NAJIB’S SHADY ECRL REVISITED: ‘NOW EVEN THE SITE SUPERVISORY JOB HAS GONE TO A FOREIGNER’

For the lack of information, I briefly touched on the East Coast Rail Line (ECRL) project in December 2016 in my article, “HSR and ECRL: Where is the focus”. More than a year later now, backed with some facts and statements made by ministers and ex-ministers, I would like to revisit this high-impact ‘game changer’.

In the najibrazak website on ECRL, it was reported that this project is part of the RM144 billion worth of investments and partnership signed during the official visit to China in November 2016. It is expected to boost connectivity as well as provide passengers with an alternative travel option.

Expectations are for an economic spin-off effect and positive social impact for the east coast states. Expected to increase the gross domestic product (GDP) of the east coast states by 1.5%, the rail journey from Gombak to Kota Baru is expected to take less than four hours compared to about seven hours by road.

Point to note is, the original plan was only to upgrade the railway system and to connect with railway lines currently operated by Keretapi Tanah Melayu Berhad (KTMB).

Let me make it clear that I am not against the project but to make sure decision makers have taken into consideration all aspects from before signing the contract to the long term effect on the country.

The advisers may have recommended and the cabinet agreed to the project but to me there seems to be lots of areas that may have been overlooked or ignored. This is despite a minister in the PM’s department in November 2016, said that since its initial proposal, extensive planning, financial modelling, market sensing exercises and studies had been done, including three feasibility studies.

My concerns, as follows – some of which have been raised in the mainstream media.

Transparency

1. We have not seen much details which should have been placed in the public sphere. Verbal answers do not carry much weight.
2. There was also confusion on the total cost of the project. In November 2016, the Transport Minister said the RM55b loan agreement signed is a framework value of the Financing Framework Agreement. But, the China Communications Construction Company Limited (CCCC) website reported the contract value is RM46b only. Later on, in May 2017, the other RM9b contract (Phase 2) was signed.

It is strange that financing documents for RM55b were signed in advance of determination of the total contract value.

Policy alignment

I trust the project proponent would have taken into consideration various policy documents including the Logistics and Trade Facilitation Master Plan.

Environmental considerations

Construction and Financing documents were sealed in November 2016 but the Environmental Impact Assessment Report (EIAR) came later in March 2017.

Environmental groups have raised concerns and urged further evaluation to be carried out. For the records, the EIAR prepared in March 2017 covers the link from Wakaf Baru to Gombak only.

In November 2017, the Natural Resources and Environment Ministry  admitted in a written reply in the Dewan Rakyat, that large tracts of forest reserves (357 hectares) in three states will be sacrificed. “Among the effects of the ECRL project on the affected area are habitat loss, habitat fragmentation, human-animal conflict, poaching, obstacles to animal migration and roadkill,” the ministry said. It added that the EIAR for the ECRL will include a wildlife mitigation plan.

The above clearly shows that the complete EIAR were not done when the financing documents were sealed way back in November 2016.

Freight Traffic

In the Eleventh Malaysia Plan – Strategy Paper 14, it was reported that in 2014, total rail cargo throughput in Malaysia reached 7.8 million tonnes, with 30% of freight volume from South Thailand – the most profitable trip for KTMB. This was based on an annual growth rate of 7.3% between 2005 and 2014. A study related to the ECRL showed, as of 2015, the entire Malaysian railways operations handled a sum of 6.21 million tons of cargo.

It baffles me how on earth could ECRL project a freight traffic of 37.28 million tonnes in 2030. It is a ballistic growth in volume which is six times the national total in 2015.

Open Tender

In 2008, the prime minister said that open tender would be implemented for government procurements. Even the High Speed Rail project (HSR) with Singapore undergoes a tender process. Its execution, which includes design, tendering, evaluating the proposals and the financing structure will be clearly specified and transparent at all levels. And Malaysian companies have delivered on rail projects before.

Why is it that a high-impact ‘game changer’ is given exemption to undergo an open tender process?

Design Options

Does the ECRL carry the best design option? If it was tendered, contractors will submit their best design whilst conforming to the original design concept so that the cheapest tender can be selected.

Hopefully, what is on the table is the optimum solution and not the case of ‘government knows best’.

GDP

It is expected to increase the GDP of the east coast states by 1.5%. In 2015, the total GDP for the three east coast states is only RM93b or 8.8% of the national total.

A 1.5% increase is a paltry RM1.4b Even with a 100% jump from the current total GDP, a 1.5% increase will only be RM2.8b.

The Loan

Of the total loan, 85 percent will be financed with a soft loan with interest of 3.25 percent from the state-owned Exim Bank of China. This project is effectively a loan from China’s state-owned Exim Bank, with the Malaysian government serving as guarantor and not an investment from China.

The interest rate may be competitive but the repayment period is not very attractive. More clarity on the cost structure and terms and conditions of the loan is needed to ease public concerns. The seven year moratorium and the bunching of loan repayment together with interest payment will be huge in the remaining 13 years.

Did the advisers check with the ministry of finance and the Economic Planning Unit on the impact on the national yearly budget when payment commences?

Did we try to talk to the Japan Bank for International Cooperation (JBIC) which normally offer better rates?

Risk Management

The financing and implementation risk of the project entirely lies with Malaysia because the Chinese contractors would get paid for the jobs irrespective of the commercial returns and performance after expiry of the  guarantee period. This is confirmed by a minister who said that the ownership, management and operations of ECRL would be fully in Malaysian hands.

Bankers had advised for a project that is supposed to last well beyond 50 years, long term financing is the option when traffic numbers pick up. Hence the risk can be mitigated over time.

Future Government Assistance

Generally, public infrastructure projects with high costs, low profits and long gestation periods do not always make them financially viable. Considering the lack of commercial viability, ECRL would ultimately require assistance from the government in ensuring smooth operations, while maintaining an affordable service for its users.

The desired multiplier effect which is subjective would ultimately be used to give the above assistance.

Politics

We have pending, six territorial claims that China often violates. Chinese fishing and military vessels tend to linger for a prolonged period in our seas.

Did the advisers give due consideration on this point or would there be some side understanding to tackle this long-standing issue?

The Future

1. a) Technological Advancement

At the present rate, everybody is expecting increases in the Malacca Straits traffic. But things may change with cargo flow – it may fall or at least, remain stable. Let’s not forget other game-changers like 3-D printing and robotized factories which may (and will) annihilate Asian production facilities which is based on cheap labour.

1. b) Kra Canal Project

It can be said that public interest in the Kra Canal project goes in tides. Reports by Nikkei Asian Review show that Thailand and China are looking into the Kra Canal project. The distance saved for ships would be at least 1,200km, or two to three days sailing time. Thai businessmen and ex-military generals have vouched their support.

In 2009, the prime minister said the era where the government imposed excessive controls and adopted the attitude of ‘government knows best’ is over. He also asked the people to take up his challenge and team up with the government to bring about transformation. However, nearly nine years later, I do not see the promise being applicable to this game changer.

Have we got our priorities right? We stinge in many areas in our budget and we hail this project as a game changer which would increase the east coast GDP by RM1.4b only.

It is sad that even the site supervisory job has gone to a foreign company.

A minister had said that the renminbi-ringgit exchange rate for loan repayment purposes would be fixed for the remainder of its duration. I do hope this has been done and also work to fix other loose ends to make this project a truly game changer.

Game changers are disruptive. They are sometimes crazy ideas. But if they work, they can be wildly lucrative.

I would conclude that Malaysians do not want to derail the project but would want to have a say in making a world-class project in terms of safety, reliability and cost efficiency. Again, do we want or need it when the original plan was only to upgrade the railway system and to connect with railway lines currently operated by KTMB?

Given current economic uncertanties and government financial standing, Malaysians need to see improved governance.

What say you…

WRITER: Saleh Mohammed

– MAILBAG