Cash-strapped Malaysia Terminates Singapore High-Speed Rail Plan

Today’s train line between Kuala Lumpur and Singapore feels distinctly vestigial in the era of cheap air fares and the slick highways that run up the spine of Peninsula Malaysia.

Typically, the carriages are barely a quarter full as the train hums through provincial stations and mile after mile of palm oil plantations on the two-and-a-half-hour journey to Gemas, a scrappy transit town around half way between Kuala Lumpur and Singapore. There, southbound passengers are set down to wait, often for two or more hours, in the corridors of Gemas station – by far the most imposing building in the town – or in the handful of chain restaurants and sleepy noodle shops dotted between the fading concrete shophouses.

Finally, a rickety diesel engine arrives to rattle onwards towards the border city of Johor Bahru, another four hours away. From "JB," another small train crosses the Causeway to Woodlands on the north of Singapore island. Door-to-door from central Kuala Lumpur to downtown Singapore, the trip can take upwards of nine hours.

Photo Credit: Peter Guest

That was supposed to be about to change. Last year, the Malaysian and Singaporean governments inked a deal to begin construction on a high-speed rail (HSR) link that would cover the 350 km distance in 90 minutes.

The US$17-billion project was due to break ground in 2019 and begin operation in 2026. A holding company, MyHSR, was founded to manage it; tenders were issued and international companies – notably from China and Japan – began to jostle and lobby in the hope of getting a piece of the deal.

In May, all that preparation and potential was swept away. Malaysia’s incumbent leader, Najib Razak, conspired to throw away a seemingly unassailable political position and lost a general election to his 92-year-old opponent, Mahathir Mohamad. Najib’s coalition, Barisan Nasional, had been in power since independence, but had been rocked in recent years by corruption scandals.

Mahathir swept into office with a crusading zeal and immediately began to clean house. Among the casualties is the high-speed rail link.

The new government has announced that its predecessor racked up close to US$250 billion worth of debt, some of which had not previously been declared. In response, it announced that it would cut projects that it no longer deems economically viable – including HSR – and carefully examine others.

“This is an economically challenging time for the new Malaysian government, primarily due to shocking revelations of many previously hidden debts and obligations,” says Ei Sun Oh, a Malaysian political analyst and Najib’s former political secretary. “A few large-scale public projects will have to be shelved for the moment to tighten up expenditure. The cancellation of the HSR is one such necessary measure.”

Malaysia’s economy has grown at between 4-6 percent for each of the last five years, and wages have been growing strongly, but rising costs and a falling ringgit have contributed to a sense of stagnation for many Malaysians. The ringgit fell from around 4.5 to the US dollar at the start of 2017, to below 4 to the dollar on the eve of the election. At the same time, the massive corruption scandal at the 1MDB sovereign investment vehicle gave the impression that the government was mishandling the economy and skimming off the top.

Photo Credit: Reuters / TPG

The HSR was one part of a huge infrastructure plan that was heavily promoted by the previous government. Although the economy continued to grow, rising costs and runaway corruption contributed to a sense of stagnation for many Malaysians and, facing a tough general election against a wily rival, BN was keen to pump money into headline projects like the HSR and an electrified railway up the east coast, the East Coast Rail Link. Najib’s government claimed that there would be tens of billions of dollars worth of economic benefits from HSR alone, with more than 400,000 jobs created.

Many of these initiatives, including the east coast line, were backed by Chinese money – road and rail projects under the "Belt and Road" initiative total an estimated US$34 billion, according to Hong Kong-headquartered research firm Gavekal.

The role of Chinese money and a perceived lack of transparency in the dealings between the Najib government and foreign contractors became touch-points during the election campaign. Mahathir has expressed a desire to renegotiate or withdraw from these contracts, but analysts say that could be more difficult than pulling out of HSR, where few contracts have actually been signed and no construction is underway.

“I think the economic angle, Malaysia’s high level of external debt is being given as the official reason. I think there’s also a big political component, a desire to be seen to be reining in what might be seen as excessive infrastructure spending, with the HSR and the East Coast Rail link being two very prominent examples of that,” says Christian Zhang, an infrastructure analyst at BMI Research in Singapore. “There are concerns about the high costs, but the fundamental demand for a high-speed rail link between Singapore and Kuala Lumpur is still there. It’s one of the world’s busiest international air links. There’s also a lot of potential for real estate and urban development along the route,” Zhang says.

Photo Credit: Reuters / TPG

What Singapore thinks of its neighbor’s sudden change of heart remains to be seen. As of May 31, the Singaporean government had yet to be formally notified that the deal is off, and as such the government has remained tight-lipped. The city-state was hoping to use the railway to spur development in a new commercial zone around the terminus in Jurong, and was planning its own investments into real estate and infrastructure.

Dubbed the "Jurong Lake District," the area has been touted as Singapore’s second business district, designed to take the pressure off the overcrowded and overvalued Downtown area. The plan has been in place since 2008, five years before the HSR deal was signed, but the decision to place the Singapore terminus in the district gave it a more solid anchor.

Real estate developers have used it in their pitches for the half-dozen condo blocks slated for the area, while the government is building a huge public housing estate, the Tengah New Town, just down the road, with 42,000 new homes. The Land Transport Authority, which manages public transport in Singapore, issued tenders for tunnels and other facilities in April, and the government had begun the process of acquiring land – including expensive plots currently occupied by two country clubs.

Photo Credit: Reuters / TPG

Mahathir has long been a willing antagonist to the city-state, a tradition that he continued in an interview with the Financial Times this week, where he aimed a dig at his neighbor – “I think the people of Singapore, like the people in Malaysia, must be tired of having the same government, the same party since independence.”

Political Analyst Ei Sun Oh says he is certain that the cancellation of the deal should be seen as a domestic Malaysian affair. “It is in no way an expression of hostility or displeasure toward Singapore,” he says. “I am sure the longstanding amicable relation between the two neighboring countries would dictate that the nature and amount of the settlement of the cancellation could be resolved in a most creative and mutually satisfactory manner.”

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Editor: David Green