Chinese firm told to suspend USD 20 billion Malaysia rail project

A Chinese company building a key rail link in Malaysia said today that it has been told to suspend work pending negotiations, and urged the new Malaysian government elected two months ago to honour the contract.

The suspension came just a day after Finance Minister Lim Guan Eng called for a sharp price reduction in the 688-kilometer East Coast Rail Link after discovering that the project's actual cost is 81 billion ringgit (USD 20 billion), nearly 50 per cent higher than that estimated by the previous government.

The project is a key part of China's regional Belt and Road infrastructure initiative connecting Malaysia's west coast to rural eastern states. It is largely financed by China and the main contract was awarded in 2016 to China Communication by former Prime Minister Najib Razak, who was defeated in May 9 elections.

 

Lim has said the project's final cost included land acquisition, interest, fees and other operational costs. He said negotiations will be held as the project can only be financially and economically feasible with a "drastic" price cut by China Communication.

China Communication said it regrets the suspension and urged the new government to "honor and respect" the contract signed with Najib's administration. It said no duration was given for the suspension and that it could spark additional costs, losses and damages.

"We hope that both sides will be able to find a win-win solution through sincere negotiation with good will. We also hope that the suspension will be lifted as soon as possible," it said in a brief statement.

Lim has said the government has given China Communication 10 billion ringgit (USD 2.5 billion) in advance payment and 9.67 billion ringgit (USD 2.4 billion) as a progress payment. The advance payment can be recovered in a "worst case scenario" if the project is withdrawn, he added.

Malaysia's new government has axed a high-speed rail line to Singapore because it is too costly and is reviewing other large infrastructure projects financed by China. The cost-cutting came after officials revealed the national debt has surged sharply, partly due to corruption under Najib's rule.

Najib was charged today for criminal breach of trust and corruption arising from investigations into alleged corruption at the 1MDB state investment fund.