Malaysia suspends $20bn Chinese-built rail link, and pipelines

Citing "national interest", Malaysia this week suspended work on a major railway, and two pipeline projects, both being financed and built by Chinese entities.

A flagship scheme of China’s Belt and Road Initiative, the 688km East Coast Rail Link (ECRL) had been intended to connect Malaysia’s west coast to rural northeastern states with 23 stations, and was initiated under the previous government of Najib Razak, who was this week charged with corruption.

The new Malaysian government has also halted $2.3bn worth of pipeline projects awarded to a Chinese firm under Najib’s watch, saying it has been paying for work not done, and asking the Chinese government for help in investigating money laundering (more below).

The notice to halt ECRL construction came as Malaysian Finance Minister Lim Guan Eng said on Wednesday (3 July) that the project’s final estimated cost had risen to $20bn (81 billion ringgits), around 50% higher than estimated by the Najib government.

Lim said the Chinese contractor, state-owned China Communications Construction Company (CCCC), would have to make a "drastic price reduction" for the scheme to go ahead.

That same day Malaysia Rail Link, the scheme’s state-owned delivery body, wrote to CCCC instructing it to suspend all works on grounds of national interest, reports The Edge Markets.

CCCC said it was "upset and concerned about the livelihood of our 2,250 local staff, as well as several hundred sub-contractors, suppliers and consultancy firms," in a statement seen by The Edge Markets.

Yesterday, in a separate statement to the Hong Kong stock exchange, CCCC said it "will take initiative to protect its legitimate rights and interests as a general contractor for design and construction pursuant to the contractual terms of the ECRL Project".

CCCC added that the project, which it won in 2016 without tender, "has been in smooth progress since commencement of construction in 2017".

Malaysia has already paid CCCC $5bn toward the ECRL, although in comments this week finance minister Lim said half that could be recovered in a "worst case scenario" if the project is withdrawn.

The new government of Mahathir Mohamad, elected by a surprise result on 9 May, has been running the rule over major infrastructure schemes initiated by the scandal-plagued Najib government.

Concerned over the country’s finances, one of Mahathir’s first acts was to scrap the $27.6bn high-speed railway between Kuala Lumpur and Singapore, which had been in the advanced planning stage.

Najib’s close relationship with China, which has been pouring billions of dollars into Malaysian infrastructure and real estate, has now come under the spotlight.

In addition to the ECRL, the finance ministry yesterday confirmed that two pipeline projects awarded in 2016 to China Petroleum Pipeline Bureau, together worth $2.3bn (9.4 billion ringgits), had also been suspended, The Edge Markets reports.

Last month the ministry of finance called the pipelines project a "scandal" because, since the contracts were signed in November 2016, Malaysia had paid 88% of the cost of the pipelines even though only 13% of work had been completed.

Finance minister Lim said this deal had been negotiated by the Prime Minister’s Department, without involving Treasury officials.

He rhetorically asked Najib, whom he said "has been active on Facebook recently", to explain how he could have approved such a contract, which he called "lopsided".

Lim said a report on the pipeline scandal would be filed with the Malaysian Anti-Corruption Commission, adding that he would "seek the assistance of the China government to help trace the flow of funds in China, in order to investigate the possibility of money laundering".

Image: Malaysia’s new Prime Minister Mahathir Mohamad chairs a cabinet meeting, 3 July 2018 (from the prime minister’s official Twitter feed)

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