One Horsepower - AP PhotoBuild the KL-Singapore high-speed train
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Malaysia's fuel subsidies have reportedly ballooned to some RM43 billion a year. That's more than three times the Treasury's forecast revenue from personal income tax this year of RM13.4 billion, and over 20% more than the forecast corporate tax of RM34.8 billion. And, it is almost half the total estimated federal government revenue of RM102 billion.
Why avoid a one-time capital investment of less than RM8 billion that improves the country's land transport infrastructure, when the country is already spending five times as much on fuel subsidies in a single year that yield no long-term economic benefits?
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The Edge Malaysia, May 10, 2008
By Ben Paul
News last month that Malaysia had dropped plans to build a high-speed rail link between Kuala Lumpur and Singapore was a major disappointment for me. As a Malaysian who works in Singapore, being able to get to the centre of KL within 90 minutes would have improved my life enormously - mostly by putting the food I desperately miss within easy reach. In my view, Malaysia should not only build a high-speed rail link to Singapore, but also invest heavily in expanding rail infrastructure between its major 'cities as well as between its industrial areas and its sea and air transport hubs. But it should drive these projects itself, with private sector companies limited to playing the role of contractors and suppliers.
The rail link proposed by YTL Corp was touted in news stories over the past year as a significant improvement over the existing trains that take as long as seven hours to make the journey between Singapore and KL, and road travel that can take as long as four hours. In fact, it would have been an improvement over flying too. While the flight time is about 40 minutes, travelling to and from the airports as well as the lead time required to check in for the flight typically extends the travelling time between the centre of the two cities to as much as three hours. That might have made the rail link the preferred mode of transport for regular business travellers, who currently have no other practical means of making the trip except by air.
A highly developed rail system that spans the country would also reduce the risk that the economy faces from rising oil prices. Malaysia's fuel subsidies have reportedly ballooned to some RM43 billion a year. That's more than three times the Treasury's forecast revenue from personal income tax this year of RM13.4 billion, and over 20 % more than the forecast corporate tax of RM34.8 billion. And, it is almost half the total estimated federal government revenue of RM102 billion.
If oil prices continue rising, which some market watchers say is likely, Malaysia will really have little choice but to shunt the burden onto its citizens. And, unless there are more efficient alternative modes of land transport available when that happens, the impact on the economy could be dramatic. High fuel prices besides surging trade volumes and choked highways are now also spurring investment in railways in many other countries around the world.
So, why is Malaysia's government backing out of the high-speed rail link project? Its stated reason is that it would have had to bear a significant portion of the project's cost. But compared to what it is already spending to shield its citizens from the full weight of fuel costs, that sounds like a lame excuse. Why avoid a one-time capital investment of less than RM8 billion that improves the country's land transport infrastructure, when the country is already spending five times as much on fuel subsidies in a single year that yield no long-term economic benefits?
In my view, a bigger obstacle to the government backing the high-speed rail link than cost is the scrutiny the deal will face from the country's resurgent opposition. Malaysians are understandably leery of the government providing funds for projects conceived and promoted by the private sector. Too often, the infrastructure assets are over-designed and expensive. And, the potential returns and risks of the project tend to be unfairly distributed between the government and its private sector partner.
The reality, however, is that financial support from governments is often necessary to make affordable rail transport viable. That's because the upfront costs are high, the lifespan of the assets are very long, and the economic benefits they generate are hard for private sector investors to capture. On the other hand, these positive "economic externalities" are difficult to measure, making it tough to determine the extent to which these projects deserve government funding.
Malaysia isn't the only country that's grappling with the problem of finding the right balance between private enterprise and government funding that gets railroads built, allows private companies to earn a fair return and protects the public from getting ripped off. Even in the US, some railroads are asking for government support for their investment in new tracks, arguing that the new lines create wider economic and social benefits, like taking the pressure off roads and highways and making land transport more efficient. But their detractors point out that the railroad sector is already so profitable that it is attracting the attention of savvy billionaire investors like Warren Buffett and Carl kahn.
Rather than struggle with these issues and delay much-needed investment in new railways, Malaysia would probably be better off if the government took over as the owner and financier of these projects. Indeed, when infrastructure projects are heavily reliant on public sector funding, the involvement of a private sector player seems to make little sense. Sure, engineering, procurement and construction contracts can be parcelled out to the private sector through competitive tenders. The government could even appoint a private sector operator to run the rail service for a fee, if it felt its civil servants were not up to the task. But there seems little point in allowing a private company to own railways that are built largely with government funding.
Working with experienced consultants, there is no reason the government couldn't come up with designs and plans for new railways that are as good as any private sector player's. It would certainly be able to obtain long-term financing on more attractive terms than the private sector. And, being in no hurry to recoup its capital investment, it would be in a position to price its rail services at levels that attract large numbers of passengers, quickly achieving the economic aims of the project.
This is something that other countries are beginning to discover for themselves. New Zealand's government agreed last week to buy the country's rail and ferry services from Australia's Toll Holdings for NZ$66s million (about RM1.6 billion), paving the way for more investment in the industry. New Zealand wants to encourage rail transport to take the pressure off its roads, but it found that enormous government support of the private sector owner was necessary to achieve this. In the end, it made more sense for the New Zealand government to repurchase its railroads, ending what some of its officials called the "painful lesson" of I5 years of private ownership of these assets.
Malaysians too have endured painful lessons in the development of the country's physical infrastructure. But that shouldn't be a reason to stop building now. Instead, they should just push for change in the way the ownership and funding of infrastructure projects is organised. Ultimately, their lives will be improved by high-speed rail links that quickly get them where they want to go. I know mine will.
Ben Paul is the executive editor of The Edge Singapore
-------------------------------------------------------------
Malaysia's fuel subsidies have reportedly ballooned to some RM43 billion a year. That's more than three times the Treasury's forecast revenue from personal income tax this year of RM13.4 billion, and over 20% more than the forecast corporate tax of RM34.8 billion. And, it is almost half the total estimated federal government revenue of RM102 billion.
Why avoid a one-time capital investment of less than RM8 billion that improves the country's land transport infrastructure, when the country is already spending five times as much on fuel subsidies in a single year that yield no long-term economic benefits?
-------------------------------------------------------------
The Edge Malaysia, May 10, 2008
By Ben Paul
News last month that Malaysia had dropped plans to build a high-speed rail link between Kuala Lumpur and Singapore was a major disappointment for me. As a Malaysian who works in Singapore, being able to get to the centre of KL within 90 minutes would have improved my life enormously - mostly by putting the food I desperately miss within easy reach. In my view, Malaysia should not only build a high-speed rail link to Singapore, but also invest heavily in expanding rail infrastructure between its major 'cities as well as between its industrial areas and its sea and air transport hubs. But it should drive these projects itself, with private sector companies limited to playing the role of contractors and suppliers.
The rail link proposed by YTL Corp was touted in news stories over the past year as a significant improvement over the existing trains that take as long as seven hours to make the journey between Singapore and KL, and road travel that can take as long as four hours. In fact, it would have been an improvement over flying too. While the flight time is about 40 minutes, travelling to and from the airports as well as the lead time required to check in for the flight typically extends the travelling time between the centre of the two cities to as much as three hours. That might have made the rail link the preferred mode of transport for regular business travellers, who currently have no other practical means of making the trip except by air.
A highly developed rail system that spans the country would also reduce the risk that the economy faces from rising oil prices. Malaysia's fuel subsidies have reportedly ballooned to some RM43 billion a year. That's more than three times the Treasury's forecast revenue from personal income tax this year of RM13.4 billion, and over 20 % more than the forecast corporate tax of RM34.8 billion. And, it is almost half the total estimated federal government revenue of RM102 billion.
If oil prices continue rising, which some market watchers say is likely, Malaysia will really have little choice but to shunt the burden onto its citizens. And, unless there are more efficient alternative modes of land transport available when that happens, the impact on the economy could be dramatic. High fuel prices besides surging trade volumes and choked highways are now also spurring investment in railways in many other countries around the world.
So, why is Malaysia's government backing out of the high-speed rail link project? Its stated reason is that it would have had to bear a significant portion of the project's cost. But compared to what it is already spending to shield its citizens from the full weight of fuel costs, that sounds like a lame excuse. Why avoid a one-time capital investment of less than RM8 billion that improves the country's land transport infrastructure, when the country is already spending five times as much on fuel subsidies in a single year that yield no long-term economic benefits?
In my view, a bigger obstacle to the government backing the high-speed rail link than cost is the scrutiny the deal will face from the country's resurgent opposition. Malaysians are understandably leery of the government providing funds for projects conceived and promoted by the private sector. Too often, the infrastructure assets are over-designed and expensive. And, the potential returns and risks of the project tend to be unfairly distributed between the government and its private sector partner.
The reality, however, is that financial support from governments is often necessary to make affordable rail transport viable. That's because the upfront costs are high, the lifespan of the assets are very long, and the economic benefits they generate are hard for private sector investors to capture. On the other hand, these positive "economic externalities" are difficult to measure, making it tough to determine the extent to which these projects deserve government funding.
Malaysia isn't the only country that's grappling with the problem of finding the right balance between private enterprise and government funding that gets railroads built, allows private companies to earn a fair return and protects the public from getting ripped off. Even in the US, some railroads are asking for government support for their investment in new tracks, arguing that the new lines create wider economic and social benefits, like taking the pressure off roads and highways and making land transport more efficient. But their detractors point out that the railroad sector is already so profitable that it is attracting the attention of savvy billionaire investors like Warren Buffett and Carl kahn.
Rather than struggle with these issues and delay much-needed investment in new railways, Malaysia would probably be better off if the government took over as the owner and financier of these projects. Indeed, when infrastructure projects are heavily reliant on public sector funding, the involvement of a private sector player seems to make little sense. Sure, engineering, procurement and construction contracts can be parcelled out to the private sector through competitive tenders. The government could even appoint a private sector operator to run the rail service for a fee, if it felt its civil servants were not up to the task. But there seems little point in allowing a private company to own railways that are built largely with government funding.
Working with experienced consultants, there is no reason the government couldn't come up with designs and plans for new railways that are as good as any private sector player's. It would certainly be able to obtain long-term financing on more attractive terms than the private sector. And, being in no hurry to recoup its capital investment, it would be in a position to price its rail services at levels that attract large numbers of passengers, quickly achieving the economic aims of the project.
This is something that other countries are beginning to discover for themselves. New Zealand's government agreed last week to buy the country's rail and ferry services from Australia's Toll Holdings for NZ$66s million (about RM1.6 billion), paving the way for more investment in the industry. New Zealand wants to encourage rail transport to take the pressure off its roads, but it found that enormous government support of the private sector owner was necessary to achieve this. In the end, it made more sense for the New Zealand government to repurchase its railroads, ending what some of its officials called the "painful lesson" of I5 years of private ownership of these assets.
Malaysians too have endured painful lessons in the development of the country's physical infrastructure. But that shouldn't be a reason to stop building now. Instead, they should just push for change in the way the ownership and funding of infrastructure projects is organised. Ultimately, their lives will be improved by high-speed rail links that quickly get them where they want to go. I know mine will.
Ben Paul is the executive editor of The Edge Singapore
2 comments:
Govt doesn't want to go ahead or approved projects that will make public transport more efficient because it will effect sales of Proton and Perodua cars and Petronas petrol. Who's interest are they caring?
The question is whether RM8b should be spent for the benefit of 1000 commuters. Oh, too few you say? OK, how about a 100,000? That still means that taxpayers are shelling out RM80,000 for each of these limited persons to enjoy a faster alternative. I enjoy local food too, but I don't thinking spending RM80,000 for Ben to enjoy it once a week is appropriate
And it's entirely correct to note that transportation systems usually run in the red. So that RM8b isn't just a one-off: regular subsidies will be required.
This isn't the solution to the fuel subsidy problem.
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