Low-cost options to a RM30bil railway

The expensive express rail-link to Singapore is economically
unfeasible while much cheaper means to the same ends are easily doable
BEFORE
we spend another RM20bil to RM30bil or even before we spend a few
million ringgit on a feasibility study on yet another rail project,
this time to link KL to Singapore, we need to really get our bearings
right by using one basic tool common sense.
Remember the
double-tracking project, large sections of which have already been
completed, and which costs a similar amount? Where are the touted
benefits from that project? And why is KTM Bhd, our national railway, targeting a profit of RM1 nominally if double-tracking was so good?
Here's a quick, about 1,000-word feasibility study on that rail link to Singapore.
First
we will highlight some things we need to do, then show that the
economics makes no sense whatsoever and finally we will suggest a much
cheaper low-cost alternative making use of largely existing
infrastructure.
By then I am sure you will agree with this
analysis that we could do away with the high-speed rail link and
implement alternatives instead. I wish only that the authorities would
have their ears wide open too.
The Land Public Transport
Commission (SPAD by its Malay acronym) has announced that the second
phase of the feasibility study for the KL-Singapore link will kick off
soon and will be completed by year-end.
Two questions, why
hasn't the first phase of the study been made public? And what does it
show? Third question: Is Singapore involved in all of this and if they
are, how much of the cost will they bear? Will they pay only for the
Singapore portion? Will the project take off for the Malaysian side if
Singapore did not take part? But if that happened, it would not be a
KL-Singapore link, would it, linking two thriving Asean cities?
And
if we had Singapore's agreement to participate surely it is in the
public interest to disclose the terms such as the costs it will bear,
the stake it will take in the company, and so on. Remember, Singapore
is a tough negotiator recall Mahathir's plan for a crooked bridge when
he could get no agreement with Singapore to replace the causeway.
Without such an understanding what's the point in even doing a
feasibility study? It would be a mere waste of time and money.
Next, news reports quote sources to say that the rail link could cost as much as RM30bil, which has ballooned considerably from YTL Corp's
original proposal of around RM8bil before land acquisition costs. It
looks like that RM30bil does not include land costs but it's not clear
at this ill-defined stage.
But for our economic analysis, let's
assume the cost is RM30bil which is funded 10% by equity (RM3bil) and
the rest of RM27bil by loans. At an interest rate of just 6%, yearly
loan interest alone before repayment comes up to RM1.62bil! Earnings
before interest will have to be that much before it makes profits.
Let's
say its shareholders are not greedy and want a return of 15% pre-tax on
their equity which means a pre-tax profit of RM450mil. That means, its
pre-tax earnings before interest is around RM2bil, a nice round figure
to work with.
Can it make that much? Let's see. We assume the
pre-tax profit margin on sales is say one third or about 33%, which is
quite large. Then its sales need to reach RM6bil a year! That's more
than AirAsia's entire revenue last year of RM4.5bil.
The
key question is this: Is the travel market between Malaysia and
Singapore large enough to sustain a RM30bil link? The clear,
unambiguous answer is: No! Simply impossible.
What is the travel
market between the two countries? One easy way is to calculate the
amount of air, road and rail travel into and out of Singapore. That's
not likely to garner even RM2bil in total and remember that alternative
travel sources are not going to disappear with the KL-Singapore express
link, especially since it's likely to be priced at more than airline
tickets to recover the massive costs involved.
Promoters talk
about freight but that was one of the reasons double-tracking was set
up in the first place and there's no way that the freight rates for an
express link will be competitive with double-tracking where freight
trains can be on the tracks 24/7 going in both directions.
Let
me restate this emphatically: Without doubt, the KL-Singapore express
rail link is unviable commercially and will make massive losses from
the word go. We are asking for dire trouble if we go ahead on this
basis.
Now for the third part, an alternative to the express
link. One report says the high-speed rail link will cut travelling time
to Singapore to one and half hours from six hours. Who says? You can
get into Singapore faster than that.
Take a cab to Subang from
KL (30 minutes). Get into Firefly 15 minutes before flight without
carry-on baggage. Flight is 45 mins. Ride to Singapore town centre in
20 mins. Total time is 110 mins, only 20 minutes more than the express
link. But I suspect express link will take more than two hours with
Customs hassles and so on, putting both times on par.
I know, I
know, the time is too optimistic in some cases for air travel but the
point is travelling to Singapore takes a lot less than six hours
already, you can do it in two by air from Subang. Should we pay RM30bil
and incur losses for years to shorten it to one and half hours. I say
no!
But if you still insist, consider this. There's a landing
strip in the heart of KL which will easily take turboprops and small
jets. And yes, a financial district is being planned there although I
am not sure we need it. Yes, it's the RMAF base in Sungai Besi.
The
runway is already there, put in a terminal building for perhaps half a
billion ringgit and you are in business and at very similar times to an
express rail link. Why you can fly to anywhere in Asean from this
little urban airport. Connectivity can be easily achieved and much more
cheaply through air instead of land and that applies to transport as
much as telecommunications.
If the idea of an urban airport
still turns you off, we can do the same at Subang with an efficient
road or rail link to the airport which may cost another half billion,
still at a fractional one thirtieth of the cost of an express rail link.
Independent consultant and writer P Gunasegaram says cheaper can be better too.