KUALA LUMPUR (Reuters) - Malaysia and Singapore on Wednesday agreed to defer the construction of a planned high-speed rail link between the two countries to 2020, ending months of uncertainty surrounding a project that analysts expect to cost around $17 billion.
Malaysian Prime Minister Mahathir Mohamad, after an unexpected election win in May, said he intended to cancel the project in an effort to reduce the country’s debt, but later said his government would negotiate a deferment.
Mahathir’s administration is reviewing several multi-billion dollar projects approved by the previous government of Najib Razak, and has so far paused over $20 billion worth of projects awarded to Chinese companies.
In a joint statement, Malaysia and Singapore said they have agreed to suspend the construction of the high-speed rail link for a period up to May 31, 2020, and will look for ways to reduce costs.
Malaysia will pay Singapore about S$15 million ($10.88 million) by January 2019 for the deferment, its economic affairs minister, Azmin Ali, said at a news conference in Kuala Lumpur.
It would be liable to pay more if the project does not resume in two years.
“By end of May 2020, we hope to see the resumption of the high-speed rail construction,” Singapore Transport Minister Khaw Boon Wan said. “If not, the project would be deemed to have been terminated and Malaysia would reimburse Singapore for the wasted cost that we have incurred.”
In July, Singapore said it would seek to recover over S$250 million in costs incurred to date should Malaysia cancel the project.
Azmin said Malaysia was committed to continue with the project after 2020.
The rail link, which will connect Kuala Lumpur and Singapore, is scheduled to commence services by January 2031 if construction starts by May 2020. It was originally expected to begin operating in December 2026.
Companies from China, Japan, South Korea and Europe have expressed interest in winning contracts to build, operate and finance the trains and rail assets, people close to the bidding process previously told Reuters.
The joint tender process will now be called off.
About 90 percent of the rail network is set to be in Malaysia, including a terminal in Bandar Malaysia, a property development owned by state fund 1Malaysia Development Berhad (1MDB), which is currently subject to a money-laundering investigation in Malaysia and elsewhere.
A $1.7 billion deal to sell a majority stake in Bandar Malaysia to a Malaysian-Chinese consortium fell through in May 2017. A year on, the project has failed to attract any buyers.
Reporting by Liz Lee and Joseph Sipalan; Writing by A. Ananthalakshmi; Editing by Praveen Menon and Christopher Cushing