Malaysia has cancelled a $20 bn rail project being built and financed by China after failed attempts to lower the price, a Minister said on Saturday.
Economic Affairs Minister Azmin Ali said Prime Minister Mahathir Mohamad’s government made the decision to scrap the East Coast Rail Link (ECRL) at a cabinet meeting, the South China Morning Post reported.
The project was being built by China Communications Construction Company (CCCC) and was 85 per cent financed by the Export-Import Bank of China.
The cancellation of the mega project is the second by the Mahathir Mohamad government since it came to power in May last year. In August, his government cancelled a China-backed project, a natural gas pipeline in the East Malaysia state of Sabah.
Azmin Ali, briefing reporters on the latest cancellation, said: “The cabinet decided to scrap the project because the cost of development is too high, and we do not have the financial capability at the moment.”
When it was awarded to CCCC in 2016 by Mahathir’s now-deposed predecessor Najib Razak, observers hailed it as one of the cornerstones of President Xi Jinping’s Belt and Road Initiative.
The ECRL is meant to be a land bridge linking Kuantan Port with Port Klang that would allow shipped cargo to bypass Singapore.
“If this project is not cancelled, the interest rates that will need to be paid by the government is almost half a billion ringgit (US$121 million),” he said. “We cannot bear this right now, therefore the project needs to be cancelled without affecting our good relations with China. We still welcome all forms of investment from China but we will look into the matter on a case-by-case basis.”
He said the amount expected to be compensated to China Communications Construction Group Ltd (CCCC) will be decided by the Finance Ministry.
Upon his shock election victory in May last year, the 93-year-old Prime Minister identified the ECRL as one of several big-ticket China-linked infrastructure projects he planned to cancel because he felt they were too expensive and unnecessary.
Najib, who offered the project without tender, has repeatedly said the Mahathir government would be making a mistake by cancelling the deal.
According to the former leader, the terms offered by the Chinese Export-Import Bank are highly competitive, with an interest rate of 3.25 per cent protected from exchange rate fluctuations and a seven-year deferment on payments.
Mahathir’s Pakatan Harapan bloc believes Najib, now facing dozens of criminal charges for his alleged role in the multibillion dollar 1MDB scandal, endorsed Beijing-linked projects because of his enthusiasm to take the country closer to the Asian superpower.
Reviewing Chinese-linked projects was one of 10 things the Mahathir government promised to do within the first 100 days of coming to power last year.
Following Mahathir’s meeting with Xi in Beijing last year, the premier said he had the assent of the Chinese government to review the projects, which the president said he understood Malaysia needed to do. (ANI)