SINGAPORE — After months of uncertainty, the Kuala Lumpur-Singapore High Speed Rail (HSR) project has been formally postponed for nearly two years, with Malaysia to pay abortive costs of S$15 million to Singapore by January next year.

Malaysia will have until May 31, 2020 to proceed with construction works, as per an agreement signed in Putrajaya on Wednesday (Sept 5) by Mr Khaw Boon Wan, Singapore's Transport Minister and Coordinating Minister for Infrastructure, and Malaysia's Economic Affairs Minister Azmin Ali.

If the project goes ahead, the rail services between Singapore and Kuala Lumpur are expected to start by Jan 1 in 2031, four years later than the original scheduled date of Dec 31, 2026. Responding to media queries, Singapore's Ministry of Transport (MOT) said that the four-year delay would be due to the additional time required by both countries to implement the project after it resumes, "including the calling of fresh tenders and carrying out additional technical works”. 

The signing was witnessed by Malaysian Prime Minister Mahathir Mohamad and his deputy Wan Azizah Wan Ismail, and Mr Teo Chee Hean, Singapore's Deputy Prime Minister and Coordinating Minister for National Security.

The joint statement said that both countries were “committed” to the HSR project.

“However, at Malaysia's request and in the spirit of bilateral cooperation, Singapore has agreed to suspend the construction of the HSR project for a period up to May 31, 2020.

"If by (then), Malaysia does not proceed with the HSR project, Malaysia will also bear the agreed costs incurred by Singapore in fulfilling the HSR bilateral agreement. During the suspension period, Malaysia and Singapore will continue to discuss on the best way forward for the HSR project with the aim of reducing costs.”

The fate of the project had been uncertain since Malaysia had a change in government after an opposition coalition headed by its former prime minister Mahathir Mohamad won the May 9 election. Dr Mahathir, taking over the reins as Malaysia’s premier again, said that month that he wanted to scrap the project in order to cut the country’s RM1 trillion (S$336 billion) debt.

The HSR, first proposed by Malaysia in 2013, is a 350km line that would have slashed travel time between Singapore and Kuala Lumpur to 90 minutes by rail compared with about four hours by car.

Last week, Mr Khaw met Mr Azmin to talk about the project, with Mr Khaw saying that the two were "brainstorming ideas" on how to further bilateral ties.

On the length of deferment, both Mr Khaw and Mr Azmin said on Wednesday after the signing ceremony that it was decided after rounds of “intense negotiations”.

Mr Azmin revealed that the Malaysian Cabinet had initially wanted the deferment to be “at least three to four years”. Singapore then proposed a week later that it was willing to consider a deferment period of one year.

“Again I went back to Singapore to appeal to consider for a longer period, but certainly, I agreed with Minister Khaw that if the deferment period is beyond two years, the business model will certainly change and costs will continue to escalate... (so) we agreed mutually (on) two years,” Mr Azmin added.

From Singapore’s point of view, Mr Khaw said that there is “a limit to how far we can postpone the project”: “We think this is a suspension period that we can try to manage. Of course it increases some risk in project costs, but we think we can manage it.”

Given the length of the suspension, Singapore and Malaysia's infrastructure companies — SG HSR and MyHSR Corporation — will be calling off the ongoing international joint tender for the HSR assets company.

MyHSR, Malaysia’s project delivery vehicle for the rail project, said in a statement on Wednesday that it “supports” the deferment, and will “continue to work with the relevant authorities” during the two years of suspension.

TWO ROUNDS OF REIMBURSEMENT COSTS

Elaborating on the reimbursement costs, Mr Khaw said that it comprised two parts: The abortive costs of deferring the project now, and another round of compensation should the project not proceed at all.

The abortive costs of S$15 million include termination costs that have to be paid to contractors who have begun work on the project, such as contracts to divert utilities and services.

A substantial part of the HSR in Singapore will be underground, and Mr Khaw said that works have already begun to divert utilities such as gas pipes, water pipes and electricity cables.

If the project does not go ahead by end-May 2020, there will be reimbursement for the cost incurred by Singapore, “up till today’s suspension, for (adhering) to the bilateral agreement”, Mr Khaw added, and this will be “a larger quantum”.

The MOT said the S$15 million is to cover costs incurred to pay contractors to terminate ongoing contracts and wind down operations during the deferment period. These include “contract breakage costs” which have to be paid because of the suspension, it said, and these are “abortive” costs because they are not useful for the project when it resumes.

Earlier in July, Mr Khaw revealed that Singapore has already spent more than S$250 million on the HSR project as of end-May this year, and is likely to expend another S$40 million or so by year end.

The ministry said that the S$15 million abortive costs is “different” from this sum quoted by Mr Khaw.

At a press conference after the signing ceremony, Mr Teo said that some of the S$250 million is represented in costs which are “recoverable”. For example, the costs associated with land acquisition. “We still continue to have the land, so it's not reasonable to put that on Malaysia,” he said.

Commenting on Facebook after the event about the impact of the postponement, Mr Khaw said: “Many will be disappointed by the delay, but at least there is now greater clarity on the way forward for this mega project.”

The cross-border rail network is to have eight stations. There is the Jurong East station in Singapore and, on the Malaysian side, Bandar Malaysia, Sepang-Putrajaya, Seremban, Melaka, Muar, Batu Pahat and Iskandar Puteri stations.