Malaysia says revised China deal shows costs were inflated

Malaysia’s prime minister said Monday a Chinese firm building a railway link across the Southeast Asian nation will jointly help to manage and operate the community, part of revised agreement which will find the postponed project off the ground at a lower cost and ease strained relations.

The East Coast Rail Link across peninsular Malaysia said it would review infrastructure jobs to rein in surging federal debt that it blamed on corruption in the past government and was suspended following the alliance swept into power last May of Prime Minister Mahathir Mohamad.

Canceling the job risked alienating Malaysia’s biggest trading partner, China, which considered the railroad connecting the west coast of Malaysia to eastern countries a part of its Belt and Road infrastructure initiative.

Mahathir said Monday the authorities opted to renegotiate the deal rather than pay compensation of 21.78 billion ringgit ($5.3 billion). He said the fact that the project cost can be reduced sharply by 21.5 billion ringgit ($5.2 billion) revealed that the price was inflated when former Prime Minister Najib Razak’s government granted the main contract to CCCC in 2016.

Under the new deal, Mahathir said CCCC will produce a 50:50 joint venture company with Malaysia Rail Link discuss the threat that was operational and to supply support. He explained the participation of CCCC as rail operator can help attract investment across the railroad link corridor.

CCCC has additionally agreed to refund a part of a 3.1 billion ringgit ($753.4 million) progress payment, with just 1 billion ringgit ($243 million) to be paid within the following two months, he explained.

Although the rail project is going to probably be shortened by 40 kilometers (24.8 miles) into 648 kilometers (402.6 kilometers ), he stated the double-track lineup will probably have 20 stations and cut five countries, instead of four previously. He explained that the new orientation may mean avoiding having to tunnel through a mountain range in central Selangor state, which is the pure quartz dyke on earth.

China, mainly finances the undertaking, which is now slated for completion at the end of 2026 rather than 2024.

Mahathir said the government is negotiating the loan number together with the EXIM Bank of China however it will be lowered and this will result in paying less interest on the loan.

He said the authorities is also”taking advantage of the agreement to work out the purchase price of palm oil by China,” but didn’t give further details.

Officials said focus on the railroad link could resume by following month.

Apart from the railroad connection, Mahathir’s government last year also cancelled two China-backed pipelines costing 9.3 billion ringgit ($2.3 billion) after finding 90 percent of their job’s costs had been paid but only 13 percent of job had been finished.

The government has said it’s investigating whether any cash in the railroad project was channeled by the government to repay debts in the 1MDB country investment fund of Najib. A large financial scandal in 1MDB led to the election loss of the coalition of Najib and Najib is on trial for many corruption charges.