Commentary: KL-Singapore HSR termination risks Malaysia falling behind on transport connectivityJan 10, 2021 | 🚀 Fathership
CANBERRA: The amicable discontinuation of the Kuala Lumpur-Singapore High-Speed Rail (HSR) project came as no surprise given developments in Malaysia since 2018 and reprioritisation resulting from the COVID-19 pandemic.
Despite seemingly good faith negotiations in recent months, the writing had been on the wall for an agreement forged by Najib Razak - the former Malaysian Prime Minister since convicted of multiple corruption charges.
Criticised by Najib’s successor Mahathir Mohamad as being an “unnecessary project” that “will not earn us a single cent”, few expected the project to survive the political battering let alone the pandemic firestorm.
The immediate economic consequences of the termination are negligible. It is doubtful that a project that has seen little practical progress in the eight years since being agreed - and for which earlier proposals date back to last century – had factored into business and investor plans.
Malaysia must compensate Singapore for costs incurred but these should be relatively minor.
A FOREGONE OPPORTUNITY?
Of greater interest are the potential benefits foregone and whether alternative investments offer better prospects.
Official estimates provide no guide, as updated modelling has remained confidential with the project evolving and administrations changing.
Cost estimates ballooned seven-fold between the original announcement in Malaysia’s Economic Transformation Programme 2010 and in 2018.
Limited disclosure and a disproportionate focus on costs have clouded debate on HSR’s merits.
Conceptually, the largest benefits of HSRs come from connecting moderately distant “nodes” rather than the “spokes” – that is, further integrating KL and Singapore more than connecting either with intermediate stops.
A HSR would make door-to-door travel between two major businesses centres faster and more convenient, encouraging additional economic activity.
That said, a domestic only alternative may be more beneficial than believed by some analysts, with independent modelling suggesting the largest benefits to Malaysia would have come from KL-Johor integration.
Faster domestic travel times may also reduce urbanisation pressures in greater KL and lessen Malaysia’s significant regional inequality by boosting the attractiveness of living in the “spokes” such as smaller cities like Seremban.
The main downside being it limits options for future extension to Singapore by locking in a technology and likely monopoly operator.
"Very few high-speed trains are actually financially viable … Usually those connecting two major cities, including Tokyo-Osaka and New York-Boston, are. A Singapore-Kuala Lumpur high speed train will make a lot more financial sense… than a KL-JB high speed train," Maybank Kim Eng's senior economist Chua Hak Bin told media recently.
COVID-19 COST-CUTTING LED TO LOST INVESTMENT OPPORTUNITIES
Critics of the HSR argue that KL and Singapore - and intermediate stops - are already well-serviced by air, road and slower rail. By this logic, the less catered Bangkok-KL alternative might warrant greater priority.
Thailand is forging ahead with its own HSR that will ultimately link to China via Laos, so Malaysia might consider accelerating bilateral discussions with Bangkok.
The relative merits cannot be judged without robust and transparent modelling, but the HSRs are best considered as complements not substitutes.
The development of a pan-Asia HSR through non-maritime Southeast Asia offers greater potential than the sum of its individual parts.
The prospects for alternative HSR proposals depend on Malaysia’s rationale for termination. Optimistically, bilateral relations with Singapore appear cordial and ministerial statements highlight structural disagreements – such as the choice of network operator - and an openness to future cooperation.
Singapore’s Transport Minister Ong Ye Kung also revealed in parliament on Jan 4 that the main concern that led to the termination of the HSR project was Malaysia’s suggestion of removing the assets company that was to manage the project.
He added that Singapore was keen on having a "best-in-class industry player" play this role since both countries did not have the experience in running a high-speed rail line. This assets company would have been necessary to protect the interests of both countries and minimise potential future disputes.
From a practical standpoint, this was also probably a compromise given how both countries have highly regulated domestic rail systems run by companies with strong links to the government.
Long-term projects like HSR also need to survive government changes to succeed, with the extenuating circumstances surrounding Najib’s involvement and the pandemic not necessarily indicating a breakdown of bipartisan support for HSR.
Reports that an earlier commencement was among Malaysia’s desired project changes is also encouraging, suggesting a willingness to invest its way to a post-pandemic recovery.
“Both countries remain committed to maintain good bilateral relations and cooperate closely in various fields, including strengthening the connectivity between the two countries,” a joint ministerial statement from both prime ministers released on Jan 1 stated.
Less optimistically, the Muhyiddin Yassin-led government has its attention elsewhere. The fragile and fractious nature of political coalitions together with immediate pandemic-related concerns are detracting from long-term policy vision.
Meanwhile Muhyiddin’s first budget continued Malaysia’s dire revenue collection descent, leaving the coffers increasingly bare and major projects unaffordable.
A reluctance to use debt financing may also have contributed to the HSR termination, with debt similarly tainted by Najib-era activities. These barriers apply equally to Singapore, Bangkok and domestic HSR options.
It is in this respect that cost-cutting necessitated by pandemic circumstances more accurately reflects a continuation of structural budgetary problems and a focus on programme or project costs not net benefits.
These are detrimental legacies of former governments that signal poor prospects for infrastructure investment and development more broadly.
A WARNING SIGNAL FOR MALAYSIA’S INFRASTRUCTURE COMPETITIVENESS
Malaysia risks falling behind as other ASEAN countries converge on its infrastructure competitiveness.
It has already lost considerable ground as an insufficient investment pipeline and inadequate maintenance funding failed to keep pace with demand. Its logistics infrastructure – which in 2010 was ranked 28th globally by the World Bank and considered far superior to all ASEAN countries except for Singapore – dropped to 40th in 2018 and was little different to Thailand, Vietnam and Indonesia.
It has fared better on the World Economic Forum’s transport infrastructure perceptions measure but has been treading water and not improving over the past decade. Diminishing ambition relative to its peers doesn’t bode well for future competitiveness.
Kuala Lumpur has been judged worse than the likes of Manila and Jakarta in terms of urban public transport availability, affordability and usage.
Congestion and road quality are escalating frustrations and pollution levels are rising with vehicle usage. Malaysia has long been Southeast Asia’s outlier in terms of its dependence on cars for transport, as investment in alternatives has failed to keep pace with population and income growth.
COOPERATE WITH OTHER COUNTRIES TO BOOST INFRASTRUCTURE SPENDING
Malaysia needs infrastructure investment and can’t afford to continue postponing major projects indefinitely. It should be applauded for walking away from unfavourable deals, but only where judged on a fulsome, long-term cost-benefit basis.
Whether the HSR met that criteria in its now terminated form is something for which only greater transparency would provide.
Improving transparency around the government’s assessment of individual projects and how different alternatives fit into infrastructure planning is a more immediate priority.
This would lay the foundation for a more prudent allocation of scarce funds and raise public confidence in the delivery of meritorious major projects.
Continuing constructive bilateral relations can help in this regard, contributing to a more robust, transparent and mutually agreeable framework for a future HSR and other integration endeavours.
Singapore and Malaysia offer different perspectives on project governance and diverse sources of infrastructure finance, and could cooperate further towards bilateral and regional concerns.
So while this particular agreement has left the rails, it need not be the end of the line.
Stewart Nixon is a research scholar at the Crawford School of Public Policy, The Australian National University and a recent research visitor at the University of Malaya.