THE China-owned firm that is building the East Coast Rail Link will refund part of the RM3.1 billion advance payment for the project to Putrajaya following the improved deal inked on Friday, said Prime Minister Dr Mahathir Mohamad.

He said China Communications Construction Company Ltd (CCCC) will refund the advance paid for Phase 2, Double Tracking and the Northern Extension under the original contract.

“RM500 million will be refunded within a week from April 12, and a further RM500 million within a month from this date for a total of RM1 billion,” Dr Mahathir said at a press conference in Putrajaya today.

The balance will be settled within three months after deductions for verified claims due to abortive works, suspension and cancellation of the northern extension.

Dr Mahathir’s press conference today was to explain the signing of a Supplementary Agreement (SA) between CCCC and Malaysia Rail Link Sdn Bhd on April 12.

The SA covers Phase One and Phase Two of the Engineering, Procurement, Construction & Commissioning (EPCC) of the ECRL at a reduced cost of RM44 billion.

He said the success of the renegotiation, led by his special envoy Daim Zainuddin, showed that the Pakatan Harapan government could secure a more equitable deal and lower the cost as opposed to the lopsided deal negotiated by the previous administration.

“The Pakatan Harapan government’s main objection to the original ECRL project was premised on the way and speed at which the original contract was negotiated and signed in 2016.

“It was an unjustified, hefty lumpsum price which lacked clarity in terms of technical specifications, price and, by extension, economic justification.

“As the original contract was agreed on a government-to-government basis, the PH government, in negotiating an improved deal for the ECRL, had to work within the constraints of the existing agreements,” he said.

Dr Mahathir said the government had the option to renegotiate or pay a termination costs of RM21.78 billion, hence it choose to go back to the negotiation table to secure a more equitable deal.

Under the new deal, construction cost has been reduced to RM44 billion from the initial RM65.5 billion.

The new supplementary agreement will also see the Malaysian side be involved in the construction process which was previously not part of the original contract.

The agreement will also see the involvement of local contractors in civil works being increased to 40% from 30%.

The agreement covers the engineering, procurement, construction and commissioning (EPCC) aspects of the ECRL.

Meanwhile, CCCC will also provide technical support and share the operational risk after the project’s completion.

Dr Mahathir said the reduced cost of the project has also decreased the interest rate payable to China’s Exim Bank.

This arrangement will ease the financial burden on Malaysia, which previously was to bear the entire cost of the operations and management.

This will be undertaken by the 50:50 joint venture formed between CCCC and MRL.

Dr Mahathir added that, unlike the original terms of the contract, the contractor will only be paid based on the progress of work completed.

No compensation charges are involved, despite the project being suspended for about 10 months.

The project’s new alignment saw its length being shortened by more than 48km to 640km and several stations from the original plan scrapped.

The ECRL will link Kota Baru in Kelantan to Port Klang in Selangor and will include 20 stations across five states, from four previously. 

Of this, 14 will be passenger stations, five will be a combination of passenger and freight stations, and one freight station.

Completion has been pushed to December 31 2026, as opposed to the initial date of June 30, 2024.

Work for the ECRL  will resume once the contract is signed. 

Meanwhile, Dr Mahathir said work packages that had already commenced under the previous contract will be continued.

As for the re-route, he added that the original plan required the building of tunnels due to the mountainous  landscape.

“(There are) mountains along the way; if we want to do that, we have to do a lot of tunnels. (But) the material (silica) can (be used) for other purposes.”

On the pricing of tickets, Dr Mahathir said it had not been worked out yet, but Malaysia would have a say in it.

Meanwhile, MRL chief executive officer Darwis Abdul Razak told reporters on the sidelines of the press conference that the company was looking to begin construction as soon as possible once the green light was given by the relevant authorities.

“We are looking at as early as May. Effectively, when we signed the supplementary agreement on April 12, the suspension has already been lifted. We are now in the process of planning and mobilising resources.”

Darwis said about 85% of the financing was likely to come from borrowings from China’s Exim Bank while the remaining 15% will come from local sources.

“We are still negotiating the terms (for the financing from Exim bank). The interest rate will remain the same at 3.25% but we are still negotiating other terms, like the moratorium period and all that.”

MRL’s share of profit would be up to 80% while CCCC’s would be 20%.

However, in the event of any losses, CCCC and MRL will bear equal portions of it. – April 15, 2019.