Is The Ecrl A White Elephant Or No

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Here is an article about the ECRL by VM Chandran. Mr Chandran is accomplished in many endeavours including railways. He was once appointed to a high level expert committee to investigate a train accident involving KTM.  In the mid nineties he headed a company that supplied the electric trains for the earliest ETS (Rawang to Seremban). He was also the prime mover behind the LRT system planned for Putrajaya (which did not take off after the Financial Crisis of 1998-2000). I was a director of the same company. 

I have some comments too after this. 


ECRL - Would it be a "White Elephant" and drain the future resources of the nation?
By VM Chandran.

In the 90s under a French Government assisted programme  a Rail Study was undertaken from North to South and East to West for Peninsular Malaysia. Part of it included the High Speed Link.

I was involved in the Study and the then conclusions ruled out a High Speed Link on the grounds of lack of a "critical mass" and that the astronomical cost could not justify the viability. Any East - West rail link through the Main Range  would also be an expensive proposition, taking account of population distribution plus traffic volume of goods.

So when East Coast Rail Link ( ECRL) was floated around 2009/10, linking Port Klang to Kota Baru, through the Main Range, my mind went into a "search mode" to recall the French findings. It would seem that within 12 to 13 years the economics have changed so drastically. A very strange phenomenon!!!!!! 

So as we look back we should have asked the first question then, is there  a justification to undertake the ECRL as a single major project or to undertake a Study with a Masterplan and stage its priority route development over a period of 20 to 25 years based on a continous review of economic viability?

Unfortunately those basic principles were lost and what came into being was "political muscle" involving vested interests. They were supported by Consultants who adjusted their knowledge to see such work materialise. 

The then Economic Planning Unit (EPU) of the PMO and the then Ministry of Transport (MOT) became "birds of the same feather, flocking together" in wanting to see the project through.  

The then Ministry of Finance (MOF) under the control of the then Prime Minister provided excellent "connectability" to the Project. Everything was in perfect "equilibrium" except for a very "minor" point ie  the "project viability" - the crux. I state minor because there were other bigger "agendas" in wanting this project to materialise and there was a  belief  that viability should not hold it up.

The ECRL project was priced by the Contractors from China at RM 66 billion, supported with  funding arrangements from China Exim Bank for 85% of the project value. These were mammoth numbers and created moments of "mind shattering" and "mental blackouts" to people who know the business. 

That RM 66 billion at that stage was said to be exaggerated by 100%  ie the belief  was it should not be more than RM32 billion. Some believed that  by the time it achieved completion it would probably be RM88 billion. The viability of the project was questionable from the onset.

Why did the then Government still enter into such a colossally exaggerated deal? Some details that emerged when Pakatan came to power, is that it had something to do with helping to resolve the 1MDB financial state of affairs. It seems to be another "milking" exercise of the nation's resources. Looks like a "two birds with one stone" situation for the original "architects" of the deal.

Grapevine talk is that a substantial amount of the funds has already been mobilised without much physical work being done. Apparently such payments do not come into Malaysia but rather are paid by the Lenders in China directly to the Contractor on pre agreed terms. To add to all these it is further added that all recruitment of manpower are mainly undertaken in China. 

The overriding matter is simply that the ECRL had to be done. Indeed there was a huge outcry, as many in the industry felt we were taken for a "ride". Some even felt that with repayment, interest and operational losses, it may even hit the RM 120 billion mark. 

There were cries that we were selling Malaysia off to China like what is happening in Africa, Pakistan and Sri Lanka. The popular remark is that China seems to be undertaking an "Ah Long" (lone shark) operation so that they can take possession of the project when it goes "toxic" and  indirectly 'take over'  the country. Such scenarios also did not move our then Government.

The then Government was set in its way and nothing would stop them from proceeding with the project.

They had their own agenda and the ECRL  merely provided the appropriate camouflage for their sinister motives. 


Fortunately for the Nation and unfortunately tor the then Government, Pakatan Harapan came into power in May 2018. ECRL was already a hotly debated issue at GE 14 and promptly a "stop work" order and suspension of contract was issued. 

The diplomatic  relationship between Malaysia and China became strained. Looking at the bigger picture :

China is our major trading partnera significant purchaser of our oil palmthere is substantial inflow of Chinese tourists and the geopolitics of the South China Sea
did not given the Pakatan Government much choice other than to undertake a "balancing" act.

The Pakatan Government also had to do simple arithmetic ie termination of the contract would mean a penalty of RM21 billion. Add this to the funds already expended, it would cost the Nation at least RM30 to RM40 billion with nothing to show and above all there is no avenue to recover it. 

Legally, the new Government also had to honour the past agreements entered by the previous Government. Battling the Chinese Government on grounds of corrupt practices carried out by our former leaders would "drain" the Nation from a macro outlook. 

The best act was to honour the deal but undertake a salvaging act of renegotiating terms and conditions with clearly defined technical specifications. The intent is to reduce the project value and the risk exposure of the country.

The Pakatan Government must be congratulated in salvaging the Nation on the ECRL. They have reduced the price to RM44 billion; re-routed part of the ECRL to avoid damage to our environment plus water sources, built in stricter conditions and ensured that China shares the burden of the operation and maintenance (O & M) of the ECRL. 

At least the new Government remains in good relationship with China and ensures Malaysia's good image remains intact. They were not hasty in  fighting with China over the previous Government's sinister activities. Doing so could have put the nation in a worse off position.

An interesting element of the new deal is that China must make the ECRL viable as they have a stake in it. Therefore we may see significant growth in goods traffic and Chinese investments. I call this the "creme de la creme" of this salvaging act.  

With the project recommencing, there will be renewed  economic activities and with the multiplier effect   significant growth should be seen in numeous industries. With so much uncertainty that prevailed the timing of the project would provide greater employment opportunities, contracts, supplies, logistics and so forth for Malaysians.

Prior to starting this article i too was a critic, believing ECRL would be a "white elephant", with the country carrying all the risk. I felt the monies could otherwise be used to build more hospitals, educational institutions & training facilities, other infrastructure and so forth. It was essentially a "pipe dream", for the old ECRL deal was not only exaggerated in value and lopsided but Malaysia would have lost billions in cancelling the deal.

Salvaging the deal with a much reduced price and creating an environment to ensure viability by China's participation in the O & M seems to promise a turning point. To make the ECRL a "working elephant" and not a "white" one. In a short time the Pakatan Government has put life into the ECRL.

We must salute the Pakatan Government in saving the country with such skillful manoeuvring of the price and risks aspects for future survival of the ECRL.


V M Chandran
My comments : Until the BN was kicked out in May 2018, we were all singing with one voice that the ECRL was not financially and economically viable.  

The financial viability risk has been  reduced by taking down the project cost from RM66 billion to RM44 billion. That is a whopping 33% reduction.

Just over a month ago Lim Guan Eng said that the ECRL would only be viable at RM36 billion. So the RM44 billion is still steep. Plus it is unclear if the RM44 billion includes land, rolling stock, signalling and the all important finance costs.   Some analysts say that with land, equipment, interest and other costs it will still hit the RM50b or even RM60b mark.  

In which case we will be back to square one.

Under the BN, there were serious doubts about the ECRL's feasability studies, the EIA, cashflow projections etc for the "old" route.

The same questions arise over the new route. 


  

Has there been any new feasability study, cashflow projections or EIA for the new route that cuts through southern Pahang, Negeri Sembilan, Bangi etc?  

(One observation is that the old Minister of Transport was from that part of Pahang on the "old' route whereas the new Minister of Transport is from Negeri Sembilan.)

Also Dr Jomo had highlighted that the 'old' ECRL's freight projections were far too aggressive.  Here is some old news:

By 2040 ECRL estimated 8 million passengers 
freight density of 19 million tonnes.
stark contrast to cargo volume on entire Malaysian railways 2015 entire Malaysian railways 6.21 million tons cargoECRL revenue projection - 30% passengers : 70% freightanticipating ballistic growth in cargo ? 
"old" ECRL – at RM80mil per km – world’s costliest rail projectGemas-JB double-tracking RM45mil per km
Since the 'new' ECRL is one third cheaper, can the 'new' ECRL generate 12.5 million tonnes of freight per year? 

After 150 years, good old KTM is only struggling with 6.21 million tons of freight.

My excitement about the ECRL arises from the Standard Gauge. Standard Gauge means the railway tracks are 4ft 8.5 in wide.

Presently we use the metre gauge which is about 39.5 inches (3ft 3 and 3/8 inches).

The use of the Standard Gauge means wider coaches, larger freight wagons, higher train speeds (even using normal diesel electrics) because of the wider and more stable tracks. 

Plus we can hook up to the One Belt One Road (OBOR) train from Kunming in China and ultimately down south to Singapore - which are all Standard Gauge.   (However the Thailand part of the OBOR project seems to have run into some Siamese cats.)

And if we build a bridge across the Straits of Melaka then the trains can go all the way from Sumatera (ultimately Java) to Beijing and beyond. 

Is there also a possibility that the Chinese will use the new ECRL as a land bridge for transhipment of cargo between Port Klang and Kuantan Port ?  

Because otherwise those freight projections (at least 12.5 million tons per year) are not going to happen.

Spinoff economic development in areas like Jelebu, Mentakab and Maran is also going to be a long shot. 

If there was corruption involved (and I believe there was) we could have pressed charges against the parties involved and cancelled the entire project without suffering any compensation.

If the original intent behind this project was criminal (to cheat the Malaysian taxpayer) then it should be cancelled. And we should have pressed for full compensation. Besides putting the corrupt (on both sides) in jail. We do not have to pay for anything. 

At this juncture this RM44++ billion project seems like a really huge monstrosity.  
And no project this size can escape cost overruns. Posted by Syed Akbar Ali 

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