By Stephanie Jacob
In the third of a five-part article on the high-speed rail link between Kuala Lumpur and Singapore KiniBiz looks at what the costs look like and whether the project will be financially feasible. Besides these there are a whole host of other factors to be considered and evaluated before a project of this size takes off.
There is a reason that countries with high-speed rail (HSR) links belong to a very small club: it is because building such links are no small feats. It needs massive infrastructure investments, requires a high level of engineering and technical know how and requires expensive upkeep and maintenance. Embarking on such a project is an expensive long term commitment and it is something Malaysia has to be prepared for.
How much will the Kuala Lumpur-Singapore High Speed Rail (HSR) cost? The most frequently mentioned sum seems to be RM30 to RM40 billion. This figure has come into play mostly based on past rail projects and other estimates and is seen as the absolute minimum that a project of this magnitude will cost.
In fact it may even be wishful – a feasibility study conducted in 2011 in Australia looking into what it would cost to build that country’s own HSR system, estimated that a slightly shorter 290 km HSR link with five stations would cost close to RM50 billion (assuming there are no costs overruns).
The report factored in land acquisition, stations and city access, maintenance and stabling facilities, power infrastructure, civil and rail infrastructure and IT and ticketing systems. The cost rises to RM80 billion if there is a 90 percent chance of no cost overruns.
Let us consider these factors in our local context, starting with infrastructure. High speed rail links require a specific type of infrastructure that is compatible with the type of trains used in order for it to to run smoothly and safely.
New infrastructure is built to avoid hindrances that might prevent the trains from reaching its optimum cruising speeds, says an engineering professor at a public university who specialises in transportation. For Malaysia, this will probably mean the building of an entirely new system as it is not practical to try and convert the current railway tracks, he said.
With the existing framework not being suitable to run a high speed train on, the entire length of the proposed KL-Singapore HSR link will have to be built from scratch. This is a significant cost contributor because not only do we need to build rail tracks, bridges, signaling systems and other infrastructure – we also have to acquire the land to build it on.
Leading us to our next big cost concern, the alignment issue – the exact route to be taken will only emerge once the much anticipated feasibility reports are released. Nonetheless there are some options that are emerging as possibilities.
These include suggestions to run the line across the coastal route – but that seems unlikely due to geographical and geological factors. Using KTM land either by converting existing tracks or by relaying the appropriate tracks has also emerged as a possibility but one that is not optimum, says an Hong Leong Investment Bank (HLIB) analyst. He also suggests that there is a proposal by UEM (who are likely to launch a bid for this project) to use its subsidiary PLUS’ land which currently runs along the highway – a proposal that is being well received amongst analysts.
However, while seemingly a practical solution; industry talk seems to be that it might face opposition from those hoping to gain from insider knowledge. There are suggestions that some with strong political connections may be looking to buy up the land that will eventually be used for cheap now, and then sell it back to the government at a premium later.
Either way, the local scenario presents no obvious opportunities for cost savings in the construction of this project. Which brings us to the issue of who can take on this project? Here analysts point out two factors to consider – firstly, who has the capital and secondly, who has the expertise.
Assuming that the cost of this project is RM50 billion; if a company is expected to generate 20 percent equity finance, this will total to a shareholder capital of RM10 billion. There are not many local players who have that kind of spending power to go at it alone. Furthermore, with the exception of YTL, Gamuda and Hartasuma there are not many Malaysian firms that have the level of expertise needed for this project.
The HLIB analyst believes that ultimately, we will see a Malaysia and Singapore government venture through the creation of a 50:50 special purpose vehicle. Perhaps between Malaysia’s Khazanah Nasional and Singapore’s Temasek Holdings. A contractor (possibly international) will then be appointed by to construct the rail’s main infrastructure.
Economists also see the two governments getting involved as the only way to ensure that the HSR service is accessible and affordable enough to capture a sufficient catchment of travellers. But how many travellers will be enough to ensure that the link can cover its financial costs and at what fare?
Mohd Nur Kamal
According to Mohd Nur Kamal, chief executive officer of the Land Public Transport Commission (SPAD), the HSR rail fare will be between that of a traditional train ticket and an airline ticket – that would potentially put it at roughly around RM130. He did not explain how he had come to that figure, nor how many people would have to patronise the link at that rate for it to cover its financial costs and possibly turn a profit.
KiniBiz used the following parameters – a project cost of RM50 billion, a five percent financing rate and a ticket price of RM300 per person. At these calculations, the HSR link would need to draw 8.3 million travellers per annum to simply cover the RM2.5 billion per year financing costs, even before repayment.
But is even RM300 per ticket enough?
“RM200 to RM300, is about as cheap as they can go,” said an analyst with a bank backed research house. Adding that at those ticket prices it will take a long time to simply cover financing costs, let alone begin turning a profit. Whether or not commuters will be willing to pay even that price must be seriously considered.
The Australian feasibility study says that from international experience, it is unrealistic to expect capital costs to be recovered from a project such as this. That aside, SPAD must pay close attention to patronage projections and maintenance costs to ensure that after spending anything from RM30 billion to RM50 billion (and possibly much more) – this link can generate sufficient income to at the very least be able to pay its financial and maintenance costs.
It might be a good time, to also consider that the government has so far spent close to RM36.7 billion (see table for cost break down) on an extensive double tracking rail project – with lines extending all the way up to Padang Besar in the north and all the way down south to Johor Baru. Projected cost estimates when first mooted stood at RM14 billion – which basically means that from the time of the proposal, there has been more than a 100 percent cost overrun.
The project has been ongoing since the early 2000’s and has been delayed for various reasons – including the re-awarding of contracts after the original winning companies failed to produce and the suspension of the project entirely under the former prime minister Abdullah Ahmad Badawi. The large cost overruns has been blamed on delays, inefficiency and poor planning.
The two lines still under construction include the Ipoh to Padang Besar line which is expected to be completed in late 2013 and the Gemas to Johore Baru line. For the Gemas to JB line, tenders are expected to be called for this year, and construction should take around three years. Should these projects meet their latest deadlines – then in an estimated three years the country will have a system with the potential to reach 160 km/hour speeds (commonly defined as fast rail travel) in place.
Yeah Kim Leng
RAM Holdings economist, Dr Yeah Kim Leng quips that “if we could turn back time, maybe we should have not started on this (double tracking) at all.” He says however that it will not be redundant if marketed to fulfil specific areas of travel and economic needs. For example he says, the HSR link should be promoted as the option for businesses and foreign tourists, while the double tracking system could be the preferred option for inter-state travel and cargo transportation.
What must be ultimately determined he says, is that there will be a sufficient catchment to be tapped into upon the completion of these projects. He says that this task is firmly in the hands of SPAD, as they are conducting the feasibility studies.
Requests to SPAD on the current and forecasted patronage of the HSR and double-tracking rail system went unanswered.
One can only hope that SPAD, which is assiduously working to get the feasibility report out by June does not skew it to fit in with the overall plan which is to go ahead with HSR between Malaysia and Singapore.
Also, it is very necessary to ensure that the feasibility report is made public in its entirety and sufficient time is given for everyone to study it and give their feedback. Otherwise, the feasibility report will be nothing but mere eyewash.
Yesterday: On the right track?
Tomorrow: The winners and the losers
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