Saturday March 2, 2013

High-speed economic corridor


Mohd Nur Kamal Mohd Nur Kamal

Travelling time between KL and Singapore will be drastically shortened with the proposed high-speed rail.

IMAGINE a family residing in Kuala Lumpur planning a holiday at Universal Studios in Singapore. Their choice of transportation would either be to drive, take a bus or hop on a short flight to the republic.

The journey by land will take more time, with a bus ride taking longer. A flight will be more expensive and the travelling time will have to include the drive to the airport and the check-in time needed before boarding the plane.

By the end of the decade, there will be another option. A high speed rail (HSR). Going by what Land Public Transport Commission (SPAD) chief executive officer Mohd Nur Kamal (pic) says, it could take 90 minutes or less central business district to central business district.

The HSR has received the go-ahead by the Malaysian and Singaporean governments. Analysts say the project may not have been given the greenlight if not for the improvement in political and economic ties between both countries.

Studies for a high speed rail started as soon as it was identified as a project under the Economic Transformation Programme (ETP).

So far two feasibility studies spanning two years have been completed, and which ever way you cut it, the project makes sense, says Mohd Nur.

The most compelling reason for the project is economics, which Mohd Nur says is the spillover benefits the project will bring.

“It's more about economic development and less about transport because currently there is more than one way to go to Singapore or vice versa.

“We envisage from the HSR businesses that otherwise would not happen,” he says.

The HSR project is just one chapter of the larger transformation of land public transportation in Malaysia.

According to the final draft of National Land Public Transport Masterplan, there is a correlation between gross domestic product (GDP) and mobility growth increased population, employment and economic activity always translate into higher mobility requirements.

In this context, a first-class land public transport system is especially important given the country's objective of clocking a 6% annual GDP growth rate and creating 3.3 million new jobs by 2020.

Improving mobility will mean new ways of travel. Travel vehicle demand grew from 13 million trips per day in 1991 to 40 million in 2010. Projections point towards this trend continuing in Malaysia, with the figure expected to reach a staggering 133 million in 2030. Hence, proving the point that a comprehensive land transportation solution will be needed.

The economic benefits of the project

With economic spillover the catalyst for the project, the priority now is to get it right.

Mohd Nur says studies in other countries found both successes and failures in their respective HSR projects.

“In order to meet the Government's expectations and targets for economic development, this project has to be carefully planned.

“We have benchmarked a few systems in France, Spain, Germany, Japan and China, and what we are looking at is more of the right formula for cost and the spillover effects,” he says.

Mohd Nur says SPAD is working closely with Pemandu to plan future stations for the journey down south. Plus, there will be two types of HSR service express and transit.

The express service plans to only have one stop in Nusajaya in between Kuala Lumpur and Singapore while the transit service is slated to have stations in Negeri Sembilan, Malacca and two or three stops in Johor.

“We have to make sure that there are no hindrances in these areas marked for development.

“SPAD has also made its rounds to the various stakeholders involved such as the state governments of Selangor, Malacca, Negri Sembilan and Johor.

“It has to be consistent with their plans and they basically welcome the project,” he says.

The next step is a working-level engagement with Singapore where SPAD is still working through the mechanism with its Singaporean counterpart.

On the projected ridership, contrary to sceptical comments, Mohd Nur expects the catchment to be sufficient.

“From the information we have gathered, we are generally looking at the alignment and revenue projection which we cannot reveal as yet,” he says.

For illustrative purpose, it is estimated that 3.5 million passengers travel via air on the Kuala Lumpur-Singapore route every year, with growth rate of about 6.8% a year.

On the fare structure, Mohd Nur confirms it is going to be affordable. It will cost somewhere between the fare for a flight and a train ride.

“The idea is to open this avenue to the average rakyat. Our mandate is clear that this cannot be seen as a mode of transport for the middle and upper class of society,” he says.

He says it will help businesses but it cannot be exclusively just for businesses as it has to be for the community and masses, with a highly-regulated category of tickets and another one that is less regulated.

Mohd Nur says that looking at passengers going south and vice versa, the current capacity of highways and other modes of transport will be exceeded soon.

“Some investments are required to build additional capacity. We have to think in totality to consider whether to spend money to expand the highways, or use part of that to build this link,” he says.

Mohd Nur says they are also looking at correlation between speed or reduction in journey time and ridership increment.

“And we will also make immigration checks as convenient as possible,” he says.

How much is much?

Funding for such a project will be a critical component, and suffice to say it will cost a lot.

In 1992, the Petronas Twin Towers cost US$1.8bil or RM6.84bil (based on the time's exchange rates) to build and that has redefined the landscape of the city. Now, the mass railway transit is being constructed for the Greater Klang Valley which will cost a whopping RM23bil.

For the HSR, it will cover 350km through three states and connect Kuala Lumpur's and Singapore's CBDs, and it will probably be the largest infrastructure project Malaysia would be embarking on. So where is the money coming from for a project on this scale?

Mohd Nur said the funding is still too early to determine, but the transport authority is looking at a funding model structured on a public-private partnership (PPP).

“If we ask the private sector to privately take up the whole investment, it would not be feasible if it attempts to look for returns just from the collection of fares and other avenues of revenue,” he says.

To put things into perspective, the UK government had also just approved a £32bil (RM153bil) HS2 high-speed rail that would more than double its current 71 miles (113 km) of high-speed lines by 2026.

According to The Guardian, China has the longest network of high-speed lines, covering 6,299 km, and is still hungry for more with a further 2,339 km under construction and 2,901 km planned.

In comparison, the whole of Europe currently has 6,636 km in operation.

“There will be some requirement for government assistance, which is quite consistent with examples in the rest of the world. Some countries tried to go 100% private, such as the Taiwan experience, which subsequently saw the government stepping in to bail out the parties involved,” he says.

Rather than facing such issues in the future, he says Malaysia may as well structure it correctly the first time around to avoid costly bailouts.

“There will be a right mix of public and private sector investments the crux is for us to find the balance and to have the Government spend as little as possible,” he says.

Using the National Land Transport Master Plan as a guidance, PPPs are used to form collaborations between the Government and profit-driven companies to provide land public transport services, and both be held responsible in terms of design, operations as well as financial risks and return.

This also helps the Government to spread costs and reduce the pressure on public finances where possible as systemic transformations entail substantial amount of investments to bring new change to the system.

“We have both a number for cost and also projected revenue. To decide whether proposals that are coming (in the future) is good or not, we have to compare it to our benchmark and baselines,” he says.

Mohd Nur adds that besides the fare, there will also be non-fare derived revenues such as property development in and around stations, integrated station complexes as well as retail space.

The tender for the HSR project is expected to be awarded this year and a number of construction companies have indicated their interest in the project. Tenderers will likely have a foreign partner to complement the local construction expertise for the project.

Giving competition a run for its money

Will this project negatively impact the market share of other modes of transportation such as airlines, buses and toll operators?

“There will be some impact on other businesses but there are mitigation factors that we can execute to minimise that kind of exposure.

“For example, the Kuala Lumpur to Singapore route used to be very lucrative and exclusive to Malaysia Airlines and Singapore Airlines. Now they have relaxed it a little bit with the inclusion of budget airlines, thus future impact on each one is lesser.

“They can look at their network to reposition some of their planes where they can even have a tie-up with the HSR.

“Bus companies will also have to figure out their business models, but there may be segments that stay with buses as it is cheap. Furthermore, buses are easier to deploy.

“These parties have ample time to plan before the HSR comes into the picture,” he says.

Sceptics remain unswayed due to the scant details available at this point in time.

Moody's Investors Service Singapore vice-president senior analyst Christian de Guzman says it is definitely creating a lot of buzz both sides of the border but he remains cautious about this.

He also notes the uncertainties posed by the impending elections in Malaysia, where nobody can predict the outcome.

“From our perspective, it doesn't matter who wins, but policy certainty is important. Even if there were a change in government, if investors are assured that the policies are continued there should not be a problem.

“Nevertheless, we are confident a lot of things won't change,” he says.

For the airlines, some say there definitely will be an impact, taking the Paris to Brussels HSR route as an example. It is 305 km, similar to KL-Singapore's 350 km.

“Air services between these two cities all but disappeared when the Eurostar launched services linking the two cities. The journey time is 1:25 (85 minutes) from central Paris to central Brussels. We could see a repeat of this on the KL-Singapore leg as the operating parameters appear to be the same.

“I believe the airline industry is quietly waiting for more disclosure and details before commenting. Should there be evidence of a subsidy for this high-speed train service, then the airline industry has a basis to complain because it is a fully commercial entity competing against a subsidised competitor,” says an analyst.

Putting things into a bigger perspective, he estimates the cost for the HSR to be RM40bil or RM97mil per km.

He says it won't be cheap to build the system as the peninsula's land mainly sits on an over-bloated water table and soft limestone bedrock and these tracks will have to be built above ground on dedicated bridges.

“High-speed rails are defined as beasts travelling with speeds exceeding 250 kph. These trains are sophisticated and demanding speed demons. They must be built on super flat structure; no humps or bumps are tolerated. The tracks must be super smooth and they also don't like to share. Its tracks are custom-built and dedicated for high-speed applications.

“They don't like to twist and turn. Looking at the constraints, you can understand that it won't be cheap to build a high-speed train system,” he says.


Mohd Nur says the feasibility study was done in two approaches first by looking at it from a top down and from the bottom up.

“Using the two approaches, the case is consistent, and overall it's very positive for the HSR,” he says.

Comparing established high-speed rails in countries like France, Spain, Germany, Japan and China, Mohd Nur says SPAD has a lot of factors to consider including the right formula for cost, and the potential spillover effects that will happen to the cities that would have stops along the KL-Singapore route.

“If you reduce the transaction cost, the number of transactions will naturally go up. People would be induced to travel via the HSR as the cost is minimal and the hassle is even less. It is not all about travelling, but also businesses that otherwise would not happen, could happen,” he said.

In the future, the HSR will be a matter of choice for travellers.

But the main aim is to bring increased development to the towns and cities the HSR will connect to.

There is hope that the overall economic benefit will outweigh the cost of the project.

Related Stories:
Enhancing travel in the peninsula

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