NEARLY 20% of phase one of the controversial East Coast Rail Link project is completed.

The RM66 billion rail link is from Kelantan to Port Klang has been singled out by critics as the mega project Malaysia cannot afford.

But if the Pakatan Harapan government terminates the project, it will have to pay about ‎RM22 billion in compensation and penalty charges.

Documents sighted by The Malaysian Insight ‎reveal the compensation package includes payment to suppliers, dismantling costs, the loan principal, interest charges and committed orders for supplies and services. 

Any dispute over the compensation amount is likely to be settled through arbitration, a process that could take several years.

Even more onerous is the contract with Exim Bank of China. The loan with the financial institution has no termination clause and termination of the contract results in a default of the loan that needs to be repaid within 30 business days.

Exim Bank is providing 85% loan financing for the ECRL project with the rest provided by local banks through sukuk financing. 

The new government has voiced its misgivings about a clutch of infrastructure deals signed between the Najib government and Chinese companies. Their chief complaints are that the inflated pricing of these projects and its usefulness for Malaysia.

The Mahathir administration’s approach is to terminate as many of these lopsided contracts as possible.   

But in recent days, influential voices have sought to use more cautious language when discussing infrastructure projects by Chinese companies.

Daim Zainuddin, the chairman of the Council of Eminent Persons, said business contracts with China would be dealt with diplomatically.

“China is very important to us. We enjoy very close relations, but unfortunately under the previous administration, a lot of Chinese contracts are tainted, difficult to understand and the terms are one-sided, ” he told The Star.

Daim has opened lines of communication with the Chinese ambassador, Bai Tian, saying any cancellation or review of the project would be handled through diplomatic channels. 

On its part, the company behind the ECRL is preparing  best and worst case scenario projections for the Malaysian government. – June 6, 2018.