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.

15 comments:

Anonymous said...

Some of us have questionable priorities...even in Malaysia country's profile in the CIA Factbook has mentioned this mega project concern: "ABDULLAH has unveiled a series of ambitious development schemes for several regions that have had trouble attracting business investment"

This should not even factual but I guess they could't resist to state the obvious.

I remembered someone mentioned about first class infrastructure and third class mentality.

Let's get the problem of third class mentality sorted out first in past mega projects like putrajaya and cyberjaya !

blure said...

railway to thailand? for who to use? i dont even knows anyone uses railway nowsday except on new year.

they probably need to take up some economics courses before taking up any minister post.

WY said...

This is where economists and political scientists differ. While Mr Choong's analysis and viewpoints are sound and correct, i felt that he failed to include one veyr important aspects: the electoral.

In deciding major government projects, i personally feel that politicians think/decide with their "electoral" in their mind. I.E. which project that will maximise my electoral support. In general democracy, electoral means the people and population, hence, the project with greatest good to the greatest amount of people will be the choice.

However, in our Boleh-land, there are two types of electoral - a) your general population b) umno electoral and the third force - c) "business associates" - for campaign funds. So, project that yileds the highest returns amongs b) and c) can, and often outweight the benefits to a). Consequently, we would see weird and large projects in obscure lands (that used to belong to the umno division leaders), and which sole contractor/designer/user are b) & c)-type of electoral.

I won't be surprised to read multiple count of big developments in sabah & johor in coming days...since these are the states with the most umno divisions. sarawak and selangor might get a few projects to appease da warlords there.

disclaimer: umno = united melanau national organisation...and any other coincidences with real life entities are purely fictional!

Anonymous said...

Yg penting duit komisen 10% masuk poket siapa? Tak penting jika lembu atau kambing tidur atas landasan kereta api. After all that "person" has learnt his lessons from the "BEST".hehe

Anonymous said...

anonymous - Yg penting duit komisen 10% masuk poket siapa?

mr anonymous, I damn agree with you ok?

allen ng said...

I believe Pak Lah stopping the monorail and the 2 bridge projects in Penang was because of the Pakatan government that is run by the DAP.The heavy defeat of the BN and losing the 2 third-majority was a hugh blow to him so he had to punish his own state Penang for now supporting him to achieve his dream.If he could spent an additional 10 to 20 billions in the economy what is 2-3 billions,right?

Anonymous said...

building a system and maintaning it well is more important in later stages,are we ready and capable,most of our public transport looks good only at the early stage, look at kl sentral now, another central market and bazzar kina train station, no point famous japanese designer design our transportation hub and now look like petaling street pasar malam, think again

l藍海 said...

没有到结果公布时刻谁都不会知道答案。
没有付出肯定不会有结果。

l藍海 said...

请问经济学家潘俭伟先生,你对于甘榜东姑州议员提议我国宜和国际原油市场脱钩一项建议又和见解呢?

Anonymous said...

It is undeniably that our bad, unsystematic trasportation system is mainly due to the lack planning from the then long served Transport Minister. We, rakyat, urges Governemnt to open its ears listening to the market experts i.e. the author of the article instead of the so-called tink-tanks i.e. EPU or MIER before implementing any policies relates to rakyat's welfare.
Due to the rising living costs, PM has urged raykat to change our lifestyle of spending. Yet, do the current transportation systems that developed by the BN Government meet the simple objective of connectivity? We,rakyat,willing to sail through the hard time of the surging petrol price with our beloved country (not BN-led government).Yet, do the subsidies that BN saves really to be injected into the projects that benefits us without any single cent will be corrupted?
We, rakyat, hope that the newly appointed mininster could coordinate, cooparate well with all the relevant concerned departments (another example of the poor decision-making process practised by BN-led cabinet), and to seek constructive opinions from market experts and the knowledgable Pakatan Rayat MPs (eg Mr Tony Pua)as a bid to improve the transportation system.
We,rakyat,would also like to find out from DAP that what your firm stand on the Penang monorail project? We know that DAP has used to strongly object the projects previously. Was the current DAP move of voicing out its dissastifaction purely yet another sign of getting politics capital?

Unknown said...

Hi Anon 3.44

thanks for your comments.

As to the question whether DAP has objected to the monorail previously - I can state categorically here that the party has never objected to the project per se.

What we have objected to are:

1. The closed, opaque and non-competitive manner by which the project has been awarded to parties related to UMNO (the previous "winner" of the closed tender won despite putting in the highest price)

2. The manner by which the monorail route was planned which does not serve the purpose of improving traffic flow in Penang. If you have seen the previous plans, it was 2 straight lines, and nothing on circulation of traffic in the city.

Hence it's important to be clear on what we objected on, and not instead be misled by information spread by others.

we have always preached for better public transportation system - which is not just putting in a monorail per se, but also putting in a route system which will best resolve the traffic woes in Penang.

Tony

Anonymous said...

Mr Tony,
Appreciate for your prompts and responsible comments (BN MPs should learn from your caring attitute). Keep on the good works, we, rakayat, are willing to mandate DAP again incoming election if you guys really out-perform BN (Koller, infamous marketing guru tells us that competitiveness makes improvement). Other Pakatan Rakyat's MPs, please also do follow what Tony has done, instead of wasting time on pulling Dato Seri Anwar back to the Parliament. We, rakyat, want our mandate in 308being materialised!

Anon 3.44

Anonymous said...

I am afraid the Suruhan Pengangkutan Awam, for its hastiness of launching and lack of clarity of its roles and power, will end up like so many 'Suruhan Diraja' this country has seen before - just another gimmick. To ensure a fully integrated transport system Government should not only set up an agency specifically for public transport but need to have a coherent policy and strategy that reflect the economica nd structural changes that are shaping the country's transport needs. There are clear signals that with the significance of cities and large urban areas, as highly productive centres of the service-based economy, is growing, and the fact that most transport challenges are – or will be – concentrated in these areas, Government should prioritise action on growing and congested urban areas and their
catchments. Addressing these challenges requires a sophisticated and long term approach, which is, unfortunately, severely lacking in our current poltical and planning system.

Anonymous said...

The YTL's proposal to EPU requires a subsidy (direct & indirect) of almost RM1.0Billion per annum. This was the reason why EPU decided not to go ahead with the project. Plus, its a service dedicated for passenger for the KL-Singapore route which are already efficiently serviced by PLUS highways and the MAS & Air Asia flights which will go full blown with the open skies policies beginning 2009.

The rationale for double tracking is effiency in terms of freight movement. An independent transport consultant study estimates efficiency improvements for freight of about 10-12 multiples with the completion of double tracking. This is where our hidden potential is as far as public transport improvements. This will also take away some cargo traffic from the highways, not to mention reduce logistic cost for goods which hopefully translate into cost savings and reduce prices to consumers.

Anonymous said...

Must take caution and don't simply buta2 reject projects. When LKS oppose the PLUS highway, many jump on the bandwagon critisizing the project. But if people listen carefully LKS was against the award to UEM without tender, and not the project. Today we have to admit that PLUS project was necessary that the award to a crony company is not.

In fairness the merits of many project are carfully analysed by the good people in EPU and MoF for vaibility and value for money. Its just when it comes to award, the political hand comes in and interfere. Projects are necessary but the governance over award, tender etc must certainly improve.