The current state of the economy that was severely hurt by the Covid-19 pandemic meant Malaysia could no longer proceed with the Kuala Lumpur-Singapore High Speed Rail (HSR) as originally envisioned in 2016, said Minister in the Prime Minister's Department Mustapa Mohamed.
Mustapa, who is in charge of the Economic Planning Unit, said this in explaining the decision to terminate the HSR bilateral agreement with Singapore.
"The Covid-19 pandemic has severely impacted our country’s economy.
"The terms of the bilateral agreement signed in 2016 are no longer viable for Malaysia, given the current economic situation which has adversely affected Malaysia’s fiscal position," he said.
Malaysia's deficit for this year is set to skyrocket to six percent, up from the initial target of 3.2 percent.
Earlier today, Malaysia Prime Minister Muhyiddin Yassin and Singapore Prime Minister Lee Hsien Loong announced in a joint statement that an agreement could not be arrived at over Putrajaya's proposed changes to the project.
That joint-statement did not mention how much compensation Malaysia will need to pay for the termination and Mustapa in his latest statement was also silent on the matter.
Business portal The Edge Markets estimated that the termination will cost Malaysian taxpayers in the region of RM300 million.
Mustapa explained the changes Malaysia sought was to help reduce costs and provide the country with more financial leeway.
"Since late 2018, the government has explored a number of alternatives to reduce the cost of the KL-Singapore HSR project.
"This has become more urgent with the onset of the Covid-19 pandemic," he said.
Mustapa said under the original arrangement, the project will require substantial long-term government guarantees.
As such, he said Malaysia had since the middle of last year proposed various changes including project structure, alignment, and station design.
"The new project structure is expected to provide the government with the flexibility in financing options, such as deferred payments, public-private partnerships, and the possibility of accessing financing at favourable rates.
"More importantly, the proposed changes to the project structure would have allowed us to leverage on the HSR project to accelerate Malaysia’s economic recovery post the Covid-19 pandemic, by bringing forward the start of the construction phase by almost two years.
"This would have provided a much-needed boost to our construction sector and its supporting ecosystem," he said.
Mustapa said these proposed changes were reviewed in a series of discussions between Malaysia and Singapore.
"However, we had not been able to come to an agreement on these changes. The bilateral agreement had therefore lapsed on Dec 31, 2020.
"By virtue of the bilateral agreement and previously agreed-upon terms, Malaysia will honour its obligations under the bilateral agreement. Both countries will initiate the necessary to determine the amount of compensation," he said.
Mustapa said Malaysia will now consider whether to proceed with a domestic-only version of the HSR.
"Moving forward, the government will undertake a detailed study to explore all possible options, including the viability of a domestic HSR project and its benefits to Malaysians," he said.
He also stressed that Malaysia and Singapore enjoy very close bilateral ties which will be strengthened, including enhancing connectivity between the two countries.