Saturday, 24 December 2016

Malaysia's East Coast Rail Line touted as a game changer

Singapore could be bypassed as new links alter regional trade routes
By Leslie Lopez, Regional Correspondent In Kuantan, The Straits Times, 22 Dec 2016

In a remote nook along Peninsular Malaysia's east coast, millions of tonnes of sand are being dredged up from the South China Sea to get Kuantan Port ready for the country's priciest infrastructure project yet: a RM55 billion (S$17.7 billion) railway link financed by China.

The East Coast Rail Line project (ECRL) will connect ports on the east and west coasts of Peninsular Malaysia and could alter regional trade routes which currently ply between the busy Strait of Malacca and the South China Sea via Singapore, officials say.

This potential game changer gives a glimpse of China's ambitions to expand its economic clout in Asia and beyond. And it explains why land is being reclaimed at such a frenzied pace at Kuantan Port.

The port owners, Malaysia's construction powerhouse IJM and China's Beibu Gulf Port Group, are spending more than RM1.2 billion to reclaim 40ha of land. The Malaysian government has provided another RM1.08 billion to complete a 4km breakwater, to protect the harbour.

The massive port expansion will feature a 1km-long berthing complex that will feed industries in nearby industrial zones earmarked specially for Chinese manufacturing concerns.

Officials say the upgrading of Kuantan Port, which will be completed by mid-2018, is only one part of what is shaping up to be Malaysia's most expensive infrastructure undertaking.

The port, which began operations in 1984, is central to the ECRL, which will depend on Chinese train technology and funding.

The proposed 620km electrified railway line will snake its way from Tumpat, located near Malaysia's north-eastern border with Thailand, down the coast to Kuantan Port, before cutting through the mountainous central region to Port Klang, Malaysia's biggest port.

China has also proposed building a new port in Malacca, also on the west coast, but Malaysian government planners say financing for the project has yet to be finalised.

Funding for the ECRL, on the other hand, has been secured, with 85 per cent of the project financed with soft loans from Beijing.

While the entire stretch is set to take more than a decade to build, government planners say that top priority will be placed on the construction of the 250km section that will connect Kuantan Port with Port Klang. When completed, the ECRL would become a major land bridge for trade in and out of Asia.

"Cost issues aside, this new network will create new alternative routes to boost trade for ASEAN, with Malaysia as the base; and why this has to be taken seriously is because the Chinese have a direct interest in the (Kuantan) port and the rail link," said Mr G. Durairaj, managing director of maritime and logistics consultancy PortsWorld.

If everything comes together as planned, the new links could bypass Singapore and offer exporters new options to reach markets in North Asia. Exports from North Asia could also bypass looping around Singapore to get to the busy Strait of Malacca, proponents of the project argue.

Mr Jaafar Ismail of Fergana Ventures, a Malaysian advisory firm that specialises in infrastructure and resource-based projects, notes that the Port Klang to Kuantan Port land bridge could provide a "significant resolution" to China's over-reliance on the Malacca Strait, what it calls the "Malacca Dilemma". Today, about 80 per cent of Chinese energy needs pass through that narrow waterway.

"China clearly considers ASEAN as the southern hinterland, its new manufacturing base and a huge market," said Mr Jaafar, adding that the land bridge will make any plans for a waterway on Thailand's Isthmus of Kra redundant in the medium term.

But Malaysia's opposition leaders do not share this optimism, arguing that the rail network is an expense that Malaysia's debt-laden economy can ill afford. They further note that the project only underscores Prime Minister Najib Razak's growing reliance on China to help lift the Malaysian economy.

"The government has to explain why this sudden reliance on China and how it will benefit the local economy," said Mr Mujahid Rawa, a veteran MP from Parti Amanah Negara, a splinter party of Islamist party Parti Islam SeMalaysia.

He said the public perception is that "the PM is hiding behind the Chinese because of 1MDB". 1MDB refers to the funds misappropriation scandal involving state-owned 1Malaysia Development Berhad.

Despite the brickbats, Mr Najib's government is pushing ahead with the planned ECRL, which Kuala Lumpur says will be a catalyst for regional growth and help narrow the disparity in levels of economic development between the bustling west coast of Peninsular Malaysia and the more rural east coast states, particularly Kelantan and Terengganu.

During a recent trip to Beijing, Mr Najib's government signed an agreement to award the construction of the ECRL to China Communication and Construction Company, a publicly traded state-owned entity, in a deal that will be financed by a soft loan from the Export-Import Bank of China.

Construction on the ECRL will begin next year and economists say the project could be a major boon for Malaysia's sluggish domestic construction sector.

Signs of a pick-up in economic activity abound in the surrounding areas of Kuantan Port, which is already home to several large petrochemical installations, such as BASF Petronas Chemicals, a joint venture between Malaysia's state-owned oil corporation and Germany's BASF.

The construction of new roads and flyovers from the port complex to a nearby industrial park is almost complete, and government officials say the eastern economic region has already attracted more than RM8.9 billion in investment, mainly from manufacturing concerns from China.

They include investment from Beijing Goldenway Biology Tech Co, the world's largest bio-humic acid producer, and a RM3.5 billion steel facility by Guangxi Beibu Gulf Iron & Steel Investment Co.

Kuantan Port's general manager Mazlim Husin told The Straits Times that describing the planned steel facility to visitors helps to provide a sense of scale to the undertaking around this industrial region.

The integrated steel mill will occupy a 287ha site - half the size of Sentosa island - and have an annual production of 3.5 million tonnes.

"This is the sheer size of just one project and the ECRL will attract more of these large ventures," Mr Mazlim said.



Port Klang plans giant facility to compete with Singapore, but analysts sceptical
By Trinna Leong, Malaysia Correspondent In Kuala Lumpur, The Straits Times, 10 Jan 2017

Malaysia's Port Klang Authority (PKA) wants to build a giant port on an island next to the country's largest port, clashing with plans for two big ports coming up in nearby Malacca, about a two-hour drive away.

The RM200 billion (S$64 billion) project mooted by the PKA will be built on Pulau Carey, which, at 13,000ha, is about 25 times the size of Singapore's Sentosa Island.

PKA chairman Kong Cho Ha said a new port is necessary to compete in the industry and also to vie for a bigger share of the container cargo trade from Singapore, The Star daily reported yesterday.

Officials have also said that Port Klang, the largest in Malaysia, is reaching its maximum capacity.

Some analysts question the need for a new port, especially one intended to compete with Singapore.

"Creating another port that runs separately does not make sense. That is just bringing about excess capacity," said Mr G. Durairaj, managing director of maritime and logistics consultancy PortsWorld.

A World Bank report commissioned by the government in 2015 said a new port on Malaysia's west coast is not necessary, as existing facilities have yet to reach capacity, according to sources.

Mr Durairaj said that a new port in Selangor would have only a "minimal impact" on Singapore's shipping sector.

Analysts see little chance that a new port would draw clients away from Singapore, pointing to factors such as critical mass and customer loyalty incentives.

They also note that current ports in Johor, which are closer to Singapore, have not managed to make too big of a dent, adding that the global container-shipment industry has reached a plateau.

On the other hand, having several Malaysian ports situated close to one another along the Malacca Strait would lead to them eating into one another's pie. "There will be excess capacity in a competitive environment, and that will eat into the current market share," Mr Durairaj told The Straits Times.

The movers behind the Pulau Carey project are past and present ranking members of the Malaysian Chinese Association (MCA), which is part of the Umno-led Barisan Nasional coalition. Tan Sri Kong is an MCA member and former transport minister. The Chinese-based party owns a majority stake in The Star.

Transport Minister Liow Tiong Lai, who is MCA president, proposed last year that China invest in Pulau Carey's deep-sea port. He revealed that talks were in place between his ministry and the China Merchants Group.

A Chinese investor for Pulau Carey's port would fit into the big picture of China's One Belt, One Road initiative, Affin Hwang Capital's analyst Aaron Kee said.

"They (China) have an interest in safeguarding the trade flow and to bypass Singapore," Mr Kee said, adding that China's stake in Kuantan Port and involvement in building the East Coast Rail Line would indicate an interest in Pulau Carey as an extension of Port Klang.

But just 86km south is the RM12.5 billion Kuala Linggi International Port in Malacca, which is expected to serve the oil and gas industry. It got the go-ahead to begin construction in the first quarter of this year.

Then there is Melaka Gateway, 126km from Pulau Carey, a project costing RM43billion and involving energy giant PowerChina International. There are plans to build a deep sea port and a cruise terminal.

Experts say new ports sprouting in Malaysia as growth plateaus could mean only one thing.

"I won't rule out a migration of activities. They have to contend with intra-port competition," said Mr Durairaj.

Parliament: Malacca port's impact on Singapore 'minimal'
Oil storage capacity is lower and it doesn't seem to offer container handling services: Josephine Teo
By Rachael Boon, The Straits Times, 10 Jan 2017

A new international port being built in Malacca will have minimal impact on Singapore as its planned oil storage capacity will be far lower than what is on offer here, Senior Minister of State for Transport Josephine Teo told Parliament yesterday.

She said the Kuala Linggi International Port (Klip) will be able to store 1.5 million cubic metres of oil, while Singapore has a capacity of 20.5 million cubic metres.

Mrs Teo was replying to Mr Saktiandi Supaat (Bishan-Toa Payoh GRC), who asked about Klip's impact on Singapore's status as a regional shipping hub and its economy, and how port services here will stay competitive.

The minister said Singapore's position as "a regional bunkering and oil storage hub is anchored by a strong eco-system of oil refineries and oil traders, and by the high volume of ships calling at Singapore for various services".

She noted that Klip, which will add oil storage and bunkering facilities, does not seem to offer container handling services, and that will mean minimal impact on Singapore's container transhipment port.

New berths at Pasir Panjang Terminal Phases 3 and 4 have fully automated yard crane systems that will be integrated with an automated guided vehicle system - now on trial - to move the containers around the port, she said.

The Government has also invested heavily in manpower, with recent additions including a SkillsFuture Earn and Learn programme for port operations officers.

Mrs Teo added: "We are developing a next-generation port at Tuas. With an annual capacity of up to 65 million TEUs (20ft equivalent units), the Tuas terminal is expected to be the largest container terminal in the world, allowing us to achieve greater economies of scale and to more efficiently handle the megaships of the future."

Separately, Trade and Industry (Industry) Minister S. Iswaran told Parliament that China's investments in South-east Asia "enhance the opportunities" for Singapore, whether to participate in regional projects as partners or for overall economic development.

His remarks were prompted by a question from Mr Zaqy Mohamad (Chua Chu Kang GRC) on a greater push of external investments in Singapore's neighbours and intensified competition.

Mr Iswaran said: "We must continue our effort in maintaining our emphasis on competitiveness and ensuring our industries remain viable, in the face of different types of competitions that will arise. There were others in the past and there will certainly be different forms in the future."

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