Malaysia’s RM36 billion railway to hell

The ECRL is economically not feasible even if the cost drops to RM36 billion, and even if the alignment is changed to run through Negeri Sembilan, as Finance Minister Lim Guan Eng hinted. If we assume a required 10 percent rate of return on the investment, the ECRL has to generate a profit, not revenue, of RM3.6 billion a year.

Assuming income is 20 percent of revenue, then revenue needs to be a massive RM18 billion a year. This is rather optimistic, considering that in 2016 Singapore’s port had a turnover of S$3.7 billion (RM11.7 billion) and a profit of S$1.2 billion (RM3.6 billion).

We are going to end up wasting yet another RM36 billion when we wasted RM36 billion via the double-tracking project earlier. This project was initiated during Dr Mahathir Mohamad’s previous term as prime minister.

Double-tracking operator KTM has a revenue of between RM500-600 million. Its last available annual report is for 2012, where revenue was RM454 million, losses amounted to RM240 million and operating cash flow was in deficit by RM107 million.

For a 10 percent return on double-tracking costs of RM36 billion, cash flow needs to rise to RM3.6 billion a year from a non-existent now. That is a near impossible task in the foreseeable future. This is for the backbone North-South route of Peninsular Malaysia. How is the ECRL going to fare better?

To bend over backwards to accommodate the big bully, that China has become, is a terrible mistake. Like the double-tracking project before it, the ECRL will become a massive failure because there is not anywhere near enough traffic to support it.

And like the double-tracking project, getting a commitment to buy palm oil is not going to work. China will commit to buying only the palm oil it is going to buy anyway, and is making similar commitments to Indonesia in exchange for building infrastructure projects which Indonesia pays for.

Consider the ridiculousness of the ECRL project. First, China inflates the project cost considerably and through nefarious means, just so that the previous corrupt government can get RM30 billion to fill a huge hole in 1MDB. The criminal part of it is enough to negate the contract, but for some strange unexplained reason, Malaysia cannot do that.

Then when found out, China, the co-conspirator to the theft of RM30 billion, offers to offset the amount of the contract by the stolen RM30 billion, but still somehow insists that the project, whose cost may still have been inflated, must go on.

Thirdly, a person who may be compromised because he has so many business dealings and links, is chosen as the chief negotiator for the deal, and it looks like the deal will be signed before Mahathir leaves for China later this month for a conference on the belt and road initiative.

An imminent deal is on the cards which will allow the project to go through on China’s terms, with hardly any benefit to Malaysia, but to regain what it had lost through corruption before, with no further thought as to the deal's viability. Remember, there is no sign China will give a throughput commitment for this railway to hell.

There can only be one beneficiary in this still lopsided deal - China. Malaysia pays China RM36 billion for it to build a rail link as part of China’s belt and road initiative to improve land and sea links with China, for China’s benefit. China provides much of the labour, lends money and provides the physical assets and services.

Some years from now Malaysia will have the capacity for huge transhipment, but no guaranteed uptake, leaving China, as the main customer, to become the country which sets the transaction prices for the transhipment. It incurs no penalty if it provides no goods.

Malaysia has a huge capacity, but no throughput, a disaster with an RM36 billion project, which may have increased in price by then, with earnings that don’t even cover the cost of interest. It’s already happening elsewhere, with ports in Sri Lanka, for instance, built with Chinese “help”.

We must ask why this new government is getting itself into such a state. Is anybody gaining from such lopsided deals? If so, how much is this government better than the last? If not, why agree to such a deal?

After it had firmly stopped the project, it makes yet another U-turn from what Harapan promised before - a very costly one at that.

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P GUNASEGARAM can think of a lot to do with RM72 billion which is about to be wasted on two successive, massive, and inviable rail projects. - Mkini