Government to fund 85% of Malaysia’s revived rail project

China’s Export-Import Bank is expected to finance 85% of a 44 billion ringgit (USD10.7 billion) rail link project in Malaysia that will bolster economic development in rural eastern states, Transport Minister Loke Siew Fook said Thursday.

The East Coast Rail Link across peninsular Malaysia was suspended a year ago shortly after Prime Minister Mahathir Mohamad’s alliance won a historic election, but the government said in April it will revive it after the Chinese contractor agreed to slash costs by a third. The project connects Malaysia’s west coast to poorer eastern states and is a key part of China’s Belt and Road infrastructure initiative.

At a ceremony in northeast Terengganu state to relaunch the project, Loke said state-owned Malaysia Rail Link has finalized negotiations with China’s Ex-Im Bank and that an agreement will be signed soon but didn’t give further details.

Loke said the 640-kilometer rail project will cut travel time from Kota Baru in northeast Kelantan state to the government administrative capital Putrajaya to four hours at a speed of 160 kilometers per hour. By road, the trip can take at least eight hours.

The revised project will cut through five states instead of four, have 20 stations and is scheduled for completion by December 2026. It will include 30-40 tunnels and multiple viaducts, he said.

He said the project is expected to boost trade and tourism and attract investment.

Chinese Ambassador Bai Tian said that a Malaysian study projected the rail link project could contribute 2.7% to Malaysia’s economic growth. He hailed the project as a “game-changer” that will revitalize the east coast economy and bring closer ties between Malaysia and China, its largest trading partner.

Malaysia Rail Link and China Communications Construction Company Ltd., which is building the project, plan to form a 50:50 joint venture.

Mahathir has said the fact that the project’s cost could be slashed by 21.5 billion ringgit ($5.2 billion) showed initial projections were inflated when former Prime Minister Najib Razak’s government awarded the main contract to CCCC in 2016.  Mahathir chose to renegotiate the deal rather than pay compensation of 21.78 billion ringgit ($5.3 billion).

His government has axed or reviewed large-scale infrastructure projects to rein in surging national debt that it blames mostly on corruption in the previous government. Apart from the rail link, the government also has cancelled two China-backed pipelines costing 9.3 billion ringgit ($2.3 billion) after discovering that 90% of the project’s costs had been paid but with only 13% of the work completed.

The government has said it is investigating whether any money in the rail project was used by Najib’s government to repay debts at the 1MDB state investment fund. A massive financial scandal at 1MDB led to the electoral defeat of Najib’s coalition last May. Najib is on trial for multiple corruption charges linked to 1MDB. Vincent Thian, Dungun, AP