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Malaysia, China to carry on with talks on $20 billion rail project

High Court in Selangor, Malaysia (JaseMan/Flickr).
February 10, 2019

This article was originally published by Radio Free Asia and is reprinted with permission.

Malaysia will keep negotiating with China over terms of a controversial U.S. $20 billion rail project, but the talks will be held away from the public spotlight, Malaysian Finance Minister Lim Guan Eng said Wednesday.

Lim made the statement days after Economic Affairs Minister Mohamed Azmin Ali said that the cabinet had cancelled the government’s contract with Beijing over the East Coast Rail Link (ECRL), a 688-km (430-mile) railway project to connect the western and eastern coasts of the Malaysian peninsula.

“The cabinet met today and made the decision to adopt the statement made by the prime minister yesterday that the matter will still undergo negotiation,” Guan Eng told reporters on Wednesday.

“In view of the sensitivity of the contract negotiations, we should allow the discussions, which is government to government, to be held away from public glare, away from [the] public spotlight,” he said.

After he returned to power as a result of a stunning electoral triumph last May, Prime Minister Mahathir Mohamad has issued statements implying that several China-backed projects approved by his predecessor, Najib Razak, would be placed on the back burner.

Among the suspended infrastructure projects was the railway, which would connect Port Klang on the Malacca Strait with Kuantan on the eastern coast before running north through Tumpat, on the border with Thailand.

During a five-day trip to China in August last year, Malaysian newspapers quoted Mahathir as telling reporters in Beijing that the ECRL and a $2.5 billion natural gas pipeline project in Sabah would be cancelled until a time when Kuala Lumpur could afford the financing payments.

ECRL, the centerpiece of China’s infrastructure push in Malaysia, was to be financed in large part by the Export-Import Bank of China. The project is a Malaysian component of China’s massive One Belt, One Road (OBOR) international infrastructure expansion program.

According to the South China Morning Post, Kuala Lumpur has already paid 19.68 billion ringgit (U.S. $4.8 billion) to the China Communications Construction Company, which holds the construction contract for the mega-rail project.

But Mahathir had earlier expressed concerns about the exorbitant amount of compensation that Malaysia would shell out to Beijing if the contract was terminated prior to completion.

On Tuesday, Mahathir asked China for understanding, explaining that his government was not trying to renounce contracts, as he underscored that the cancellation fee of more than 100 billion ringgit ($24.33 billion) “may impoverish” the country.

“It is not that we don’t want to honor our contracts, but we just cannot pay,” he said.

“As such, we seek the understanding of the parties concerned,” he said. “We don’t want to frustrate or throw out a contract, but we are really tight in terms of finance.”

Mahathir, 93, also sought to dispel confusion over the status of the railway project.

“No final decision has been made. Not off yet. No call off, no final decision yet,” he told reporters who pressed him to confirm his economic affairs minister’s earlier statement.

To avoid future media confusion on the ECRL, Lim said the cabinet had decided on Wednesday that no ministers would be authorized to make statements pertaining to the Beijing-backed project, other than Mahathir himself.

Mahathir, who has earned a reputation for being willing to stand up to China and its growing influence in Southeast Asia through its signature OBOR initiative, has described as “unfair” several Chinese-funded projects authorized by Najib, who was voted out of office amid a massive financial scandal.

U.S. federal justice officials have accused Najib of plundering the state investment fund known as 1MDB. He is facing 42 corruption-related and abuse of power charges.