Chinese railway builders hit by Malaysian politics

PUBLISHED : Monday, 16 January, 2012, 12:00am
UPDATED : Monday, 16 January, 2012, 12:00am


Chinese railway companies shortlisted for big money-spinning contracts to build a trans-Malaysia rail link have become victims of the country's changing political guard.

'The Malaysian project has been delayed for 10 years. It was approved by one Malaysian leader, but then new leaders took over from the old leaders, and the new leaders wouldn't approve the project,' said Li Jiansheng, the chief financial officer of China Railway Group.

'We will keep talking to the authorities. We will never quit chasing this project. But we still don't know when it will start.'

Li was referring to contracts for the construction of several sections of a proposed rail link from Johor Bahru, a city on the southern tip of Malaysia's peninsula, to the northern part of the country.

China Railway's state-owned parent firm, China Railway Engineering Co (CREC), has been bidding for contracts in the project since 2002 without success.

CREC and two other Chinese state-owned infrastructure construction firms, China Railway Construction Corp (CRCC) and China Communications Construction (CCC), had been shortlisted for an 8 billion ringgit (HK$19.8 billion) double-track rail link between Gemas and Johor Bahru, said Pang Hong Yee, a spokesman for Gamuda, a Malaysian infrastructure company.

Gamuda has partnered CRCC in a consortium to bid for the railway project.

CCC and CREC also have Malaysian partners, as the country's law requires foreign companies to partner domestic firms.

'Since the project value is 8 billion ringgit, some Malaysian politicians have been lobbying Prime Minister Najib Razak on which contractor should be chosen,' said a transport analyst who declined to be named. 'With the Malaysian general election expected later this year, the matter has become part of a power play within Umno.'

Umno, or the United Malays National Organisation, is the dominant partner in the country's ruling National Front coalition.

'CREC is not happy with Malaysia in light of Gamuda-CRCC's attempts to get the Gemas-Johor Bahru railway project,' the analyst said.

Next month, a senior CREC executive would visit Kuala Lumpur, the Malaysian capital, to raise this matter with the country's leaders, the analyst said.

It is understood that the Malaysian government had been trying to dictate to the Chinese government which Malaysian company the Chinese contractor should partner with, the analyst said.

In 2009, during President Hu Jintao's visit to Malaysia, Najib announced that the Gemas-Johor Bahru project would be given to a Chinese contractor.

The Malaysian Ministry of Transport declined to give details of this project, saying it was 'classified information'.

The 197-kilometre rail link between Gemas and Johor Bahru, which lies across the strait from Singapore, is part of a planned trans-Asia rail link from Singapore to Kunming, the capital of Yunnan province. In 2006, then Malaysian transport minister Chan Kong Choy said the link should be completed by 2015.

However, in the past 10 years, CREC has faced many twists and turns in its unsuccessful efforts to win contracts in Malaysia.

In 2002, the Malaysian government issued a letter of intent to a consortium led by CREC for a double-track rail project along a 300km stretch between Seremban state and Johor Bahru, the Malaysian media reported.

Another letter of intent was also given to a consortium led by Ircon, an Indian state rail company, for another rail project.

But in October 2003, then prime minister Mahathir Mohamad scrapped the letters and awarded both projects to a joint venture between Gamuda and MMC, another domestic company, for 14.5 billion ringgit.

'We never signed a legally binding contract, so it's hard to say it was a firm decision. The Malaysian government kept on withholding a decision,' said Li, who is also China Railway's general legal adviser.

In December 2003, then prime minister Abdullah Ahmad Badawi cancelled the project, saying his government lacked funds for mega projects.

But in 2007, the project was revived and Chan asked CREC to submit a preliminary bid for the Gemas-Johor Bahru project, the Star newspaper said in an online report.

Last year, CRCC was advised to participate in this project by Daim Zainuddin, a former finance minister. 'Daim is a 'behind-the-scenes' player backing CRCC,' said the analyst.

Gamuda declined to comment on whether it is backed by Daim.

'Chinese companies can find it very difficult to secure major contracts unless there is a bumi heading the bid,' said Hugo Williamson, the managing director of Risk Resolution, a British consultancy, referring to a bumiputra (an ethnic Malay).

Malaysia ranked 60th out of 183 countries in Transparency International's corruption perceptions index last year.

'As China seeks to strengthen the reputation of its investments abroad, non-transparent markets can play into the hand of sceptics who seek to portray Chinese investments in terms of underhand activities,' Williamson said.

CCC and CRCC declined to comment.