Saturday, July 12, 2008

Transportation Priorities

The following is an article forwarded to me with regards to concerns over the mixed-up priorities of the BN government over transportation infrastructure investments. The RM16 billion double-tracking project goes ahead but the RM3.6 monorail in Penang gets shelved.

The author is a Director of Research with a fund management company, and with his kind permission, I'll post his analysis here.

Can we really afford RM16bn in double tracking railways?
Choong Khuat Hock

Trains have transformed transportation and boosted economic activities since steam locomotives were introduced in 1800s. Lately fast train services between cities have linked cities thereby enhancing economic linkages. Examples include the Shinkansen trains in Japan with speeds of up to 300km per hour, the Taiwan High Speed Rail which reduced the travel time of the 335.5km Taipei to Kaohsiung route from 4.5 hours to 90 minutes and the French high speed TGV trains which connect major French cities. TGV trainsets travel at up to 320 km/h in commercial use.

A specially modified TGV trainset attained 574.8 km/h on test runs, narrowly missed beating the overall world train speed record of 581km/h which was reached in 2003 by a Japanese magnetic levitation or maglev trains. Unfortunately, the proposed high speed train from KL to Singapore taking only 90 minutes has been cancelled.

The fast train proposal from KL to Johor/Singapore linking metropolitan areas with a population of 11m would have boosted property prices in KL and Johor and enhance the services sector of both cities. With private sector participation in a bankable project, the cost to taxpayers would have been minimised.

Instead at a time when the people are being asked to make sacrifices to reduce subsidies for the sake of development projects, one has to question the economic benefits arising from the Double Tracking Railway from Ipoh to the Thai border that will cost taxpayer RM12.5bn, of which RM5bn is just for signaling.

This project was initially supposed to be a Private Finance Initiative (PFI) funded by the private sector but as the financial return from the project is bad, it was decided that the funding will come from the government (i.e. taxpayers). The 329km Ipoh to Padang Besar railway will cost a massive RM38m per km which is 62% higher than RM23.5km for the 179km double-tracking railway from Rawang to Ipoh, completed for only RM4.2bn.

It is difficult to justify the economics of the project especially when KTMB only generated RM70.7m from their intercity services and RM113.0m from freight services in 2006. The freight services are less sensitive to travel time so the main benefit is likely to be shorter commuting time for passengers. Cutting the travelling time to 2.5 hours is hardly an irrestible proposition as the journey by road is only 2 hours. KTMB which made a net loss of RM99.2m at the group level in 2006, is definitely not in a position to fund the double tracking railway.

The double tracking project from Ipoh to Padang Besar has been awarded to Gamuda and MMC. Margins for the project have been squeezed by rising steel, cement and other building material costs. The project requires 400,000 tonnes of steel.

In addition to that, the government has also awarded a RM3.5bn contract to build a double track from Seremban to Gemas. The contract was awarded to an Indian company, IRCON International, which in turn subcontracted infrastructure works to a JV between IJM and Norwest which won a RM490.1m contract and a JV between Loh & Loh and Pasti Abad isdn Bhd which won a RM273.0m contract.

At a time when there is a need to enhance public transport within cities to relieve congestion and to reduce vehicle use, spending a total of RM16bn (largest among government development projects) on rails from Ipoh to the Thai border and Seremban to Gemas is rather perplexing.

In the meantime, the much needed RM1.6bn Penang monorail has been deferred. The monorail or an alternative system would have helped to relieve acute traffic congestion in George Town. For the project to happen, the co-operation of the Ministry of Transport and the Penang State Government is required. In the mid-term review of the 9th Malaysian Plan, the government has deferred the much needed project while proceeding with the less economically viable double tracking railway projects.

The LRT and monorails in the Klang Valley which were completed in 1998 do not have a good track record. Star and PUTRA had to be bailed out by the government through the issue of RM5.5bn of bonds backed by government-owned Syarikat Prasarana Negara Malaysia (SPNB) in 2001 as the traffic volumes were less than one third of forecast demand. The LRT operations were leased back to the management of PUTRA and STAR while taxpayers bore the debt. The KL Monorail which started operations in 2003 was also loss-making and its RM882m loan has to be assumed by SPNB in November 2007.

Criticisms of the KL urban rail systems include the lack of connectivity and capacity constraints. The Bangkok Transit System (BTS), HK’s Mass Transit Railway (MTR) and the Singapore Mass Rapid Transit (SMRT) appear to be better planned and enjoy superior capacity and connectivity.

It is true that the government needs to spend on infrastructure but it is important that taxpayers’ money is spent on projects that generate economic returns for the country. Construction companies being awarded the massive railway jobs may not be smiling as rises in building material prices have eaten into margins. Cost overruns are likely to increase the price tags of these mega-projects while further rises in oil prices have whittled away savings in subsidies arising from the fuel price hike.

This is clearly a time when unnecessary mega-projects need to be derailed.
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