successful, and the project was to go on.

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