Thursday, November 30, 2017

Whose head should roll when East Coast Rail Link’s outrageous claims of profitability fail to materialise?

The East Coast Rail Link (ECRL) project which was awarded without any tender to China Communications and Construction Company (CCCC) has been criticised for being overly expensive at RM55 billion and potentially soaring to RM70 billion according to some reports. The government’s own consultants had estimated the cost to be only RM29 billion.

 Yet despite the heavy price tag, the Deputy Finance Minister Datuk Othman Aziz told Parliament on 28 November that the project was expected to “break even from the operational aspect”, after just 8 years of operation in 2032.

The Deputy Minister’s statement is wildly ambitious on many counts.

Firstly, we have to assume that the Deputy Minister meant that “break even from the operational aspect” meant that it does not cover the enormous cost of constructing the ECRL, which is covered entirely by debt.

So far, the government has said that 85% of the project will be financed by China’s Export-Import Bank (EXIM), with a soft loan carrying an interest rate of 3.25% per annum repaid over 20 years with a 7-year moratorium. The remainder 15% will be financed via a sukuk issuance.

Therefore, the annual repayment of the ECRL borrowings will amount to an estimated whopping RM3.7 billion.  This simply means that even if the ECRL is to “break even from the operational aspect” after 8 years, it will still be suffering cashflow losses of some RM3.7 billion annually!

However, even Datuk Othman Aziz’s claim of “break even from the operational aspect” is preposterous to begin with.

Datuk Othman claimed that the government was projecting a revenue of RM2.9 billion to be recorded in 2024.  But this amount is more than 4 times the current revenue of KTM Berhad today!

The ridiculous revenue projection is achieved with a fantastical projection of cargo the ECRL will transport. As raised by economist KS Jomo, the ECRL is expecting to carry 60 million tonnes of freight yearly by 2032 even though KTM’s existing freight haulage is only 6 million tonnes across the entirety of its existing rail network from Padang Besar to Johor Bahru.

How exactly is the ECRL expecting to see 10 times the amount of freight currently being transported on the matured and industrialised west coast of Peninsula Malaysia?

The BN Government must stop trying to mislead the people with fanciful daydreams and start providing data, analysis and studies to back up its wild and preposterous claims.  Who will also take responsibility if the ECRL fails achieve any where close to the projections above?  Will the Deputy Minister take responsibility by resigning from his position?  Or will it be the Prime and Finance Minister, Dato’ Seri Najib Razak who owns the ECRL brainchild and awarded to contract to CCCC?

The rakyat has the right to know the details because it will be our children and grandchildren who will have to bear the reckless debt burden of the current government should the project fail to meet its lofty targets.
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