HSR termination a setback for economic co-operation

Singapore

THE termination of the Kuala Lumpur-Singapore High Speed Rail (HSR) project is a lose-lose situation for Singapore and Malaysia, given the mutual benefits for various economic sectors and potential for the exchange of ideas, said observers.

But despite both governments failing to reach an agreement by the Dec 31 deadline, the project's termination is unlikely to have a significant impact on bilateral ties. Observers noted the two countries' deep interdependency and positive signals from the coordinated efforts during the Covid-19 pandemic.

Given the high expectations riding on the HSR project, Maybank Kim Eng senior economist Chua Hak Bin called the termination "a big disappointment" and setback for greater economic integration.

"The high speed rail would have created new opportunities and growth in many areas, including tourism, supply chains and retail. It would have also allowed both countries to leverage more readily on each other's labour markets for specific skills and talent," said Mr Chua.

In a joint statement on Friday morning, Prime Minister Lee Hsien Loong and his Malaysian counterpart Muhyiddin Yassin said that in light of the Covid-19 pandemic on the Malaysian economy, Malaysia's government had proposed several changes to the HSR project.

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Though several discussions were conducted with regard to these changes, both parties had not been able to reach an agreement, the statement said.

Singapore's Ministry of Transport said Malaysia, in accordance with the agreement, has to compensate Singapore for costs already incurred for the HSR project.

Woo Jun Jie, a senior research fellow at the National University of Singapore's (NUS) Institute of Policy Studies, said the HSR project could have served as a potential model and platform for other future bilateral cooperation.

But he cautioned against overplaying its impact on Singapore-Malaysia relations, given that the two countries have a deep, multifaceted historical relationship.

"Given our proximity and historical relations, the two countries will inevitably continue to be highly interdependent for tourism, labour and regional developments," he said. "Even without the HSR, there will still be strong mutual demand for tourism. Malaysian workers will continue to see Singapore as a land of opportunities for them."

Walter Theseira, a transport economist at the Singapore University of Social Sciences, noted that the project was terminated in a way that did not appear acrimonious. Both parties appear to have come to a mutual agreement. "I think it gives confidence to Singaporeans, Malaysians and investors that both countries will continue to cooperate in other areas of their bilateral relationship," said Prof Theseira.

For instance, the development of the Rapid Transit System (RTS) Link between Johor Bahru and Singapore is expected to continue, he said.

Malaysia's transport minister in November gave his assurance that the 4km RTS Link will be completed within the stipulated time frame, by 2026. It is estimated that the journey between Bukit Chagar station in Johor and Woodlands North station in Singapore will take five minutes.

Prof Theseira added that Singaporeans should take heart from the fact that even in the midst of the pandemic, both countries kept the cross border flow of necessary supplies going. Arrangements were also made to facilitate the movement of workers as far as possible.

"That is noteworthy . . . there are many places around the world that, during Covid-19, shut down borders entirely, which led to huge problems with supply chains."

In the short-term though, the HSR termination is likely to be a disappointment to companies that might have benefitted from the project tenders.

"The direct impact will be on construction and retail, which have lost business opportunities. But there are also indirect multiplicative spillovers to other sectors throughout the economy," said Lawrence Loh, an associate professor at NUS Business School. Prof Loh also noted the impact on the environment, given that continued high volumes of air travel between Singapore and Malaysia - one of the busiest international routes in the world - will leave a large carbon footprint.

Assets with values that have priced in the expectation of a successful HSR project will be impacted as well, said DBS senior economist Irvin Seah. However, Mr Seah noted that investors should have considered the risks since the project ran into roadblocks in mid-2018.

In fact, the announcement on Friday morning might not have come as a surprise to some. Malaysian news outlets, based on information from sources, reported in December that Malaysia intended to build the HSR without Singapore and end the line in Johor Bahru.

Maybank Kim Eng's Mr Chua said a fast-speed rail that stops in Johor and not Singapore is not likely to be financially viable and might end up as a drain on government resources.

"Very few high-speed trains are actually financially viable in the world. 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, especially given the spillovers to the broader economy, than a KL-JB high speed train," he said.

Prof Theseira said the main difficulty is that rail is not competitive with road for short distances, and not competitive with air travel for long distances - even high speed rail. Singapore to Kuala Lumpur was a sweet spot.

"So I do think it will struggle in terms of cost recovery and sustainability. But again, there are many parameters, and it really does depend on the decisions you want to make regarding the speed and the cost of the network," he said.

READ MORE:

• A missed opportunity to bolster KL-Singapore connectivity

• HSR termination could slow increase in Jurong property prices

• Malaysia to lose billions of ringgit in revenue after HSR termination: Najib