HSR full speed ahead

Independent consultant Parameswaran Sivalingam

ALL tracks are in place for the revival of the Kuala Lumpur-Singapore high-speed rail (HSR) project.

It is one of the mega-projects that has been on and off for some time, but it is all systems go now after the Cabinet approved the plan, with negotiations with Singapore to ensue.

The KL-Singapore HSR, which is viewed as essential for the beleaguered construction sector, is expected to bring about multiplier benefits to the economy, the construction and operation of which is set to lift growth along the corridors in which it operates over the long term.

Two sources tell StarBizWeek that the Cabinet has given the green light for the project to go ahead, and is currently ironing out the kinks before it commences meaningful engagement with Singapore.

It is learnt that there will be a briefing session with the Prime Minister on Tuesday to fine tune some of the minute details of the project.

The cost of the revised KL-Singapore project has also been scaled down, due to the fact that its scope has changed from what had been originally planned.

Without delving into the figures, one source familiar with the ongoing developments says it will be a significant reduction.

While there has been no actual figure on the cost, the numbers being bandied about by the Barisan Nasional and Pakatan Harapan administrations in the past were RM72bil and RM110bil respectively.

The higher figure was said to include hidden costs that had not been revealed when Barisan was in power.

It inked the bilateral agreement with Singapore in December 2016 to build a 350-km high-speed railway but the project was temporarily suspended in May when Pakatan came into power, citing high costs.

Malaysia’s political turmoil led to the collapse of Pakatan in February and sentiment on the ground was tilted towards the revival of scrapped mega-projects, including the KL-Singapore HSR.

This was cemented further when MyHSR Corp Sdn Bhd launched two tenders to appoint consultants for the project to assist with regulatory submissions to the relevant authorities.

Realigning the cost

The entire project will be very similar to what had been initially planned, with some minor changes, especially the realignment of the tracks, which will be more towards the hinterland to eliminate the costly soil reinforcement that would have been needed had the alignment been skewed towards the coastal areas of Johor.

Another factor that will bring down the cost is through the scaling back of the iconic stations, with a focus on practicality and functionality.

There were also eight stations that had been planned initially –seven in Malaysia and one in Singapore – but these stops would be reduced as well, but with the flexibility for future provisional stations once the project is up and running.

The terminus will still be in Bandar Malaysia and Singapore, terminating in Jurong East, the source says, adding that it will still be high speed.

“If it’s from KL to Singapore, I think 30 years is enough to pay for everything. If it’s just KL to Johor Baru, maybe not even half of that.

“Taking a look at the revenue for the entire system, look at KTM for example. The Tebrau shuttle from JB Central to Woodlands is RM5 and the return is S$5. How do you think the revenue of the system is going to look like if we stop in JB?

“Let’s say the train leaving Bandar Malaysia to Singapore for 1,000 passengers is worth X. The train leaving Singapore to Bandar Malaysia will be 3X, ” says the source.

Independent consultant Parameswaran Sivalingam said a project like this should not cost too much based on Malaysia’s gross domestic product (GDP).

Citing how projects in Europe and Japan do not exceed 1.5% to 2% of their GDPs, a higher end of 2% in Malaysia would be a figure of between RM30bil and RM40bil.

“This is committing too much of national finances to one project and bear in mind that after you finish the project, if the HSR does not generate adequate volume of traffic, you need to consider subsidising.

“The flights from KL to Singapore only generate three million passengers a year at best. Give and take, there’s a maximum of three million passengers a year for the high-speed train, but you need a minimum of six million to break even, ” he tells StarBizWeek, adding that the government would need to subsidise for the first 10 years.

Much of the cost of the project is going to be shared by Malaysia, but not as much as people feared.

“It will be about 60% to 70% from Malaysia with the rest by Singapore.

“Although the tracks in Singapore are much shorter than on Malaysian soil, the portion that goes into the republic will be a tunnel, hence raising the overall cost and Singapore’s commitment towards finalising the project, ” the source says, rubbishing claims that Malaysia will end up forking out most of the cost.

Talk in the market is that Malaysia will bear 90% of the cost but most of the benefits would go to Singapore.

“The government won’t be doing this if that’s the case, ” says a source.

Malaysia vs Singapore? Who is the main beneficiary of the HSR?

“In fact, if we play it right, we’re going to win more than Singapore. It’s all based on our policies and how we compete.

“We have to make sure that our policies, rules, regulations and laws to attract investment are as attractive or more attractive than Singapore.

“We might not want to compete for the same businesses or investments initially. But things must change here so we can start going after the higher-value businesses in the future, ” the source says.

Studies have shown that countries with HSR lines enjoy better economic growth, which would likely gravitate towards larger cities and in this case, many experts believe it is Singapore that will benefit from the mega-project as it is the bigger city compared with Kuala Lumpur.

An analyst points out that this is a zero sum game mentality, thinking that everything is going to grow organically.

He says that Malaysia’s economy is not about organic growth but more on foreign direct investment (FDI).

“Investors are now looking at regions, not just cities or countries, ” he says.

Parameswaran points out that studies in Spain and France show that the first 10 to 15 years tend to pull people into major economic centres, which could mean that Singapore will be the main beneficiary.“Big companies will locate in Singapore because it’s easy for them to take the HSR. The economic activities in Batu Pahat and Melaka actually may not happen.

“The best way for them to get more business is not from the service industry but manufacturing, ” he says, adding that the HSR tends to serve mostly the service rather than manufacturing industry.

Shared project: Much of the cost of the HSR is going to be shared by Malaysia, but not as much as people feared. It will be about 60% to 70% from Malaysia with the rest by Singapore, says a source.Shared project: Much of the cost of the HSR is going to be shared by Malaysia, but not as much as people feared. It will be about 60% to 70% from Malaysia with the rest by Singapore, says a source.

Negotiating a deal

Both Malaysia and Singapore will have to decide on the rolling stock and come to an agreement, of which the process has started.

While both countries have yet to kick off the tough negotiations yet, the process has been initiated since June where Malaysia proposed the changes to their Singaporean counterparts with clarifications being made along the way.

The journey time is still expected to be 90 minutes and the prices of the tickets will be keenly watched.

It was previously said that the price of the ticket is going to be lower or matching that of low-cost carriers.

“The pricing should be dynamic, like how budget airlines play with their fares, in order to fill the train.“That is more important than getting a fixed amount but ending up with an empty train, ” the source says.

All these are of course still subject to negotiations and there will be a lot of lobbying involved.

There was also talk of a station being built at Forest City and even a Rapid Transit System (RTS) linking Johor with Singapore, instead of a terminus going right through to Jurong.

Cannibalising airlines

One thing for sure is that there will be huge ramifications from the construction of the project, where businesses or airlines are expected to be hit, especially those plying the KL-Singapore route, of which 1.5 million passengers are transported annually.

This has been seen in countries like Japan, where most flights between Tokyo and Osaka have been terminated,

But will it kill the airlines? Not necessarily according to an analyst, as the planes can be deployed to other places, and also, the profitability of the KL-Singapore route is not as profitable as before due to the high level of competition with many airlines in the game.

An industry source stresses that the ridership for the HSR is just not enough to sustain the whole system.

“Looking at it from the operations and maintenance (O&M) angle, forget about recouping the capital expenditure (capex). That is a complete goner.

“Operating expenses (opex) wise, there will be a huge shortfall and we will have to fork out RM700mil to RM800mil annually.

“Even if this burden is shared with Singapore, it’s still RM400mil annually and this is assuming you can get 30% of the air travel numbers, ” he says.

Knock-on economic impact

More than just another transportation system, the KL-Singapore HSR story is still that of economic reasons.

A construction sector analyst said once the project is up and running, it will completely change Malaysia’s southern corridor.

“It’s similar to how the United Kingdom is doing High Speed 2. Currently, all growth happens in London and nothing on the northern side. So now they want to rebalance that.

“Like them, our growth is mostly in the Klang Valley, ” he said.

There were also those that have opposing views, such as an industry source who opined that the KL-Singapore HSR is a danger for Malaysia.

While it is definitely good for the country’s infrastructure and the construction sector, he says the numbers do not concur with the feasibility of the project.

“We can do without the HSR now but it can be revisited later. And if that happens, I don’t think we will ever revisit it because we don’t need it.

“Just improve the double tracking that we’ve been working on already. HSR works for larger countries like China or Spain but Malaysia is too small a country for this, ” he says.

Parameswaran says the most important thing with the HSR is connectivity in order to bring in the volume, which makes it vital to connect the KL-Singapore HSR to the KTM and MRT in Kuala Lumpur.

In Singapore, he thinks the connectivity should go all the way to Changi or the city centre, not just Jurong, or the trade-off is very marginal as most would choose to fly than to go through the hassle.

Another challenge would be whether new developments can be created in places like Seremban and Muar by generating new developments around the stations.

“That means you don’t take the train into the city. You take it off the city and you acquire the land and create new centres of business.

“That will give you a transit-oriented development. Whether it is possible or not is a question that the government has to look at, ” he says.

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