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Malaysia in transition

Malaysia spares $14bn China-led rail project from budget ax

Mahathir's finance minister says big chunk of money already paid by Najib government

Najib Razak, Malaysia's prime minister at the time, and other Malaysian and Chinese officials attend the groundbreaking for the East Coast Rail Link in August 2017.

KUALA LUMPUR -- Malaysia's deal with China for a 55 billion ringgit ($13.8 billion) rail link will proceed despite new Prime Minister Mahathir Mohamad's effort to roll back questionable spending, the finance minister said Friday, citing costs already paid on the project.

The East Coast Rail Link connecting Malaysia's biggest port to the Thailand border was expected to be scrapped after Mahathir's government canceled a high-speed railway to Singapore in an urgent bid to reduce government expenses and debts.

"Twenty billion ringgit has already been paid out," Finance Minister Lim Guan Eng responded to a question about the future of the 688km East Coast Rail Link. "Even if you cancel it, how does it help the country?"

Unlike the railway to Singapore, which stood at the pre-tender stage, construction of the East Coast Rail Link began last August. The project, Beijing's largest single investment in Malaysia, was awarded to state-owned China Communications Construction at unusual speed without an international tender. State-owned Export-Import Bank of China will provide 85% of the financing through a 20-year soft loan at an annual interest rate of 3.25%.

Critics say the East Coast Rail Link, due for completion by mid-2024, may struggle to capture sufficient demand due to the lack of population and development in the Malaysian states it passes through.

Malaysia made the 20 billion ringgit payment based not on work completed, Lim said, but rather on a timeline stipulated in the contract, which was signed by the previous government under Prime Minister Najib Razak.

"Why that kind of money had been paid out can only be answered by the previous government," Lim said.

On Thursday, the Finance Ministry identified projects worth 10 billion ringgit for review through the end of the year as the country tries to meet its fiscal deficit target of 2.8% of gross domestic product. Besides high-speed rail, the government also canceled a proposed mass rapid transit line as part of its cost-saving measures.

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