Review of mega projects crucial, timely: Economists

PETALING JAYA: Economists view the review of big-ticket mega projects as timely and crucial in ensuring that Malaysia strikes a better deal as well as being able to curb leakages and wastage from lopsided contracts that may hurt the country’s finances.
Big-ticket projects lined up include the Kuala Lumpur-Singapore High Speed Rail (MyHSR) and the East Coast Rail Line (ECRL).
Prime Minister Tun Dr Mahathir Mohamad announced upon taking office after leading Pakatan Harapan to a historic win in the 14th general election last Wednesday that the new government will review mega projects and contracts and, if warranted, deals will be renegotiated.
This was echoed by newly appointed Finance Minister Lim Guan Eng.
Senior research fellow at the Malaysian Institute of Economic Research Dr Shankaran Nambiar said a review is necessary as it is unclear on what basis some of the contracts were awarded.
“There have been claims that these projects were slated with a bill that is far above the market value; that is not acceptable, if true. That’s why a review is necessary. More than that, the principles of transparency and economic efficiency have to be firmly established as criteria in the award of contracts. This has to be a part of the tender and award process,” he said.
“Going further, aggrieved parties should have the right to question why they are not awarded projects. If these processes are put in place as standard practice, we can be sure that leakages and inefficiencies will be weeded out. This problem gets complicated in the case of projects coming from China,” he added.
However, Shankaran opined that the premier’s undertaking of reviewing contracts with China does not mean that he is averse to Chinese investment in Malaysia, but instead it means that he will not tolerate lopsided deals that do not benefit Malaysia.
“His statements on the review of mega projects may sound alarming, but they should be viewed as a more careful evaluation of projects that will benefit Malaysia in the long run. I see this as a positive, although the immediate consequence would be one that generates uncertainty. I think there will be more confidence from investors who will be evaluated on the basis of what they can bring to the country than for the political deals that can be offered,” he explained.
Sunway University Business School Professor of Economics Dr Yeah Kim Leng said the review is timely and is important for Malaysia in terms of striking a better deal and ensuring that the government does not overpay for certain deals and capitalise on savings in order not to get caught in a debt trap.
“Importantly, we are likely to see improved governance standards and confidence, especially when it is undertaken by professionals objectively as well as thoroughly reviewing the costs and benefits for the country both in the present and the future to ensure it is within our financial means, and that the debt level does not overshoot,” he added.
According to Yeah, the federal government debt is likely to hover around 51-52% to gross domestic product (GDP), which is still lower than the debt ceiling of 55% to GDP. However, he said this excludes new projects, such as the RM55 billion ECRL, which have not been factored in. Inclusive of these projects, the contingent liabilities could be up by 15-20%.
“The larger projects have not been factored into our contingent liabilities, which some estimate will rise between 15% and 20% if they are included. So this will be a good opportunity to undertake a full disclosure of all our contingent liabilities.
“That will strengthen confidence in the government and its ability to review some of the projects that are in the pipeline and if the government is not able to fund them then find the best feasible means to fund them with foreign loans or private public financing schemes where private sector actually contribute to the financing as well,” he added.
According to Bank Negara Malaysia’s figures, the government’s current liabilities totalled about RM686.8 billion at the fourth quarter of 2017.