Malaysia has renegotiated a major rail project with China to reduce the cost of construction by a third and increase the level of local involvement, signalling a shift in China’s approach to its six-year-old Belt and Road Initiative (BRI).
Nine months of protracted negotiations over the East Coast Rail Link (ECRL) following last May’s historic change in government, resulted in a “mutually beneficial agreement” for both China and Malaysia, Malaysia’s Prime Minister Mahathir Mohamad told journalists at his office in Putrajaya on Monday.
The original agreement was negotiated and signed in 2016 by Mahathir’s predecessor Najib Razak.
“It was an unjustified, hefty lump sum price which lacked clarity in terms of technical specifications, price and, by extension economic justification,” Mahathir told the media.
“We chose to go back to the negotiating table and call for a more equitable deal, whereby the needs of the Malaysian people would be prioritised.”
Under the agreement signed in Beijing on Friday, the 640-kilometre and 20-station railway will cost 68.7 million ringgit ($16.7m) per kilometre, compared with 95.5 million ringgit ($23.2m) previously, Mahathir said.
Work on the project, which was suspended last year, is expected to resume in May with completion set for the end of 2026.
Mahathir’s government promised to review all major projects agreed by the previous administration after it replaced Najib, who is now on trial in relation to alleged corruption at state fund 1MDB.
The ECRL project was awarded through direct negotiation at a sum of 65.5 billion ringgit ($15.9bn).
“The concern [about debt] was there but this is a solution to our concerns,” Mahathir told reporters. “When we were still in opposition, we felt the way the award was made, and the total cost was not right.”
China’s BRI was touted by President Xi Jinping as a way to boost trade and economic growth across the world through massive infrastructure development from Asia to Africa and Europe.
But one-sided contracts favouring Chinese construction companies and the huge costs involved have created apprehension that countries that signed up to the plan risked ending up with billions of dollars of debt.
Sri Lanka was forced to sell its Hambantota Port back to China last year after it was unable to service the loans on the project.
Politicians in Indonesia, a country long suspicious of China, have also raised concerns about the level of Chinese involvement in new rail and port projects in the archipelago. Presidential contender Prabowo Subianto has promised to review a $6bn China-backed high-speed rail project agreed by incumbent Joko Widodo if he comes to power in elections on Wednesday.
‘Things can change’
The renegotiation with Malaysia showed that China needed to “put more effort into assessing political risks,” said Singapore-based economist Song Seng Wun. “You cannot take the political backdrop as a given. Things can change.”
The Malaysia announcement comes as China prepares to host its second Belt and Road Summit in Beijing at the end of this month.
Under the latest agreement, Malaysia will not need to borrow as much from China’s Exim Bank ensuring interest payments are reduced although Mahathir said the final amount had yet to be calculated.
Payments on the project will also be made in accordance with the progression of the work, while Malaysian companies will also have a greater stake in the railway’s construction.
The company that operates and maintains the ECRL will be a joint venture between China Communications Construction Company, the original project developer, and Malaysia Rail Link, the local partner.
The railway will connect towns from Malaysia’s northeast near the Thai border and along the South China Sea with Port Klang on the Strait of Malacca, providing a crucial land route for freight between Port Klang and Kuantan where China is developing a major port.
While the original line would have required a tunnel to be blasted beneath the mountain range that runs along the central spine of the Malaysian peninsula, the new route travels further south avoiding the mountains, as well as the Klang Gates Quartz Ridge, a wall of solid quartz that is the longest in the world.
“Importantly, the new alignment also prioritises cultural, heritage and environmental factors,” Mahathir noted.