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Malaysia cancels China-backed U.S. $20 billion rail project

Malaysia has decided to cancel the China-backed U.S. $ 20 billion East Coast Rail Link (ECRL) project which was being built by China Communications Construction Co. Ltd. (CCCC).

The project has been cancelled owing to the high project cost. Although 85% of the cost was to be borne by Export Import Bank of China, the funding came with an interest rate of 3.25%, protected from exchange rate fluctuations and a 7-year deferment on payments. The interest on the project alone was in tune of half a billion Ringgit (U.S. $ 120 million) a year.

The Government is still determining the amount of cancellation fee it needs to pay CCCC.

The Minister of Economic Affairs of Malaysia, Mohamed Azmin Ali said, “The cabinet has made this decision because the cost to develop the ECRL is too big and we don’t have (the) financial capacity. We cannot afford to bear this, so this project needs to be terminated without affecting our good relationship with China.”

The ECRL project was a part of China’s infrastructure push in Malaysia. However, Malaysian Government has not ruled out the possibility of welcoming future investment from China, on a case by case basis.

The decision to cancel the project was taken during the Cabinet Meeting of Prime Minister – Mohamad Mahathir. Earlier in August 2018, the Prime Minister had also cancellation another China-backed project, a natural gas pipeline in the East Malaysian State of Sabah.

For the records, since taking over as Prime Minister of Malaysia in May 2018, Mahatir has rejigged most of the Chinese infrastructure deals, which were authorised by his predecessor, Najib Razak.

For the records, in November 2018, the U.S. China Economic and Security Review Commission has issued a report, which declared ECRL as the second-largest Belt and Road project by estimated cost, behind the U.S. $ 21.4 billion Moscow-Kazan high-speed railway project in Russia.

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