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Wednesday, 4 July 2018

(The Star) ECRL project – ball at CCCC’s court

PETALING JAYA: The government has sent a strong signal to China Communications Construction Company Ltd (CCCC) on the need to bring down the cost of the East Coast Rail Link (ECRL) drastically if it wants to continue with the project.

The cost of the project, including land acquisition and financing, is now tagged at RM80.92bil. That price is 47% higher than the RM55bil project cost that was announced during the launch of the project by the previous government in March last year.

In another surprising disclosure, the Finance Ministry has revealed that the Selangor state government has objected to the second phase of the rail line from Gombak to Port Klang.

Finance Minister Lim Guan Eng said in a statement yesterday that the Selangor state government’s objection is principally based on its application to establish the 16km-long Klang Gates Quartz Ridge as a Unesco World Heritage Site.

“It is the longest of its kind in the world. Completing the Gombak-Port Klang link would guarantee the failure of Selangor’s application,” he said in a statement.

Lim said that based on the facts and figures, as well as the feasibility studies of the project, the government felt that it would only become financially and economically feasible if there was a drastic price reduction of the project by the CCCC.

“Discussions on cost will be held with the contracting parties and others involved in the project.

“Only after a significant price reduction on the ECRL is obtained will the federal government enter into discussions with the Selangor state government on the merits of the ECRL project as compared to the possible Unesco World Heritage Site listing,” he said.

The ECRL project started off with an initial estimate of less than RM30bil in 2007. When the previous government signed the agreement with CCCC in 2016, it was for only Phase 1 – from Gombak to Wakaf Baru in Kelantan – tagged at RM46bil.

The cost of Phase 2, from Gombak to Port Klang, was another RM9bil.

On May 13, 2017, the previous government signed an additional agreement with CCCC to carry out Phase 2 of the project.

Subsequently, the Cabinet approved the northern extension of the project from Wakaf Baru to Pengkalan Kubor in Kelantan for the value of RM1.28bil, Lim said.

On Aug 23, 2017, the Cabinet further permitted the upgrading of the ECRL to a double-tracking project, costing an additional RM10.5bil.

Lim said that based on these figures, the basic cost of construction of the 688.3-km rail line amounts to RM66.78bil.

“However, the total cost of the ECRL will be RM80.92bil after taking into account land acquisition, interest, fees and other operational costs.”

The ECRL project was one of the mega projects that came under scrutiny following the change of government for its cost that was described as highly inflated. Apart from the cost, the project came under criticism for unfavourable terms in the agreement, where CCCC is allowed a 15% upfront payment of the total project cost of RM66.78bil as “mobilisation fee”.

During Datuk Seri Najib Tun Razak’s trip to China in November 2016, the agreement was signed with China Export Import Bank that provided 85% of the financing needs for the project. The rest was to be raised by a Finance Ministry-owned entity – Malaysia Rail Link Sdn Bhd (MRL).

So far, CCCC has drawn down RM19.68bil comprising RM10.02bil as advance payment and RM9.67bil for work done.

The 15% advance payment is viewed as not a normal payment because the normal mobilisation fee is generally 5%.

However, CCCC has placed an advance payment bond equivalent to the sum of the advance payment of RM10.02bil with MRL.

“In other words, in the event of a worst-case scenario, the federal government can recover RM10.02bil of the RM19.68bil paid,” Lim said.

It is learnt that CCCC is keen on completing the job that could be cut down to only Phase 1, which now costs RM46bil.

Consultants have said that the cost can come down to RM40bil with some changes to the design and reduction in the tunnels.

“The existing design is too generous. The cost can come down with the new design,” said a consultant.