Malaysia’s unity government recently announced that the East Coast Rail Link (ECRL), a mega project inherited from previous administrations, will be allowed to continue, albeit with some cost reductions. Costs under the unity government have been shaved by RM11 billion, from the initial 2016 cost of RM86 billion to RM75 billion. The 665 km rail line crosses four states, traversing the Eastern coast from Kelantan southward through Terengganu and central Pahang, then heading west across Pahang and Selangor. Its chief selling point is how it links up the east coast with the west coast of Peninsular Malaysia.

The concern over cost saving is understandable as the project is largely funded with a term loan from EXIM Bank for 20 years at a 3.25 percent interest rate with a seven-year repayment moratorium. But of greater concern is whether the ECRL will generate enough revenue for Malaysia to pay back the loan. Moreover, there has been no public disclosure on the commercial viability of the ECRL.

The former Transport Minister had announced that the railway line, which is scheduled for completion in December 2026, is expected to generate five million passenger rides and 26 million tonnes of cargo freight per annum, in the first five years of operation. This forecast appears optimistic in view of the current passenger and cargo of Keretapi Tanah Melayu (KTM), the main rail operator. KTM has only managed to attract 3.5 million passengers and six million tonnes of freight cargo in 2018, despite having a much longer railway line. KTM traverses the entire length of the west coast of Peninsular Malaysia, which is far more populated, urbanised, and industrialised than the four states of the ECRL.

To drive up the demand for cargo and passenger traffic, Economic Accelerator Projects (EAPs), focusing on the development of industrial parks, logistic centres, and transit-oriented development, were launched in 2019. Malaysia Rail Link (MRL), established by the Ministry of Finance to implement the ECRL project, has been partnered in a joint venture with China Communications Construction Company (CCCC), the contractor for the project, for operations and maintenance of the ECRL when it is scheduled to open in 2027. A dedicated unit at the Malaysian Investment Development Authority (MIDA) was established to promote investments for EAPs, together with CCCC. MIDA promotes investments in EAPs to the world, but it is in China’s interests to bring in Chinese investments along the ECRL corridor to ensure loan repayments.

Global and domestic investments were dampened by Covid-19 and then rebounded, but patterns suggest that ECRL-related projects are slow to materialise. Approved investments in Malaysia fell from RM208.9 billion in 2019 to RM167.4 billion in 2020, when Covid-19 first emerged. In 2021, approved investments recovered in line with global recovery and shot up to RM306.5 billion. The top five recipient states were Penang, Kedah, Pahang, Selangor, and Johor, which collectively contributed 85.8% of total approved investments in 2021. Kelantan and Terengganu remained the smallest recipients in Peninsular Malaysia while Pahang was the third largest recipient.

The existing favourable infrastructure along the west coast and around Kuantan on the east coast continues to draw in more investments than other parts of the ECRL corridor.

Notably, approved investments in Pahang are concentrated at the Malaysia-China Industrial Park (MCKIP) in Kuantan, which is near the Kuantan Port City, one of stations along the ECRL. It was announced that there is an additional investment of RM5 billion for expansion from Alliance Steel at MCKIP and new investments of RM10.6 billion from Bosai Mineral Group, China. IJM, the co-owner and developer of the park has also initiated a partnership with China Harbour Engineering Company (CHEC). They will co-develop the Malaysia-China Kuantan International Logistics Park (MCKILP), an integrated mixed development and logistic hub.

For Selangor, UMW’s sale of land at its High Value Manufacturing Park in Serendah to China’s Longi, one of the world’s largest manufacturers of solar modules, will provide Longi room to expand to Peninsular Malaysia. Longi currently has a manufacturing plant in Sarawak. Serendah is strategically located at the interchange between the east-west ECRL and north-south KTM lines.

Some domestic property developers are also investing in the development of the ECRL corridor. For example, Sime Darby Plantation has sold land to Sime Property for developing an integrated industrial township at Kapar, one of the stations along the ECRL near the western terminal of Port Klang. Likewise, there are also private sector efforts to develop a new township, which includes transit-oriented development at Kota SAS, which is the main ECRL station in Kuantan town. These developments can also add passenger traffic for the ECRL.

The current pattern of investments, which is primarily from China and local sources, indicates that the existing favourable infrastructure along the west coast and around Kuantan on the east coast continues to draw in more investments than other parts of the ECRL corridor. Kuantan will continue to be an attractive destination due its proximity to Kuantan port, MCKIP, and the impending opening of an international airport in 2026. Demand for cargo and passenger traffic will therefore be clustered around these preferred destinations for investments.

Whether new investments will spread to other less developed parts of the ECRL corridor in the next four years — at the required speed to meet the forecasted cargo and passenger traffic — remains to be seen.