Lo­cal con­trac­tors should take the lead in ECRL 2.0

The Star Malaysia - StarBiz - - Viewpoint - The al­ter­na­tive view M. SHAN­MUGAM [email protected]­tar.com.my

IN­CREAS­INGLY, it looks quite cer­tain that the highly con­tentious East Coast Rail Link (ECRL) project is set to re­sume.

The lat­est in­di­ca­tion came from Prime Min­is­ter Tun Dr Ma­hathir Mo­hamad, who said last week that the project may re­sume but on a smaller scale if the Chi­nese gov­ern­ment agrees to the changes.

The Prime Min­is­ter has said that it would be dif­fi­cult to come out of the con­tract with­out Malaysia hav­ing to in­cur a huge cost.

This comes hot on the heels of for­mer Fi­nance Min­is­ter Tun Daim Zain­ud­din, who does not hold any of­fi­cial of­fice in the new gov­ern­ment but is play­ing a key role in the ne­go­ti­a­tions with the Chi­nese gov­ern­ment, say­ing that ne­go­ti­a­tions are still on­go­ing.

The project, which was signed off dur­ing the pre­vi­ous regime, is among the first that was put on hold when the Dr Ma­hathir led-gov­ern­ment took over on May 9 last year due to sev­eral is­sues – from its es­ca­lated cost to lop­sided con­tracts and ques­tion­able ad­vance pay­ments.

For­mer Prime Min­is­ter Datuk Seri Na­jib Tun Razak an­nounced the project at a cost of RM55­bil. How­ever, the cost, after the project was up­scaled, came to RM66.78bil – a key piece of in­for­ma­tion that was kept from the pub­lic.

Then, the is­sue of the main con­trac­tor – China Com­mu­ni­ca­tions Con­struc­tion Com­pany Ltd (CCCC) – be­ing al­lowed to draw down RM20­bil, of which RM15­bil was “ad­vance pay­ment”, drew scru­tiny be­cause the amount was large com­pared to the ac­tual work done on the ground.

Fi­nally, the lop­sided na­ture of the con­tract, where CCCC would un­der­take 70% of the work leav­ing only 30% to lo­cal con­trac­tors, clearly was not in the in­ter­est of the lo­cal con­struc­tion in­dus­try.

After strip­ping out the elec­tri­fi­ca­tion and com­mu­ni­ca­tion sys­tems works, which are dom­i­nated by for­eign com­pa­nies, lo­cal com­pa­nies would be left with a small por­tion of the works.

CCCC was given the man­date as the main con­trac­tor in re­turn for the Chi­nese gov­ern­ment fi­nanc­ing the project.

The pre­vi­ous gov­ern­ment played into the hands of China’s debt diplo­macy, com­pro­mis­ing the in­ter­est of the na­tion and sidelin­ing the lo­cal con­struc­tion in­dus­try.

Go­ing for­ward, do we still need fi­nanc­ing from China’s Ex­port-Im­port Bank (Exim Bank) if we are to con­tinue with the project? Do we still have to en­gage with CCCC based on `debt diplo­macy’?

There are suf­fi­cient fund­ing op­tions for the project, con­sid­er­ing that the gov­ern­ment is its pay­mas­ter. There re­ally is no need to ne­go­ti­ate with China on the ECRL project on the ba­sis of `debt diplo­macy’.

China is an im­por­tant trad­ing part­ner for Malaysia. There is no deny­ing that Malaysia needs China more than China needs Malaysia.

How­ever, lo­cal con­struc­tion jobs do not have to be given away to the com­pa­nies from China.

Not when there are enough lo­cal com­pa­nies which can do the job just as well or even bet­ter than the com­pa­nies from China.

An­other ad­van­tage is that spend­ing in the lo­cal con­struc­tion in­dus­try tends to bring about a sig­nif­i­cant mul­ti­plier ef­fect on the do­mes­tic econ­omy.

Un­der the old terms of the agree­ment, CCCC is the main con­trac­tor and gets the lion’s share of the job be­cause fund­ing comes from China’s Exim Bank. There would be a very small mul­ti­plier ef­fect on the do­mes­tic econ­omy, as the money stays in China.

The same ar­range­ment should not be al­lowed to con­tinue, es­pe­cially when there are re­ports that sug­gest that the project had been grossly in­flated to pay kick­backs to some par­ties.

If the ECRL is to re­sume, why should CCCC con­tinue to hold the lion’s share of the work?

Lo­cal con­struc­tion com­pa­nies do not need hand­outs but an op­por­tu­nity to com­pete on an equal plat­form.

If jobs are con­trolled by CCCC, their chances of land­ing any mean­ing­ful work would be slim, not to men­tion that the com­pe­ti­tion would not be on even ground, as CCCC is in some way linked to China’s gov­ern­ment and has ac­cess to cheap fund­ing and other re­sources.

In con­trast, the lo­cal con­struc­tion gi­ants are all com­pletely pri­vate-sec­tor driven.

If fi­nanc­ing from China is re­duced, then CCCC’s role in the ECRL can be cut down.

It has hap­pened be­fore in the sec­ond Pe­nang Bridge project.

The sec­ond Pe­nang Bridge started with an of­fer of a US$800mil loan at a low in­ter­est rate from China’s Exim Bank.

It was a deal that was first ini­ti­ated dur­ing the Tun Ab­dul­lah Ah­mad Badawi ad­min­is­tra­tion. How­ever, when Na­jib took over, the loan was re­duced to US$200mil. In tan­dem with the re­duced loan, the scope of work of the con­trac­tor from China was also re­duced.

The orginal cost of the ECRL is less than RM30­bil. How­ever, it was in­flated to RM66.78bil.

Con­sul­tants have es­ti­mated that the ex­ist­ing project can be com­pleted at RM40­bil.

A smaller-scale ECRL would re­quire less fund­ing, hence less par­tic­i­pa­tion from con­trac­tors from China. This is some­thing that the gov­ern­ment should not budge from in the ne­go­ti­a­tions with China.

The ECRL ver­sion 2.0 is an ex­cel­lent op­por­tu­nity to boost the lo­cal con­struc­tion in­dus­try. We have ca­pa­ble com­pa­nies with the ex­per­tise to take the lead in com­plet­ing the job at a sig­nif­i­cantly lower cost.

CCCC’s role: A view of the sec­ond Pe­nang Bridge. If fi­nanc­ing from China is re­duced, then CCCC’s role in the ECRL can be cut down. It has hap­pened be­fore in the sec­ond Pe­nang Bridge project.

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