Thursday, December 20, 2007

Malaysia’s Big Money Railroad Hustle

The government revives a white elephant project for a politically connected construction firm

Prime Minister Abdullah Ahmad Badawi, who came to office vowing to stop a wide range of money-swallowing projects put in place by former Prime Minister Mahathir Mohamad, has caved in to political pressure and reinstates several of them. Now, it appears he is restarting what may be the biggest of them all, a massively expensive rail project tied to a well-connected construction firm that seems to have little hope of recouping its investment.

The government has approved the no-bid contract with Gamuda-MMC for RM 12.5 billion (US$3.73 billion) to double-track the country’s main north-south railway line, a 329 km run from the central city of Ipoh to the Thai border. The MMC part of the consortium is a construction company backed by Syed Mokhtar Al-Bukhary, a long-time backer and fundraiser for UMNO, the largest party in the country’s ruling Barisan National coalition.

Malayan Railways Ltd serves the Malaysian Peninsula with a network of 1,700 km of railways, but it earned only RM 288 million in transportation revenues in 2006, made up as follows:

Intercity services RM 71 million

Commuter services in Kuala Lumpur areas RM 85 million

Freight services RM 132 million

Total RM 288 million

Excluding the commuter services in Kuala Lumpur, the total transportation revenue is RM203 million from a network of 1,525 km of railways. Apportioning 30 percent of this revenue to the Ipoh-border sector — only 22 percent of the 1525 km network — the corresponding revenue is RM60 million.

Granted that traffic volume would increase substantially after completion of the double-tracking project, there is still a limit. Assuming generous seven-fold revenue growth, future annual revenue for this sector could — could be RM 420 million, just 3.3 percent of the initial capital investment of RM 12.5 billion. Such a meager return means that the project would have little significant impact on the economy or transportation in this sector after completion.

But every family in Malaysia would have to shoulder an average burden of RM 2,500 to pay for this folly. If this money were spent for other purposes, the government could complete any one of the following feats:

* Plant 1.2 million hectares of mature oil palm capable of generating annual revenues of RM 10 billion (5 million tons of palm oil @ RM 2,000 per ton), or

* Build 400,000 low cost housing units, capable of housing to 2 million people, or

* Establish 100 medium sized institutions of higher learning, capable of taking in 300,000 students for tertiary education, or

* Build 1,200 km of expressways.

The contrast in returns between the double-tracking project and any of the alternatives should indicate that this project is a very low priority. With the country still short of funds to address many social-economic needs, why do this? The circumstances are troubling.

First, there has never been a proper cost/benefit analysis. For a project this large this omission is shocking, but then the cabinet was likely aware that the proposition could not have survived even a preliminary round of analysis.

Second, the project has never been properly discussed in the cabinet – neither during Mahathir’s reign, when the contract was first dubiously awarded to Gamuda-MMC in October 2003 before being shelved in December 2003 after Mahathir left office, nor during Abdullah’s premiership when it was revived in March 2007.

Third, it was the Cabinet Committee on Public Transport – not the cabinet itself– which resurrected the project and awarded the contract to the same contractor in a subcommittee meeting held on March 16, 2007 chaired by Deputy Prime Minister Najib Tun Razak, who also made the announcement. That such an important project should have been left in the hands of Najib’s subcommittee reflects Abdullah’s weakness as well as a serious flaw in the decision-making process.

Fourth, no open tender was called. The decision to re-award the contract to Gamuda-MMC was made even before prices were known to the government, thus weakening the latter’s bargaining position and throwing the door wide open for collusion and corruption. What happened to Abdullah’s promises of open tenders, transparency and accountability?

Fifth, the announcement on the official award of this contract with a finalized price was left to the contractor, who also spoke at length on the project’s economic justification, while the government kept silent. Is it the contractor’s business to justify public expenditures? Shouldn’t that be the responsibility of cabinet ministers? Shouldn’t the ministers have appeared to bask in the glory of launching such a project?

Noting the minuscule projected return in relation to the huge capital layout, a series of questions beg for answers. Why did former premier Mahathir Mohammad push for the double-tracking project so urgently days before he stepped down on in October 2003? The contract then was for the construction of both the northern Ipoh-Padang sector and the southern Seremban-Johor Bahru sector for a total contract sum of RM 14.5 billion.

Having rightly shelved the project in December 2003 due to its low priority, why did Abdullah revive it in March 2007? Finding no compelling economic or social rationale, what conclusion can we draw other than to attribute the motivation to base greed – both on the part of the giver and the recipient of the contract? (By Kim Quek, Asia
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Anonymous Anonymous said...

That's for the election war chest!

Just imagine, for the April 2007 Ijok by-election with a population of 12310 eligible voters, the ruling party pumped RM36million into the local community in forms of road work,new multipurpose hall, sewing machines, cash handout etc. Multiply that for the whole country!! Things are more critical lately as the grassroot sentiment is that of anti establishment as such even a bigger war chest is needed for the coming election.

Now is a good time to see your local MPs for your long awaited amenities.

BN will be playing the role of Santa Claus! Ho,ho,ho...

Vote BN Not!


5:40 PM GMT+8  
Anonymous Anonymous said...

In the name of national interest, lets fuck the country big time financially. to whose benefit? non-roccuptible Badawi-led government? you think for yourself after looking at the stats below:

If this was started in 2003 ( as approved by Tun), the cost is estimated at RM8 billion for the northern portion. In 2007, under a so-called religious and clean Badawi, the cost is now RM12.5 billion, a whopping 55% increase within a period of 4 years. Inflation rate at below 2% a year, anymore from this spinning government? This doesnt equate, does it?

7:34 PM GMT+8  
Anonymous SM said...

They can & will do anything & everything to stay in power. They don't care what happens to our Country as long as they are in control. Our hard earned money is going to pay for all these Big Projects! And they call the HINDRAF Leadership traitors!
I hope at least some of us have learnt from all this. AAB was given a BIG Mandate in the last Elections because he promised alot of change. Nothing has happened. Now he says he needs more time. For what? More promises?!
The question is what are we going to do in the next Elections? The same? Remember Malaysians are known for their very short memories!

8:22 PM GMT+8  
Anonymous moo_t said...


The double track project is a must, except the few hundreds percent markup on the corruptions.

The rails can transport 10x more goods with less cost compare to trucks and container over long distance. When the oil price continue to stay highway, and all oil subsidies going to be lifted in 2015, Malaysia industry is going to take a huge blow. The double track railway must complete before 2015 to hedge some of the heavy transport cost, all Malaysia economy is going to take a dive.

6:05 PM GMT+8  
Blogger bayi said...

Puts Dr M to shame.

9:56 PM GMT+8  

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