19-2-2024 (KUALA LUMPUR) Malaysia’s plan to resuscitate the Kuala Lumpur-Singapore high-speed rail (HSR) without government funding or guarantees faces significant obstacles, according to industry experts. Despite the government’s invitation for private companies to submit proposals to fully finance the project, fresh bidders have reportedly requested state funding in their submissions.
MyHSR Corporation, the Malaysian government-owned company responsible for developing and implementing the HSR, received seven concept proposals from local and international consortia at the close of its request for information (RFI) exercise on Jan 15. However, the company declined to reveal the names of the companies involved.
The RFI exercise aimed to evaluate the private sector’s ability to fully finance the project without state funds or guarantees. The Malaysian government has expressed its willingness to revive the HSR, but it has made it clear that it will not provide financial support for the 350km-long line, which is estimated to cost over RM100 billion (S$28 billion).
According to reports, Japanese companies, including East Japan Railway Company, pulled out of the project just days before the Jan 15 deadline, describing it as “too risky” without the government’s financial support. However, other companies have submitted proposals, possibly in the hope that the government will reconsider its stance.
Analysts believe that the bidders may propose and justify the need for financial support from the government as part of their submissions. In a stock exchange filing on Jan 26, Berjaya Land announced that its 70 per cent-owned subsidiary Berjaya Rail (B-Rail) had formed a consortium with IJM Construction, Malaysian Resources Corp, and Malaysia’s national railway firm Keretapi Tanah Melayu to submit a bid for the HSR.
Sources in the industry have told the Straits Times that the B-Rail-led consortium has requested in its proposal for the government to compensate it if the number of passengers falls below a minimum number. An industry source revealed that B-Rail believes it is impossible to build this rail without a government guarantee, given its large financial commitment. They have asked for a government guarantee, which then defeats the government’s purpose of using private funding to build the HSR.
Another source said that the B-Rail-led consortium is also eyeing opportunities to acquire and develop land around the railway stations as another source of income. It has been learnt that YTL Corp, which was appointed to be a project delivery partner to design and deliver civil works for the HSR before it was suspended, has put in a fresh bid for the project. A highly placed source in YTL said the company has asked for some form of government financial support in its bid to manage the mounting costs of building the line.
AmInvestment Bank analyst Alex Goh said that no rail projects in Asia have gotten off the ground without government funding. He pointed out that Indonesia’s first HSR, the 142km-long Jakarta-Bandung line launched in October 2023, received government support in terms of land acquisition. The US$7 billion (S$9.4 billion) project was developed by PT Kereta Cepat Indonesia China, a joint venture between a consortium of four Indonesian state-owned companies and China Railway International, a subsidiary of China Railway Group.
The Kuala Lumpur-Singapore HSR was terminated in 2021 after Malaysia requested that the project be postponed in 2018 due to its high cost. In July 2023, Kuala Lumpur said it was open to receiving proposals from private firms to revive the project.
However, Singapore’s Acting Transport Minister Chee Hong Tat said in August 2023 that it had not received any new proposals from Malaysia for the HSR line. He added that Singapore was willing to discuss any new proposals for a Kuala Lumpur-Singapore HSR from Malaysia in good faith, starting from a clean slate.
Analysts argue that private financing alone cannot revive this project. They say that in order for the HSR to be commercially viable, private companies would need state support for land acquisition, subsidies for train tickets, and maintenance of the infrastructure.
Mr Goh stated that compulsory land acquisition on this scale requires federal and state government approvals and regulatory clearance. Based on its original plan, the rail track spans 335km across four states of Peninsular Malaysia, with the remaining 15km located in Singapore.
Without government funding and guarantees, the project costs would also surge due to higher interest rates for loans, said Ms Wong Muh Rong, managing director and founder of corporate advisory firm Astramina Advisory. Servicing a RM100 billion loan would cost the consortium RM6 billion to RM7 billion a year on commercial rates, but only RM2 billion to RM3 billion a year if it is government guaranteed, Ms Wong estimated. She added that it seems difficult for the private sector to make a decent return for such an investment.
It remains to be seen if the government can afford to help fund the HSR. In October 2023, the government passed the Public Finance and Fiscal Responsibility Act that limits the country’s debt level to 60 per cent of gross domestic product (GDP), and financial guarantees to 25 per cent of GDP. As at August 2023, total federal government debt stood at RM1.147 trillion, or 62 per cent of GDP, higher than this target.
Spending on the HSR will also affect the government’s future budgets, as allocations for priority sectors such as health and education could be trimmed, said economist Muhammed Abdul Khalid, a research fellow at the Institute of Malaysian and International Studies at Universiti Kebangsaan Malaysia. He said Malaysia’s annual debt repayment, expected to reach RM49.8 billion in 2024, makes up more than 55 per cent of its entire development spending, compared with 38 per cent two decades ago.
Dr Muhammed argued that Malaysia simply can’t afford a HSR. It would be fiscally irresponsible for the government to fund it, and the country will be passing the debt on to future generations to bear.
