The multi-level destructive effect of Covid-19 on Malaysia’s economy and finances has been cited as a key factor in forcing Putrajaya to call off its agreement with Singapore on the construction of the high-speed rail (HSR).
“The pandemic rendered the original terms of the 2016 bilateral agreement no longer sustainable for Malaysia.
“The government was forced to revisit the structure and business model stated in the agreement,” a source familiar with discussions on the recalibration of several mega projects told MalaysiaNow.
The debate on the HSR is not unique. For the last decade, similar projects to provide super-fast trains between cities have riled up critics from economists and environmentalists to transportation experts.
The KL-Singapore project was terminated after Malaysia allowed the bilateral agreement to lapse on the deadline of Dec 31, 2020. Malaysia will pay an undisclosed amount of compensation to Singapore.
Both governments said they were unable to reach an agreement, with Singapore citing differences over an assets company for the project as well as a plan to re-route the line to KLIA as among the points of contention.
Months of reviews on the HSR project had led Putrajaya to draw up a new proposal taking into account post-pandemic economic realities.
Malaysia said the revised model is used around the world in countries including Europe and the UK, Japan and South Korea.
It said its new proposal for the project would also avoid Malaysia giving guarantees of some RM60 billion for 30 years to the assets company, to be selected jointly with Singapore.
The assets company was responsible for designing, building, financing, operating and maintaining the rails assets for the HSR.
“The pandemic rendered the original terms of the 2016 bilateral agreement no longer sustainable for Malaysia.”
Under the agreement, Malaysia would have to pay the company a guaranteed total of RM60 billion for the next 30 years, or RM2 billion annually.
Mustapa Mohamed, the minister in charge of economy in the Prime Minister’s Department, recently said that using an assets company was not only no longer tenable and costly in view of the impact of Covid-19 on the government’s finances, but also a model used by no other country including China which has a high-speed network of over 30,000km.
“So what Malaysia was seeking was to avoid this huge payment, and at the same time giving it more flexibility in financing the project.”
Malaysia was looking to save 30% of the cost through the changes, which included re-routing the tracks and re-designing stations.
It also proposed that the project could take off two years earlier, a move it said would set off a chain effect of employment and business opportunities.
The HSR project was first suspended when the previous Pakatan Harapan government sought to review several mega projects started by former prime minister Najib Razak, citing financial constraints and Malaysia’s huge debt burden.
Debate on HSR benefits
When it was announced in 2016, Najib said the HSR could allow travellers to “have breakfast in Kuala Lumpur, lunch in Singapore and be back in time for dinner in Kuala Lumpur”.
But critics said the cost of a ride, estimated at RM400 per round trip, would be prohibitive for the average traveller who could spend less travelling by air.
The fare was also highly speculative, and could have increased even if heavily subsidised by the government.
“With Malaysia’s current fiscal issues, and more pressing transportation needs, I don’t think that’s a necessary or responsible investment,” Adam Minter, an award-winning financial journalist with Bloomberg, had said in 2018.
Minter, who described the project as “highly political”, also questioned a claim by supporters of the HSR that 22 million people would ride the line by 2036.
“Even cut in half, such a projection is unrealistic,” Minter said, adding that between March 2017 and February 2018, only four million people flew the Singapore-Kuala Lumpur route.
Minter also said that the HSR could be financially justified only if it catered to premium travellers, drawing on the experience of Japan’s Shinkansen, the world’s first HSR which managed to turn a profit despite its costly fare.
“With Malaysia’s current fiscal issues, and more pressing transportation needs, I don’t think that’s a necessary or responsible investment.”
In comparison, though, China’s cheaper HSR was losing money, he said.
“For Singapore-Kuala Lumpur to avoid being a long-term fiscal burden, it’d presumably need to follow Japan’s model, which would inevitably limit ridership from the lower-income Malaysian side,” he added.
Track records of HSRs
Generally, a train line with speeds above 250kph is considered as HSR.
Japan first introduced its speed trains in 1964, followed by France and other European countries in the 80s.
Among the more recent fans of HSR lines is China, which only started developing its own in the 1990s. It is estimated that China’s HSR network could reach over 38,000km by 2025.
But despite the speed and ease at which it could transport passengers between cities, critics say a HSR system in a developing country is elitist, unnecessary and a waste of funds.
Most people shuttling to work on a daily basis between distant cities are those who cannot afford to pay a premium for faster travel.
In Britain, a debate has been ongoing on the ambitious 160km HS2, a high-speed train linking London and Birmingham.
The project, which started last September and is expected to be completed by 2040, will cost £100 billion (RM546 billion), up from the original estimate of £56 billion.
Like the KL-Singapore link, supporters claim it will generate profit, economic growth, and benefits to consumers and local economies.
But critics said the money should instead be spent upgrading other train lines as well as bus networks.
“The point of any investment is to meet needs or goals; these are what determine why and how we invest scarce funds. The concern with HS2 – the biggest transport investment in UK history – is that the means (HS2) have overshadowed the ends (economy, environment and rail capacity), with no assurance that the two are truly connected,” said sustainability think tank, the New Economics Foundation.
Spain’s experience in the development of its HSR which spans over 3,000km – second only to China’s – has often been cited as a case study in the debate on fast trains.
But last year, a think tank on financial check and balance, the Independent Authority of Fiscal Responsibility, or Airef, concluded that the US$72 billion network was not worth the money spent, despite the doubling of passengers over the decade which impacted domestic air travel.
Any future decision to carry on with the HSR in Malaysia must take into account the failures and successes of such a system in different countries.
At the end of the day, it’s not all about speed.