By Sharen Kaur
Will the China-backed East Coast Rail Link (ECRL) project, which had escalated from RM60 billion to RM81 billion go on?
According to market sources, the ERCL may likely proceed but on a different scale.
To recap, the ECRL project was first approved by the Cabinet on Oct 21, 2016. The Engineering, Procurement, Construction and Commissioning Agreement was signed with China Communication Construction Company (CCCC) on 1 November 2016.
The original project scope was to build a rail line from the ITT Gombak in Selangor to Wakaf Bharu in Kelantan at a cost of RM46 billion.
On May 3, 2017, the Cabinet approved the northern extension of the project from Wakaf Bharu to Pengkalan Kubor in Kelantan, for the value of RM1.28 billion.
On May 13, 2017, the previous administration signed an additional agreement with CCCC to carry out Phase 2 of the project, which was to extend the line from ITT Gombak to Port Klang for RM9 billion.
Subsequently on Aug 23, 2017, the Cabinet further approved the upgrading of the ECRL to a double-tracking project which would cost an additional RM10.5 billion.
By then, the basic cost of construction of the 688.3km rail line was RM66.78 billion.
However, the total cost of ECRL will be almost RM81 billion after taking into account land acquisition, interest, fees and other operational costs.
China was to finance the project with a 20-year loan at 3.25%.
The project was suspended in July last year, two months after the May 9 election which saw Pakatan Harapan’s victory on the back of a promise to cancel Chinese mega projects which the coalition said were wasteful and linked to scandal-ridden 1MDB.
Sources said that a few things needed to be ironed out and the main thing is the overall construction cost.
"The cost should reduce by half. The government also wants the project to be completed earlier than the targeted date and more Malaysian companies should be involved," said a source.
Prime Minister Tun Dr Mahathir Mohamad has maintained that the construction of the ECRL on the scale it was initially proposed did not make good economic sense.
In an interview with the South China Morning Post recently, Mahathir gave a rundown of factors, including the sparse population in areas served by the railway, the small concentration of business and the fact that the current east coast railways were not profitable even when they were heavily used.
“The ROI (return on investment) is nothing. It will take 40, 50 years for us to repay the loan. So we want to avoid incurring debts, borrowing too much from countries,” he said.
Towards the end of his official visit to Manila last week, Mahathir reportedly told the media that Putrajaya’s stance remains the same: that it is trying to strike a deal with China to build the rail line at a much cheaper cost.
The real thing is that the government is looking to avoid an astronomical compensation to CCCC should the project be called off.
Finance Minister Lim Guan Eng also reportedly said that he hopes the ECRL negotiation between Malaysia and China can be concluded before Mahathir’s scheduled second official visit to China for the Belt and Road Summit 2019 next month.
Stocks that will benefit if the ERCL project is revived included Malaysian Resources Corp Bhd (MRCB), Gabungan AQRS Bhd, HSS Engineers Bhd, IJM Corp Bhd, Econpile Holdings Bhd, WCT Holdings Bhd and Fajarbaru Builder Group Bhd.
Will the China-backed East Coast Rail Link (ECRL) project, which had escalated from RM60 billion to RM81 billion go on?
According to market sources, the ERCL may likely proceed but on a different scale.
To recap, the ECRL project was first approved by the Cabinet on Oct 21, 2016. The Engineering, Procurement, Construction and Commissioning Agreement was signed with China Communication Construction Company (CCCC) on 1 November 2016.
The original project scope was to build a rail line from the ITT Gombak in Selangor to Wakaf Bharu in Kelantan at a cost of RM46 billion.
On May 3, 2017, the Cabinet approved the northern extension of the project from Wakaf Bharu to Pengkalan Kubor in Kelantan, for the value of RM1.28 billion.
On May 13, 2017, the previous administration signed an additional agreement with CCCC to carry out Phase 2 of the project, which was to extend the line from ITT Gombak to Port Klang for RM9 billion.
Subsequently on Aug 23, 2017, the Cabinet further approved the upgrading of the ECRL to a double-tracking project which would cost an additional RM10.5 billion.
By then, the basic cost of construction of the 688.3km rail line was RM66.78 billion.
However, the total cost of ECRL will be almost RM81 billion after taking into account land acquisition, interest, fees and other operational costs.
China was to finance the project with a 20-year loan at 3.25%.
The project was suspended in July last year, two months after the May 9 election which saw Pakatan Harapan’s victory on the back of a promise to cancel Chinese mega projects which the coalition said were wasteful and linked to scandal-ridden 1MDB.
Sources said that a few things needed to be ironed out and the main thing is the overall construction cost.
"The cost should reduce by half. The government also wants the project to be completed earlier than the targeted date and more Malaysian companies should be involved," said a source.
Prime Minister Tun Dr Mahathir Mohamad has maintained that the construction of the ECRL on the scale it was initially proposed did not make good economic sense.
In an interview with the South China Morning Post recently, Mahathir gave a rundown of factors, including the sparse population in areas served by the railway, the small concentration of business and the fact that the current east coast railways were not profitable even when they were heavily used.
“The ROI (return on investment) is nothing. It will take 40, 50 years for us to repay the loan. So we want to avoid incurring debts, borrowing too much from countries,” he said.
Towards the end of his official visit to Manila last week, Mahathir reportedly told the media that Putrajaya’s stance remains the same: that it is trying to strike a deal with China to build the rail line at a much cheaper cost.
The real thing is that the government is looking to avoid an astronomical compensation to CCCC should the project be called off.
Finance Minister Lim Guan Eng also reportedly said that he hopes the ECRL negotiation between Malaysia and China can be concluded before Mahathir’s scheduled second official visit to China for the Belt and Road Summit 2019 next month.
Stocks that will benefit if the ERCL project is revived included Malaysian Resources Corp Bhd (MRCB), Gabungan AQRS Bhd, HSS Engineers Bhd, IJM Corp Bhd, Econpile Holdings Bhd, WCT Holdings Bhd and Fajarbaru Builder Group Bhd.
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