Malaysia’s ECRL to cost RM81 billion, boost economic growth by 2.7%

MIDF says the project will improve economic interdependence and connectivity and investing in a railway project will have a long-term positive spill-over effect on Malaysia’s economy

A report from MIDF says the East Coast Rail Link, a catalyst for growth, will cost RM80.9 billion and will boost the country’s economic growth by 2.7%.

The report published today says major revisions made on the original alignment, which will see part of the southern portion re-routed to Negeri Sembilan and avoiding the Titiwangsa Range will provide gross savings of approximately RM8b-RM10b to the government.

The ECRL was restored at lower cost by the Pakatan Harapan government, with a supplementary agreement signed between Malaysia Rail Link Sdn Bhd (MRL) and China Communications Construction Co Ltd (CCCC).

It has been confirmed that ECRL will proceed at a lower cost of RM44 billion compared with its original cost of RM65.5 billion.

“We note that the stated cost of approximately RM65b only comprised of the construction cost,” says the report.

Given the latest revision, its entire cost for the government will be RM69.8 billion in development cost and land acquisition cost RM2.5 billion. With all other costs taken into consideration (working capital, other operational costs and financing costs), the project will cost RM80.9 billion in total.

MIDF says the project will improve economic interdependence and connectivity. Investing in a railway project will have a long-term positive spill-over effect on Malaysia’s economy.

It will also boost economic growth and development especially in eastern coast states like Kelantan, Terengganu and Pahang.

“Based on our estimate, we forecast the RM44 billion railway project to contribute 2.7% to Malaysia’s economic growth. The boost for the growth will kick-in from project inception until completion.

“However, the full estimated GDP contribution will depend on the pace of spillover effects to other economic sectors. In addition, compensation of employees and net operating surplus is projected to rise by 3.6% and 2.1% respectively.

“As the project requires machinery and transport equipment, our estimate shows imported commodities and consumption of fixed capital to increase by 3.3% and 2.1% respectively. Moving forward, the railway project would affect economic expansion through both direct and indirect mediums in the long run, partly by job creation, opening-up new areas, foreign direct investment, increasing external trade activities and strengthening domestic demand,” the report says.

The report also says Port Klang will benefit indirectly from the increase in throughput at Kuantan Port. The combined world market share of major Chinese container lines such as COSCO Shipping Co Ltd and Evergreen Line stood at 17.7% as of 14 April 2019.

Kuantan Port could still absorb the share of volume from Chinese container lines which will increase its conventional and gateway container volume.

Meanwhile, this may also serve as a buffer for gateway volumes in Port Klang (i.e. Northport and Westports) especially following the recalibration of shipping alliances in April 2017 which saw container volumes being moved to Singapore.