SINGAPORE (May 21): Malaysia’s new government has pledged to review all the mega projects that the previous government undertook. Cancellations or delays could affect both the Singapore economy and local companies.  

The most high-profile of these projects is the Kuala Lumpur-Singapore High Speed Rail (HSR). It is expected to link the two cities in a 90-minute journey and yield significant economic benefits on both sides of the Straits of Johor. For Singapore, specifically, it will improve accessibility to the city state’s unofficial hinterland. It is also expected to create many jobs.  

So far, Malaysia-listed companies YTL Corp, Malaysian Resources Corp and Gamuda have been awarded tenders for the project. Several other tenders are still ongoing: for the design and construction of the Singapore terminus and the Singapore tunnels, and for an assets company that will design, build, finance and maintain rolling stock and rail assets.  

Another railway project is the East Coast Rail Link, which will link the eastern coast of Malaysia to Port Klang on the west coast. It has been described as an alternative trade route that could see 53 million tonnes of cargo bypassing Singapore annually by 2030. Beginning in the northeast of Malaysia, in the state of Kelantan, the ECRL will pass through the states of Terengganu and Pahang. Locally listed Anchor Resources has signed a memorandum of understanding to set up a joint-venture company to supply granite for the ECRL. Shares in Anchor Resources fell 19.2% in the past week.  

A new deepwater port that complements the rail link is being built in Kuantan, the coastal capital of Pahang. The port could emerge as a rival to the Tuas mega port currently under construction. Supporting the port in Kuantan is the Malaysia-China Kuantan Industrial Park (MCKIP), a bilateral government collaboration. Meanwhile, one development, the Melaka Gateway, has been called a “Singapore slayer”.  

It is a collection of islands that will house an international cruise terminal, Southeast Asia’s largest marina, a business district, a shopping mall, a Ferris wheel, luxury residences, a multipurpose deepwater port, a container terminal, a maritime industrial park, a free trade economic zone and entertainment and lifestyle elements — sounding very much like a mini-Singapore.  

Kuala Lumpur-based TA Securities says mega infrastructure projects that address important challenges are likely to proceed. The metro lines in Kuala Lumpur, for instance, will ease traffic congestion and improve the quality of life of city dwellers. But the HSR and ECRL projects are at risk.  

“The Pakatan Harapan [PH] coalition had before General Election 14 expressed the possibility of shelving these projects. These projects, with an estimated combined project value of about RM100 billion [$33.8 billion], were deemed unnecessary and would cause a heavy financial burden to the country,” the brokerage says in a report. “We are not optimistic on the effectiveness and efficiency of the single-track ECRL. This could be witnessed by the uninspiring performance of Keretapi Tanah Melayu for the service along the west coast of Peninsular Malaysia before the rail line was upgraded to a double-track system.”  

TA Securities sees greater priority and urgency for the government to complete metro projects in Kuala Lumpur and a double-track railway line between the states of Negeri Sembilan and Johor. “This is more so when PH promised to abolish the Goods and Services Tax and reintroduce sales tax, which will result in a reduction in the government’s revenue. Judging from the above, there is a reasonable probability that ECRL and the KL-Singapore HSR could be put on the back burner.” BMI Research, however, thinks the HSR project will be preserved. “More politically contentious projects, such as China-backed real estate developments, as well as those with weak business cases, are likely to face greater scrutiny,” the Fitch unit says. But the HSR has a strong business case, as the Singapore- Kuala Lumpur route is the world’s busiest international air route.  

The ECRL, on the other hand, drew extensive criticism from opposition lawmakers in 2017 when the contract for its construction was awarded to China Communications Construction in a closed tender. “While there is an apparent need for better logistics links to Malaysia’s east coast, we believe that the political unpopularity of the project as it currently stands means that it will be subject to intense scrutiny, leading to major revisions and a potential cancellation,” BMI says.  

Similarly, both MCKIP and Kuantan Port are likely to face intense scrutiny. Both projects have strong ties to China and are unpopular with locals. “Mahathir has previously singled out MCKIP as an example of Chinese investments encroaching on Malaysian sovereignty.  

The project has also been criticised by local entrepreneurs for the lack of opportunities given to Malaysian companies, with the majority of construction and supplier contracts awarded to Chinese firms,” BMI adds in a May 15 note. Meanwhile, high-end real estate projects across Malaysia are likely to face difficulties as the government expands anti-corruption efforts and attempts to reduce housing costs — two core concerns among PH voters. Potential restrictions on foreign developments and property ownership could weigh on projects with residential components, such as the Melaka Gateway.  

Across all projects, BMI says, near-term delays are likely as investors will be deterred by political uncertainties and as the government fulfils its campaign promise to review major infrastructure projects.

This story first appeared in The Edge Singapore (Issue 831, week of May 21) which is on sale now. Get your copy today.

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