This article first appeared in Forum, The Edge Malaysia Weekly on January 29, 2024 - February 4, 2024

In July last year, MyHSR Corp Sdn Bhd (MyHSR) said it was looking to revive the high speed rail (HSR) link between Kuala Lumpur and Singapore provided it was fully funded by the private sector.

Nowhere in the world has a HSR been funded entirely by the private sector because of the huge cost involved, so MyHSR is effectively wading into uncharted territory.

Last week, when MyHSR’s request for information (RFI) exercise ended with seven consortia submitting their proposals, the terms were different. According to MyHSR’s statement on the response to the RFI, the project will be based on a “public-private partnership (PPP) initiative” on a design-finance-build-operate-transfer model.

When did MyHSR decide that the project would be a PPP initiative instead of a fully private-sector-funded project? Was the cabinet consulted?

In a PPP initiative, the government part-finances the project. Its role is likely to be in land acquisition, facilitating regulatory approvals and giving incentives such as tax breaks and credit guarantees. All these components cost taxpayers money.

The private sector finances the construction and takes the execution risk. But the financing risk is not as heavy as the risk the government takes. This is because the private sector can access many forms of vendor financing for HSR-related projects.

Between the government and the private sector, the risk is higher for the former, which carries the burden of seeing the project to completion and the successful running of the service. As a partner in the project, the private sector can be replaced but not the government.

In the past, the government had entered into PPP initiatives where the profits were privatised and losses absorbed by the government. The private sector derived all the profits from executing the project. The debts, cost overruns, delays and operational risk, which were far higher, were left in the hands of the government and the taxpayers.

There is no reason to believe that the 350km HSR will be any different. Compounding the matter is the fact that the project is taking shape at high speed.

Astoundingly, MyHSR chairman Datuk Seri Fauzi Abdul Rahman said in an interview that the company is looking to decide on the winning bid in three months, followed by a recommendation to the cabinet.

Why the rush to select the winning bid for a job that is estimated to cost at least RM100 billion and is susceptible to cost overruns and delays?

The sheer speed at which MyHSR is looking to make a decision and the obscurity in the changing of the terms from being an “entirely private-sector-funded project” to a PPP initiative are tell-tale signs that taxpayers may likely be saddled with a hugely inflated infrastructure project that will not see optimum utilisation for many years to come.

Which brings us to the question of the estimated cost and utilisation of the HSR.

In 2020, the cost of the HSR was estimated at RM72 billion, which was already about 40% to 50% more than the industry average then if the cost of similar infrastructure in Europe and China were taken as a benchmark.

A 2018 European Union audit on HSRs in the region determined that the average cost incurred to build the infrastructure was €25 million per km, not including tunnelling and other more expensive items. Based on an exchange rate of RM4.80 to one euro, the 350km KL-Singapore HSR should have cost about RM42 billion in 2020, and not RM72 billion.

A 2019 World Bank report on HSRs in China stated that the construction cost in that country was on average between US$17 million and US$21 million per km. Based on an exchange rate of RM4.50 to the US dollar, the maximum cost of the KL-Singapore HSR should be about RM33 billion.

This lends credence to the move by the Pakatan Harapan government, led by Tun Dr Mahathir Mohamad then, to cancel the HSR project and pay Singapore S$102.8 million (RM320.27 million then) in the process.

It was a much cheaper option for getting out of the muddle started by former prime minister Datuk Seri Najib Razak.

Now, the HSR is estimated at RM100 billion because the cost of materials has gone up in the last three years. It is as big as Malaysia’s entire development budget for 2024.

What is the justification for the RM100 billion price tag? Does it include land cost and government guarantees?

The critics have been sniping at the rationale for the project, and with good reason. They point out that the cost of undertaking the project is huge and will eat into the national budget for years to come.

In HSR projects, the cost of interest during construction itself runs into the tens of billions.

For instance, the 143km Jakarta-Bandung project in Indonesia started in 2015 with a cost of US$5.5 billion. It was completed last year at close to US$8 billion. The Indonesian and China government-owned entities had to cover the cost overrun.

According to an audit covering 5,000km of HSR lines in Europe, cost overruns and delays are the norm instead of the exception. The shortfall is always funded by the government.

Apart from cost factors, the utilisation of the HSR is questionable. Malaysia simply does not have the passenger volume to justify the project.

The HSR audit in Europe revealed that on average, the infrastructure needs to have nine million users per year to be operationally viable. This does not cover the capital expenditure incurred to build it.

In China, the threshold to build a HSR is far lower because the government’s priority is connection to the interior of the country and not financial feasibility. Hence, it is heavily subsidised and the numbers cannot be relied upon.

Indonesia’s HSR has attracted an average of 15,000 passengers per day in the first 100 days of its operations. It is below the 31,000 passengers per day target — and this is a country where the population of Jakarta and Bandung put together is already almost 14 million.

On average, there are about six million people flying between Kuala Lumpur and Singapore annually. The number is higher if passengers using buses and cars are taken into account.

Even if all the passengers migrate to the HSR, which is highly unlikely, we would still not have the numbers.

Moreover, the number of passengers using the conventional railway to Johor Bahru and onwards to Singapore is low at the moment because the long-awaited double track between Gemas and Johor Bahru that is being built by a YTL Group joint venture has been pushed to mid-2025. Right now, the double track stops at Gemas.

The original completion date was end-2022 but it has been delayed due to the pandemic. Once completed, the journey from KL Sentral to Johor Bahru is expected to take 3½ hours.

When the RTS Link between Johor Bahru and Woodlands is ready, the trip to Singapore will take four hours or more. But it will be seamless and much cheaper than the HSR.

The Indonesian experience shows that the conventional railway, while taking a longer time, is the favoured mode of rail transport between Jakarta and Bandung.

That’s because the price of the train ticket between the two cities is 50% less than that for the HSR. So the normal train service, despite taking 3½ hours, is more popular with regular commuters. The HSR, meanwhile, will cater mainly for the business crowd.

The HSR can only be viable if the fares are kept low, just like in China. For the fares to be low, the government, and not the private sector, has to lead the project.

Studies show that typically, it takes about 16 years from the planning of the HSR to start commercial operations. If MyHSR’s RFI exercise is taken as the starting point, the project should be operational around 2040.

By then, the current set of leaders would no longer be holding the reins. The debt and problems would have to be handled by the future generation of leaders.

Shouldn’t someone in the government justify why they are reviving the HSR when urgency and speed is not of the essence?

M Shanmugam is a contributing editor at The Edge

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