AMID reports that the proposed Kuala Lumpur-Singapore high-speed rail line (KL-SG HSR) will not meet its completion deadline of 2020, questions have emerged about the financing for the project, which could cost more than RM50 billion.

At a press conference in Tokyo two weeks ago, Tomohiro Kobayashi, director of project coordination and railway bureau of Japan’s Ministry of Land, Infrastructure, Transport and Tourism, estimated the cost of the project to be around ¥1.8 trillion (RM56.62 billion).

This is based on the cost of the 345km Taipei-Zuoying Shinkansen (Japanese bullet train) line, said Kobayashi.

The KL-SG HSR line is expected to be 350km long. Earlier reports had put the cost of construction at around RM40 billion, including the cost of locomotives and bullet trains.

On whether the project would be completed by 2020 as scheduled, Kobayashi described the deadline as an “ambitious target” given that detailed project negotiations have yet to be completed.

Last week, Land Public Transport Commission chairman Tan Sri Syed Hamid Albar told Bloomberg that the KL-SG HSR may miss the 2020 deadline. It may take six to seven years to complete once construction starts by 2016, he said.

The 2020 deadline coincides with Malaysia’s target date to be a developed nation.

The KL-SG HSR line is expected to reduce overland travel time between the two cities from five hours to 90 minutes.

Syed Hamid, speaking in Tokyo two weeks ago, identified seven locations for the stations of the KL-SG HSR line. They are Putrajaya, Kuala Lumpur, Seremban, Ayer Keroh, Muar, Batu Pahat and Nusajaya.

The Edge Review reported last week that funding issues and geopolitical tensions are emerging as obstacles to the multi-billion-ringgit project, which comes at a time when the government aims to slash the budget deficit from 3.9% of gross domestic product in 2013, to 3% in 2015.

Kobayashi said that the Japanese government would be willing to provide financial aid and training to Malaysia and Singapore under its official development assistance (ODA) scheme.

“We’re prepared to extend assistance to both governments, including funding,” he said, adding that disbursements under the ODA scheme was subject to review by various Japanese government agencies.

 Maybank Investment Bank Research economist Suhaimi Illias does not discount the possibility of the Malaysian government tapping  ODA for the project.

“This is not something new. If [there is an offer of assistance], it might come attached with terms and conditions that include Japanese private-listed companies,” he says.

“[Of the alternative methods of funding the project], the government has a variety of options available to it, such as by creating a developmental expenditure [account], a special purpose vehicle to issue bonds, or to form public-private partnerships,” he adds.

The newly formed Asian Infrastructure Development Bank could be another source of funds for the government.

“This, however, depends on the cost of financing for the project,” says Suhaimi.

Work on the KL-SG HSR line is expected to start in the third-quarter of next year. Bidding for the project reportedly opens next year. Intense competition is expected between Japanese and Chinese companies vying for a slice of the project. There are also bidders from Europe, said Kobayashi.

The Japanese private companies are Mitsubishi Heavy Industries, East Japan Railway (JR East), Hitachi Ltd and Sumitomo Trading Corp.

JR East is the largest passenger railway company in Japan, transporting over 17 million passengers a day. It has a network spanning over 7,500km.

China is keen to play a role in developing rail infrastructure in the region. It is driving the initiative to link Kunming in Yunnan province and Singapore with an ambitious 3,000km network. In August, Thailand’s ruling junta approved the US$23 billion (RM75.6 billion) project that will pass through Laos, Thailand and Malaysia.

The Japanese press have reported that the KL-SG HSR line forms part of the Kunming-Singapore link, underlining Chinese interest in the project.  

Beijing-based CSR Corp Ltd, the world’s largest manufacturer of locomotives, will be a strong contender during the bidding process.

This article first appeared in The Edge Malaysia Weekly, on November 3 - 9, 2014.

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