The Causeway connecting Singapore and Malaysia.
The High-Speed Rail will promote greater economic integration between the nations.

“The beginning is the most important part of the work,” so wrote Plato, an immensely influential Greek philosopher. And, so, following the memorandum of understanding in July, Malaysia and Singapore inked last week a historic agreement to construct a High-Speed Rail, or HSR, that will zip between Kuala Lumpur and Singapore. In one fell swoop, both countries have catapulted their railways into the 21st century. The HSR is a project far unimaginable even as late as the turn of the century. Symbolising modernity, the HSR is the first of its kind in the region.

HSR is also controversial. Detractors condemn the project as a boondoggle. Inevitably, it will depend on public subsidies. So, it will be a drain on public coffers. Even then, tickets may be unaffordable to potential users. So, seats on the train may go unfilled and thereby make the HSR unprofitable. While trains in China and Japan serve densely populated areas, some comprising the whole population of Malaysia as, for example, greater Tokyo houses 40 million people, our population centres may not provide the requisite market. The bulk of the European Union and Japanese population is rich. It can therefore afford the high price of HSR travel. And, not to be undone, low-cost airlines will give the HSR a run for its money.

The counterargument, however, is that over the 350-km line and between two population centres of roughly the same size, the HSR will be quicker and less polluting than other alternatives. Additionally, it will help rebalance the economy and shift business patterns as increased passenger traffic pours into the cities served by the HSR.

As it snakes its way through lesser developed cities of Muar and Batu Pahat, HSR will bring in tourists, infrastructure investments, economic development and jobs to those cities and surrounding regions. The stops would also benefit from the consequent property and commercial development and become magnets that attract multinational companies to relocate their headquarters in them. Through the multiplier effect, the RM65 billion investment will enrich the larger economy.

Further, not only will the HSR bring Malaysians and Singaporeans closer together, it will promote greater economic integration of these two countries. The 90-minute ride will be three times faster than by road. It will thereby enhance labour mobility and enlarge the pool of talent for those companies along the stretch. It is for such reasons that, despite losses, the HSR is much in vogue in the EU, the United States, Japan and China. The itch to build more of them in these countries has not gone away!

Before we celebrate, we need to consider some of the issues, especially cost and viability, raised by critics to assess the merits of their arguments.

The first issue is that at RM65 billion, the HSR is too costly. Admittedly so. All things being equal, HSRs cost 10 to 12 times more than moderate-speed rail. The proposed HSR works out to be RM186 million per km.

China constructs its HSRs at between RM75 million and RM92 million per km. Its cheaper labour costs, technological know-how and experience — having more HSR kilometres than any other country — coupled with economies of scale and standardised designs and construction materials enable China to build HSRs at two-thirds of the costs incurred by other countries and at half that of ours.

Our HSR will traverse the Straits of Johor. A better comparison will be Britain’s HSR that will rattle through London and the northern region. The mountainous terrain along some stretches of that route requires extensive tunnelling, increasing the cost to RM320 billion or RM600 million per km. The current construction of the HSR from Los Angeles to San Francisco (LA-SF), covering 840km is projected to cost RM282 billion or RM335 million per km.

At a slightly shorter distance compared to our HSR, the High-Speed French TGV track that will connect Tours and Bordeaux will cost roughly RM50 billion or RM114 million per km. However, this cost does not include the rolling stock that our HSR factors into its cost structure. And, the TGV route is a relatively flat stretch.

Rough comparisons across these countries, apart from the China outlier, suggest that the estimated cost of our HSR is comparable.

And now for financial viability. The average KL-Singapore non-budget return air fare is about RM600. Annually, roughly 1.4 million Malaysians visit Singapore while there were about 13 million tourist arrivals from Singapore last year. If a quarter of these travellers were to take the HSR at a similar return fare, the payback period for the HSR will be 28 years.

For such a huge project, 28 years, give and take a couple, seem reasonable. Then again, a project of such nature is not all about money. Other social benefits and economic externalities must be factored into any cost-benefit analysis. It is these considerations that warrant a public subsidy. As Simon Sinek, an English author, says: “There is no decision that we can make that doesn’t come with some sort of balance or sacrifice.”

Who will build it? In the case of the California and French HSRs, we can expect the creation of consortium comprising the two governments and private partner(s) to undertake the HSR construction. The project can be financed with public and private equity together with loan capital raised from a bond issue.

We need to view the HSR with a long-range lens. When the Kuala Lumpur International Airport and the Light Rail Transit were built some 20 years ago, some grumbled that they were a monstrous waste of money. They were even perceived as white elephants. Today, we are thankful for them. Likewise, too, the day will dawn when we shall also be thankful for the HSR.

Datuk Dr. John Antony Xavier is head of the Strategic Centre for Public Policy at the Graduate School of Business, Universiti Kebangsaan Malaysia

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