This article first appeared in Forum, The Edge Malaysia Weekly on July 31, 2023 - August 6, 2023

The Kuala Lumpur-Singapore route is among the busiest in the world for international flights. Some 4.3 million people flew that route in 2019 alone, according to a Ministry of Transport report.

In 2013, the total number of passengers who travelled between the two cities stood at 3.4 million, suggesting that there had been an average increase in air traffic of about 4% or more per annum for that route.

The rising passenger traffic is the reason why AirAsia is flying the KL-Singapore route at least 20 times daily after the pandemic. A few other airlines also service that route, so the total number of flights is significantly higher than that.

However, even with the high frequency of flights, the passenger numbers do not justify having a high-speed rail (HSR) connecting the two cities.

One can learn about the economics of operating an HSR from China, which has built and put into operation more high-speed connections than the rest of the world over the last 15 years. It has built 25,000km of dedicated HSR lines across the country.

China’s financing model involves equity funding from the central government, regional governments and, occasionally, smaller portions from large companies in the private sector. Sometimes, up to 50% is funded by equity while the rest is funded by debt.

The ultimate objective is to offer high-speed connectivity at low prices to attract the numbers. A 2019 World Bank study of HSR lines in China revealed that HSR lines with a passenger count of 20 million people per annum were able to cover the operating cost, whereas operators with 30 million or more passengers per annum were able to service the debt.

For an HSR line to be viable, meaning where a portion of the principal can be repaid apart from meeting the operating and financing costs, the passenger density per annum should ideally be more than 40 million people per annum.

The KL-Singapore route does not attract that kind of passenger traffic. Nor will it do so in the next few years based on the air traffic volume between the two destinations. The reason why air traffic volume is used as a benchmark is because a segment of passengers using this mode of transport is likely to opt for the HSR.

The HSR cannot possibly steal a large amount of traffic from those who travel between the two cities by road because of the fares involved. There are numerous express buses and private cars plying the KL-Singapore route, thanks to an excellent highway.

Travelling by express bus or private car is relatively cheap compared to flying an airline. Also, travelling by car allows one to go from door to door.

And this segment of travellers can afford the luxury of time. For them, a five-hour journey by road to Johor Baru and onwards to Singapore is not a problem. They will not opt for the HSR unless the price drops to extremely low levels.

There is also train connectivity between KL and JB. A double-track electrified rail service between the two cities is supposed to be up and running by now. The track is currently connected to Gemas.

There have been delays in the completion of the Gemas-JB stretch, which is more than 85% completed. When that portion of the double-track is finished, a hassle-free train journey from KL to JB should take about four hours. And the cost is relatively cheap compared to air fares and can provide stiff competition to express buses.

Commuters are already seeing the benefits of the double-track electrified rail services that are currently operating between KL and major towns in the north such as Butterworth and Alor Setar. The journey is faster than by bus and the fares are only marginally higher than those offered by express buses.

The southern stretch of the double track project ends at JB central station, which is near the connection to the Rail Transit System (RTS) link that connects to Woodlands in Singapore.

The HSR is designed to cut travel time between KL and Singapore to about 90 minutes. It will offer passengers the convenience of not having to travel to the airport at least two hours earlier to go through immigration formalities before boarding their flight.

Assuming there are five million airline passengers who travel the KL-Singapore route and the number grows exponentially, how many would opt for the HSR instead? Surely, the airlines — especially the low-cost carriers — will also drop their prices to attract passengers?

Also, how many of the passengers are on transit is a relevant question. The transport ministry’s passenger statistics does not indicate how many flew directly from KL to Singapore and vice versa.

Second, the case to build HSR infrastructure without government support is daunting, especially when passenger numbers are not high enough to ensure its financial viability.

This brings into question the rationale for MyHSR Corporation Sdn Bhd’s initiative to invite proposals from the private sector to revive the KL-Singapore HSR project. The condition is that the proposal should not involve any government funding.

Can the private sector really build an HSR without any government support? Will MyHSR also ensure that the government will not bear the cost of any land acquisitions?

If a proposal is accepted by MyHSR and the governments of Malaysia and Singapore, it will probably be the first time the private sector is fully funding an infrastructure project meant for public use. It is very rare, even in developed countries, for the private sector to entirely fund the construction and operations of an infrastructure project meant for public use.

In the UK and Europe, where travel by rail is popular, the infrastructure cost is borne by the governments. And governments are struggling to build rail infrastructure — with the exception of China.

In China’s case, the country also undertakes railway works in developing countries such as Malaysia under its Belt and Road Initiative (BRI). But the developing countries have to pay for the infrastructure, leading critics to dub the BRI as a form of “debt diplomacy” rather than a move to help nations build facilities.

The cost of building the 350km KL-Singapore HSR project is estimated to be about RM60 billion. That works out to about RM170 million per km, which is less than the average cost incurred to build an HSR connection.

For instance, the 142km Jakarta-Bandung HSR started construction in 2015 at a cost of US$5.5 billion. It ended in 2023 after many delays with a total cost of US$7.4 billion. That works out to about RM235 million per km.

Assuming that the cost of the KL-Singapore HSR project is kept at RM60 billion, even an equity portion of 10% works out to RM6 billion. And not many financial institutions would want to fund an infrastructure project for only 10% equity. They would want the promoters to take on more risk and, hence, would demand a higher equity portion.

On this score, 20% equity and 80% debt would be palatable. But that would involve an outlay of RM12 billion. And this is assuming that there are no cost overruns and delays, which are common in almost all large infrastructure projects.

How many private sector firms would want to fork out such a huge amount of capital and wait for returns over a long gestation period?

The HSR is a grandiose project and would be ideal when existing capacities to facilitate travel between KL and Singapore are at their brim. At the moment, there is ample infrastructure and other modes of travel between the two cities.

The road and air connectivity between KL and Singapore are still being favoured. The double-track electrified rail connection between KL and JB is at the tail end of completion and will ensure hassle-free and cheap travel between the two cities in four hours.

The Rapid Transit System that connects JB to Woodlands is being built and due for completion in 2026.

Is there a need to revive the HSR project? And will such infrastructure be completely developed without any government assistance?

And finally, what happens if the promoters fail midway through the project? Who will bear the burden of completing the project?

M Shanmugam is a contributing editor at The Edge

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