Cowardly, controversial, costly capitulation to China

QUESTION TIME | While the new deal with China to resume the East Coast Rail Link (ECRL) for RM44 billion has been hailed by many as a major achievement providing savings of RM21.5 billion, the truth is it’s a cowardly, controversial, costly capitulation to China, which may cost the country several times the 1MDB losses of more than RM30 billion.

China, through state-owned China Communications Construction Company (CCCC), signed a contract to build the original ECRL for RM55 billion in August 2017.

My calculations indicate that for this inviable project (as I pointed out last week using a cost of RM36 billion) to continue, a further RM34 billion cash injection has to be made incrementally, with the possibility of some RM30 billion in operating losses, before taking into account cost escalations and other costs such as land acquisition and rolling stock. Taking these into consideration may well push total costs above RM100 billion.

So bad is the deal for Malaysia that one wonders how the negotiators could have agreed to such terms knowing full well that China participated in a well-orchestrated plan to rob our country of some RM30 billion to pay for that huge hole of a corresponding amount in 1MDB caused by theft.

We are not even getting Jho Low, the co-conspirator with Najib Razak of the 1MDB theft and the one who, by some accounts, brought the rescue deal to China, back to stand trial here. Low has been reported to be taking refuge in China.

Legal sources I spoke to say the entire contract can be invalidated because there were strong elements of corruption indicated by the sheer size of over-pricing, as well as clearly inappropriate payment methods. 

The burden of proof to invalidate such a contract will be on the “balance of probability basis,” instead of “beyond reasonable doubt” that is used for criminal cases.

Instead, the negotiators, headed by Daim Zainuddin, opted for a route of lesser confrontation with China, instead of the longer route of contract repudiation and arbitration, which would most likely have resulted in an eventual victory for Malaysia.

First, let us establish beyond any reasonable doubt the scale of over-pricing. Then we shall estimate how much it would cost incrementally to continue with this project. Finally, suggest what this government should have done to limit damage to our country and protect our sovereignty, instead of surrendering it to China.

As I wrote in this column, Dr Mahathir Mohamad had said that RM20 billion had been syphoned from the ECRL project to pay for 1MDB. Mahathir told The Edge in an interview in May last year that the loan for Malaysia to build the ECRL was kept abroad, adding that this led to suspicion that some of the money was used to repay 1MDB debts and buy certain companies.

The Edge further reported, quoting sources, that the cost of the ECRL project was inflated by about RM20 billion, in part, to buy assets from 1MDB.

Also, Finance Minister Lim Guan Eng said that of the RM20 billion advanced, about RM10 billion could be redeemed if the infrastructure project was cancelled. “It should be noted that an advance bond can be redeemed by MRL (Malaysia Rail Link, project owner) if the project is terminated. In other words, if the worst case scenario should arise, the government can recover RM10.02 billion,” he said (See table).

So, if the government alleged corruption and cancelled the contract - it had enough grounds to do so - it will only lose RM10 billion, if what Lim says is correct. 

However, now it has to pay a further RM34 billion to finish the contract for a project it does not require.

Mahathir said the cost of compensation to China for cancelling the project is about RM22 billion, but he did not mention if the legal option of repudiating the contract on the grounds of corruption was considered at all.

Even if the cost of cancellation was RM22 billion, it may still be worth it. But if it went for legal recourse and arbitration, it may get all of that back.

Further, Lim said in his 2019 Budget speech in November last year: “The Government also discovered aberrant contracts such as the Trans-Sabah Gas Pipeline and Multi-Product Pipeline projects which were to cost approximately RM9.6 billion, where RM8.3 billion had already been paid despite less than 10 percent of the work being completed. Mega projects such as the East Coast Rail Link (ECRL) will cost up to RM81 billion, and tens of billions of ringgit more in recurring operational losses.” 

If one needs more evidence, there is a report in January quoting The Australian which said CCCC was asked to inflate the ECRL’s cost by US$7.5 billion (RM30.8 billion) to “plug the multi-billion dollar hole” in 1MDB, buy over companies linked to Low and pay unnamed consultants.

If we add up the “tens of billions of ringgit in operating costs” that Lim talked about, say RM30 billion, then the total amount of money that this government will spend on this railway to hell, as I described it in my last column, is RM64 billion, more than twice the maximum amount lost in the 1MDB fiasco.

On top of this, rail contracts can escalate in prices, as I pointed out, and easily add on a further RM20-40 billion due to cost increases. If that happens, there is no question the ECRL will be an unmitigated disaster which will haunt this country for decades, costing more than RM100 billion, or over three times the 1MDB fiasco!

All this will be on the head of the current Harapan government headed by  Mahathir, who chose to give unfettered powers to negotiate to Daim Zainuddin, and who did not use the appropriate provisions in the law to repudiate the contract.

We are not even recovering the full amount of the R30 billion more or less already paid out, including the pipeline contract of nearly RM10 billion, with that RM21.5 billion “savings”.

Also, doing away with a major tunnel could have saved RM8 billion, industry sourcessay. Together with realignments and other cost reduction, this could be as much as RM10 billion, meaning the actual recovery of the corrupt payments is likely to be only RM11.5 billion, far short of the RM30 billion stolen or in the process of being stolen, by RM18.5 billion. Not a great deal at all.

It has been widely reported that Jho Low (above) is hiding in China, from where he continues to make comments on what is happening in Malaysia. There is no deal announced for his return to face trial here. He is unlikely to be handed over even if he is in China, simply because he is complicit with China in attempting to cheat Malaysia of RM30 billion.

Simply put, the government should have gone for contract repudiation based on the law. The only way it should have compromised is if China returned all corrupt money and agreed to the cancellation of the ECRL. The ECRL should have been jettisoned because no proper feasibility study was done, and China never guaranteed cargo throughput for its success.

China certainly does not want to see all its shady dealings dragged through the courts, for everything to be shown publicly, and is likely to agree to a deal. However, it looks like we failed to exert pressure on them and instead succumbed to pressure they put on us.

We should have found a more independent negotiator than a billionaire businessman who has links to businesses everywhere and is in a position to benefit from some of the decisions made. This professional person should have been assisted by ministers and their civil servants from various ministries such as transport, finance and economic affairs.

Where’s the transparency and the answer to all these questions if one man handles the eventual decision? Where is the back and forth? This smacks of the patronage politics of the past, where things were put under a heavy veil of secrecy using the Official Secrets Act so that benefits could be passed on to cronies.

Are we so gutless these days that we have to give in to a superpower, even if it undermines our country through wrong, illegal measures to shore up a corrupt thieving government for its own purposes, one of which is building an RM44 billion railway to support its belt and road initiative to improve access to China?

Did not Mahathir demonstrate substantial courage when he defied convention and pressure from the International Monetary Fund and fund managers to impose capital controls (which I incidentally supported) to stop the ringgit from being savaged by marauding speculators who could mobilise more funds than our central bank had in 1998?

Where has that courage gone now when we cave in meekly and surrender to a country, with not even so much a whimper as to how wrongly that country treated us? What more will they require us to give up in future? If we capitulate to this and put as much as RM100 billion at risk, what more will we give up without so much as a fight?

Mahathir was right when he said Malaysia would be impoverished if it went ahead with the 1MDB project.

"It is not because we don't want to honour our contracts, but we just cannot pay. This contract may cost us more than RM100 billion (US$24 billion). It will impoverish us. The huge compensation is not as huge as the amount of debt we will carry for the next 30 years."

The nation must know what’s changed now, and why this Harapan government, on which so much faith and hope are placed, is supporting a project which portends trouble several times that of 1MDB. 

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P GUNASEGARAM says he has provided facts, figures and links to support his arguments. He recommends that commentators, whom he assumes are all really interested in the welfare of the country like he is, do likewise, instead of launching personal attacks on him, thereby revealing their true intentions. - Mkini