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Malaysia restarts rail project with China after cost cut

Its RM65.5b price tag has been whittled down to RM44b; financing costs have been cut by RM12.6b

Kuala Lumpur

MALAYSIA restarted the China-linked East Coast Rail Link (ECRL) project on Thursday, after having downsized building costs by a third to lighten the government's debt burden.

The rail project, led by China Communications Construction and Malaysia Rail Link, was cancelled a year ago by Prime Minister Mahathir Mohamad's new government on the grounds of its RM 65.5 billion (S$14.4 billion) price tag. He revived talks later and in April struck a deal with China to cut it down to RM44 billion.

Transport Minister Anthony Loke said at the relaunch of the project in the east coast state of Terengganu on Thursday that Malaysia hopes that the ECRL would bring economic benefits to the country, not just in construction, but that it would also link the country's ports by rail.

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"Hence the shipping and logistics industry would certainly enjoy more encouraging industry growth."

The rail project is one of several infrastructure projects Dr Mahathir has sought to revive to stoke economic growth following a wave of spending cuts and a corruption crackdown last year following his election victory. For China, the resumption may be a boon for its Belt and Road Initiative, under which Asian governments from Myanmar to the Maldives are reassessing Chinese investments amid concerns over sovereignty and big loans.

The 640km rail will connect Peninsular Malaysia's economically-lagging eastern coast to states near the capital of Kuala Lumpur when it is completed in 2026.

The amended deal increases local contractors' participation and realigns certain routes.

Malaysia will sign a supplementary agreement soon with Export-Import (Exim) Bank of China, under which the interest on its loan for the rail project will be reduced, said Mr Loke. The Exim Bank loan is to finance 85 per cent of the RM44 billion project, he said.

Malaysia will save about RM12.6 billion in financing costs, Malaysia Rail Link chief executive Darwis Abdul Razak told reporters. Financing costs will be reduced to RM24 billion from RM36 billion, he said.

The project's cost had ballooned as construction got underway, with the finance ministry estimating that the price tag could hit RM81 billion ringgit.

Dr Mahathir said the original cost was inflated and would have been lower if the deal - inked during his predecessor Najib Razak's time under China's Belt and Road Initiative - was offered through an open tender. BLOOMBERG