Malaysia: Ambitious Infrastructure Improves Connectivity.

Legal News & Analysis – Asia Pacific - Project Finance

22 September, 2015

 

Malaysia: Ambitious Infrastructure Improves Connectivity.

 

The proposed high-speed railway linking Singapore and Kuala Lumpur is the first of its kind in South East Asia and dubbed the most ambitious infrastructure project in the region. The project was conceived in order to improve connectivity between the two cities, and to ease the current congestion on the two existing link bridges between Singapore and Malaysia.

 

Envisioned as a safe and efficient mode of transportation, the railway is further hoped to be a catalyst, as well as the terminus in the western part of singapore, where development is taking place to build a new commercial centre to complement the existing one in central singapore.

 

currently, travel time between singapore and Kuala Lumpur is about 5.5 hours by land and 45 minutes by air. Expected actual travel time, using the railway is 90 minutes.

 

The railway, with an estimated distance end to end of approximately 340 kilometres and costing sGD14.8 billion, is expected to be completed in 2022. The two countries are currently ironing out the legal, financial and security aspects of the project and are expected to finalise the agreement for construction of the railway by the end of 2015.

 

A significant impetus

 

The railway will have a total of seven stops in Malaysia including the terminus in Kuala Lumpur. Each stop offers travellers a unique experience, from the varied food offerings at batu pahat; the unique architecture of putrajaya; to the well-preserved pre-war buildings of Muar; various attractions for fun-seeking tourists in nusajaya; and the vibrant night life of Kuala Lumpur, Malaysia’s capital city. 

 

It is expected that these towns will benefit in the long term through the influx of future users of the railway, anticipated to be primarily tourists and business travellers. Rejuvenation of these towns would stimulate the local economy and it is hoped would spur economic development.

 

At the singapore terminus full scale development is underway to transform this industrial hub into a business and leisure centre, around a lake and garden development, which would attract more visitors to the region. future plans include the construction of additional local rail lines to serve the area and complement the existing infrastructure.

 

The railway may also be a boon to singapore’s labour market, as it would facilitate the influx of skilled labour from Malaysia. Travelling between the two countries would be much easier and more convenient.

 

Feasibility concerns cost is one possible point of negotiation between the two countries, as the likely benefit does not necessarily directly correlate with the physical infrastructure. While a substantial portion of the railway will be located in Malaysia, the value and benefit of the railway may be skewed in favour of singapore. If so, then it would make sense for singapore to contribute the lion’s share of the construction costs.

 

Another possible issue is the cost of the fares. Many predict they could be pegged to the fares charged by budget airlines, which may not be affordable for those using the railway on a daily basis. This means the target users may be mainly business travellers and tourists, and raises the question of whether enough people will use the railway to ensure it enjoys long-term profitability.

security of its borders is also one of singapore’s major concerns, following a number of border checkpoint breaches that have occurred in recent years. As the most progressive country in the region, it is an attractive destination for other nationals looking for economic opportunities. It does however have the advantage of being an island nation with limited border crossing points for unwanted intrusions.

 

Competition for the railway contract

 

There appears to be two major contenders for the high-speed railway contract: a consortium of chinese construction companies and another consortium made up of four Japanese companies whose common goal is to participate in revolutionising transportation across the region.

 

China, keen to secure the contract for the railway, is aggressively publicising its interest in the work, even offering a proposal to complete the construction of the railway much earlier than the estimated duration of seven years.

 

Japan, on the other hand, is concerned about china’s growing influence in the region and is expected to bid competitively for the project. They bring a solid reputation built on fifty years of high-speed railway experience, as well as an unprecedented record of operational performance and safety.

 

Other equally reliable and efficient players who have expressed an interest in the project are the french and Germans. In the end, however, it would be up to singapore and Malaysia to select the contractor who will not only provide value for money, but one who can provide an efficient and reliable system.

 

The overarching benefit for the region

 

In 2006, 20 Asian countries signed a grand Trans-Asian rail accord. The agreement involves the proposed linking of countries in the Asian continent by way of a high-speed mode of transportation. china in particular, as the world’s number one exporter, is looking towards the development of high-speed rail that will serve as a conduit for the transportation of goods.

 

Finally we must not forget that the singapore-Kaula Lumpur rail system is but a fragment of the ambitious trans-continent high- speed rail that would link countries in Asia, the Middle East and quite possibly Russia, and one day pave the way for a railway link to Europe. 

For further information, please contact:
 

James Taylor, Managing Director, FTI Consulting
[email protected]