By Stephanie Jacob
In the second of a five-part series on the high-speed rail link between Kuala Lumpur and Singapore, KiniBiz examines just some of the key issues that have to be sorted out. It’s not right to let a massive project costing anywhere between RM40-80 billion – the largest single project in Malaysia to date – to gain momentum for implementation when the feasibility study itself will be ready only later this year.
To launch a mega project without a completed feasibility study is highly unusual to say the least – and the lack of one for the Kuala Lumpur-Singapore High Speed Rail (HSR) link is a point contention for many.
Without a complete set of hard facts and figures readily available, open to debate and discussion it is hard to draw a comprehensive picture on the viability and practicality of the project. This has left many Malaysians wondering if the government is undertaking another massive project without doing its homework.
The Land Public Transport Commission (SPAD) says that they are currently in the final stages of the HSR Phase 1B feasibility study and they expect it to be completed by June 2013. Why the announcement could not wait another four months is anyone’s guess.
Therefore most analysis of this mega project has so far been based on snippets released by SPAD and through studying international feasibility studies to get an idea of some of the factors that come into play in a project such as this.
SPAD has said it is looking very closely at ringgit and sen issues to see what the best financing structure might be. They are also looking to see how they can capitalise upon potential revenue streams, including from patronage of the link itself.
When deciding to build a HSR link an obvious question is whether the country can afford it in the first place. But the more important question might be whether the country can maintain it, both in terms patronage and upkeep in the long term.
Economists have also identified this as a key concern and are keen to point out the close correlation between the financing structure and eventual affordability of the link to travellers.
A Maybank KE report highlighted a study done of commuters at the Kuala Lumpur International Airport (KLIA), the Low-Cost Carrier Terminal and Skypark Subang terminals, where they were asked if they would change their travel frequency to Singapore if the journey was cut short by 60 minutes. Overall, the study found that trips down south could increase almost 3.5 times more.
Commuters however were not asked how much they would be willing to pay for such a service. Perhaps it is safe to say that commuters are interested, but at what price?
Based on 2011 Economic Transformation Programme (ETP) estimates, a total of 9.2 million KL-Singapore trips are made every year. From this, 6.3 million (68 percent) of these trips are from road travel, while 2.9 million are air trips. The remainder is from traditional train travel.
Assuming the following parameters – a project cost of RM40 billion, a four percent financing rate and a ticket price of RM300 per person, analysts at Maybank KE determined that the project would need a ridership of 5.3 million per annum to simply cover financing costs.
The HSR will have to be attractive enough to pull travellers from these rival sectors. If the link is not affordable (especially comparatively to other transport options) it will be unable to attract the kind of passenger volume necessary to cover the financial and maintenance costs of the link.
Mohd Nur Kamal
In an interview with a local daily, SPAD chief executive officer Mohd Nur Kamal was keen to emphasise that this was not a project designed solely for the middle class or upper class. Rather he explained, the mandate of the High Speed Rail (HSR) link was to enhance travel and connectivity for all.
SPAD declined to be interviewed for this article and did not get back with answers to questions.
Affordability is a concern that has to be addressed now, and it starts with determining what shape the financing mechanism for this project will take. We understand from Prime Minister Najib Abdul Razak’s comments, that this project will most probably be undertaken via a public-private partnership (PPP). What the composition will look like though has not been discussed.
So far the big local players seem eager – with interest from UEM, YTL Group, Syed Mokthar Albukhary and Hartasuma. Foreign firms are also interested, with SPAD anticipating it will receive bids from Asian and European companies when the tender is called. That is of course understandable because it is big business and will mean multi-billion-ringgit contracts.
Mohd Nur also seemed to suggest that SPAD was leaning towards the private sector taking the lead on this one. In the same interview, he said that there would be a need to find the right balance between government and private investment to ensure that the government would spend as little as possible.
Economists however are not sure that a PPP is the best option going forward. Terence Gomez, an economist with Universiti Malaya stated that he believed that a partnership between the two governments would be the preferable funding option, and pointed out that costs could be further kept down by tapping into Singapore’s extensive experience and expertise in the rail sector.
Yeah Kim Leng
Dr Yeah Kim Leng, an economist with RAM Holdings concurred saying “the government will most probably have to subsidise the capex (capital expenditure) costs, for example through the provision of land.”
For Dr Yeah, the government tapping into the both the Singaporean and Malaysian bond markets or even the Asean bond market seems to be the most practical option on the table. He also suggests that a special purpose vehicle similar to MRT Corp would be a good way for the government to manage this project.
SPAD have also been keen to emphasise that this is more than just a transportation project. In fact according to Nur Kamal, “It is more about economic development and less about transport because currently there is more than one way to go to Singapore” he added that he anticipated that the HSR would help generate new business that would not be possible without it.
“The main catchment is going to be the business and international travel, the foreign tourism – it will be important to capture this growth,” agrees Dr Yeah.
Analysts also are emphasising that location will be a massive factor to take into consideration. Where terminals and stations are located will factor heavily into a traveller’s decision.. A terminal located at an accessible central location would be considerably more appealing to the business traveller and the tourist rather than travelling to KLIA or LCCT which are located far from city centre.
“For me, as a business person what will matter is location…my office is moving to the KL Sentral area and if the station is there it will definitely be my choice (to use the HSR as opposed to flying or driving),” said an analyst with a bank backed research house.
SPAD have said that alignment is being closely studied to ensure that it is both feasible and likely to generate the most revenue. So far, there seems to be plans for stations in Seremban, Negri Sembilan; Ayer Keroh, Malacca; and Muar, Batu Pahat and Iskandar Malaysia in Johor.
They will also have to look closely at how to use this rail link to attract investment into Malaysia. It must ensure that stations in Malaysia are located in areas that can draw in investment opportunities.
According to an article in the Economist, HSR rail links have in the past had an unfortunate tendency in resulting in unbalanced gains for the more advanced cities on its line. It will be important for SPAD to ensure that KL and the other cities along the line do not become part of this worrying statistic.
However Dr Yeah is not overly concerned about that, saying that “water finds its own level – and there will be a spillover on both sides to balance it out.” What is important he says, is to identify and begin developing sectors that could potentially benefit from now such as the property sector and the tourism industry.
These are just a few of the main issues. There are important questions with regards to land acquisition, safety concerns and the level of Singapore’s involvement.
However should SPAD be able to get its financing structures, affordability and logistical issues right, then economists and analysts see much potential in this project.
Nonetheless, until feasibility studies are released and can scrutinised – it is difficult to know where we stand for sure. The fear is that should feasibility studies be found to be wanting when they are finally released, the project would have already gained too much momentum heading down the wrong track.
Yesterday: High-speed rail: More questions than answers
Tomorrow: What would it all cost?
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