Malaysia scraps $20 billion China-backed rail project

Malaysia Cabinet has decided to scrap a $20 billion East Coast Rail Link project, which was being built and financed by China. Malaysia's official news agency Bernama reported that the decision to scrap the construction plan was taken after attempts by the government to bring down the high project cost failed.

The railway link was being built by China Communications Construction Company as part of Beijing's Belt and Road Initiative and some 85% of the project cost was to be financed by the Export-Import Bank of China.

Minister of Economic Affairs Azmin Ali said a review of the costs involved showed that the project exceeded the government's financial capabilities, Efe news reported.

"If the project is not terminated, the government will have to bear the interest rate of about RM500 million a year," said Ali. The Ministry of Finance will now decide on an appropriate compensation for the cancellation to the Chinese company that will not burden the country economically, according to Bernama.

Ali also said that the government had still not decided on the new developer for the railway link project but would continue studying new investment applications.

"We always evaluate all new applications for investment in Malaysia, not only ECRL, because we want to maintain foreign direct investment (FDI) inflows."

The 688-kilometre ECRL was planned to connect Port Klang on the Straits of Malacca to Pengkalan Kubor in northeast Peninsular Malaysia which borders Thailand.

It was designed to carry both passengers and cargo to and from west coast of Peninsular Malaysia to its east coast.

Malaysia has in recent months suspended several major projects signed under the country's previous scandal-plagued regime, in a bid to cut the country's massive one trillion ringgit ($251 billion) debt.

The project was awarded to the Chinese company in 2016 by the government of former Prime Minister Najib Razak, who faces several lawsuits on corruption charges and has been under review.

The scandal was a major factor in Najib's shock electoral defeat in May last year that saw his former boss Mahathir Mohamad return to power. Mahathir then ordered a review of mega-projects signed by Najib during his nine-year rule, adding he would discuss "unfair" terms supposedly set in these deals and high interest rates levied on Chinese loans used to finance the projects.

Najib and his cronies were accused of plundering billions of dollars from the state fund 1MDB, with the former leader charged with corruption over the scandal. He will stand trial over these charges in February, and has denied any wrongdoing.