By Andrej Frizler, Technical Director at TA Europe
The opinion is my own, founded on three years experience in this project. The sources are public announcements and press.
350 kilometres between two glamourous metropoles, the first of its kind in SEA. One of the very few worldwide. The competition for delivery of this prestigious project, however, could be truly taken off the popular television series.
The procurement process of the KL to SG HSR project is going full steam ahead. Unusual for such a large and complex project, the delays so far have only been minimal. The development partner and reference designers in both countries are appointed and busy developing this project. Both governments procuring teams MyHSR on Malaysian side and LTA on the Singapore side are well regarded in the industry. Their recent industry briefing was attended by close to 400 participants from 165 international and local entities. (LTA and MyHSR, 2017)
The project structure has been cleverly designed: each government is, to the greatest extent possible, responsible for activities on their soil. Only elements where separation of responsibilities (and payments) is too difficult are shared by the two governments. The underlying infrastructure, such as earthworks, bridges and stations is to be procured by each government within their own regulatory framework whilst the HSR system (trains and associated infrastructure such as signalling) will be procured together. (LTA and MyHSR, 2016)
The competition for the systems package (AssetsCo) is strong. MyHSR’s chief executive officer Mohd Nur Ismal Mohamed Kamal stated in June 2017 that there could be up to ten consortia from different countries bidding to be the AssetsCo (The Edge Communications Sdn. Bhd. , 2017). The AssetsCo will be responsible for designing, building, financing and maintaining all rolling stock and all rail assets, such as the track-work, power supply, signalling and telecommunication systems. It will also develop and implement a network code to coordinate the system’s network capacity for operations and maintenance needs.
So who are the seven kingdoms or these consortia as it were?
China has been heralded as the favourite in this race. Through the One Road One Belt policy they have the commitment and funds to bring the best they can do to the table. The Chinese commitment in Malaysia appears universal, be it in their bid for the real estate component in Bandar Malaysia, the purchase of assets from 1MDB (Reuters, 2015), or the USD 13 billion contract to build the East Coast Rail Line (Channel NewsAsia, 2016). In Singapore, the largest deal in a Belt and Road country so far this year was a Chinese consortium’s $11.6 billion buyout of the Singapore-based Global Logistics Properties. (Reuters, 2017)
However, Chinese HSR technology still lacks examples of success outside of China. Can China persuade MyHSR and LTA that they are a good partner to work with for the next decades? The Economist recently reported: “Yet OBOR has highlighted that Chinese groups have little experience abroad, and that their Western counterparts offer a technological edge and thorough knowledge of local conditions across the OBOR region, from Tajikistan to Thailand. Partnering with Western multinationals also gives Chinese companies credibility, particularly with financial institutions.” (Economist, 2017)
Another factor to be taken into account is the idea that “value for money” may not be likely achieved if there is too strong a perception of a “one horse race”. That is where the other bidders do not believe that they have a reasonable chance at winning, and thus only provide minimal and not very competitive offers. Governments are likely to give the other consortia a credible assurance that their enormous bid costs are not wasted and chances to win equal. MyHSR and LTA say the AssetsCo will be jointly procured by both InfraCos, in an “open, fair and transparent manner,” and the tender is expected to be called by the fourth quarter of this year. (Briginshaw, 2017)
Japan is the second largest investor in both countries Malaysia and Singapore. Only Singapore in Malaysia and only USA in Singapore invested more. Consequently, Japanese influence and clout in these countries cannot be underestimated. There is also little doubt that Japanese consortium will deliver on time a high quality system. “We will push for a specific proposal involving financing, talent development and collaboration with local companies,” said Keichi Ishii, Minister of Land, Infrastructure, Transport and Tourism. (Nikkei Inc, 2017)
On the other hand, Japanese technology is considered expensive and not versatile in terms of its adaptability to other non-Japanese technologies. Can Japan convincingly translate their technology offer into the requirements set out by the two governments? Additionally, their perceived level of commitment is not as strong (or maybe not as pronounced) as the Chinese. For example only two Japanese versus seven Chinese firms submitted a bid for the Bandar Malaysia project, where the KL terminus will be located. (The Straight Times, 2017)
Both China and Japan sent their high ranking representatives to promote their technology. For example Japans Transport Minister Keiichi Ishii in 2017. Malaysian Prime Minister Datuk Seri Najib Razak met with President Xi Jinping and Premier Li Keqiang.
Also South Korea Transport Minister Kang Hoin visited Malaysian Transport Minister Datuk Seri Liow Tiong Lai in June 2016. South Korea sees technology transfer as their competitive advantage. The Korea Train Express (KTX) is reportedly highly profitable despite its low fares. (Times, 2016) This ‘know how’ could be very attractive to both Singapore and Malaysia. However, similar to Japan and China the question will be if South Korea can translate their offer to fit the requirements of MyHSR and LTA.
European firms such as Siemens, Talgo and Alstom have reportedly shown interest in the project. At an industry briefing on 06 July 2017, more than a third of entities were from Europe (LTA and MyHSR, 2017). Both MyHSR and LTA personnel have been to Europe to study the European systems and their procurement. However, no European consortium has been officially announced yet.
The Singapore consortium of six companies acknowledges the necessity to join forces with one of the above national players. Their intention is reportedly to capitalise on opportunities provided by this project. (The Straight Times, 2017)Their main advantages are the deep understanding of three major risks: local stakeholders, exchange rates in the region (a minimum of three currencies will be involved in this project) and operation and maintenance of rail based infrastructure in the region.
Other parties mentioned in the press are Hong Kong’s MTR Corporation who was interested in partnering with China Railway Corporation to bid for a contract. (The Straight Times, 2017) Also, Bombardier Malaysia Chief Country Representative Ahmad Marzuki Ariffin indicated their interest to be involved in this project. (Channel NewsAsia, 2017)
Who is going to win this prestigious contract? The right balance of national support together with specialist knowledge will provide the best argument for both governments to announce the winner. Hardly a surprise. Consequently, the first announcements of collaboration have already started to become public.
The Star reported that “MMC Corp Bhd is working with a Japanese consortium to provide mechanical and engineering solutions for the high-speed rail (HSR)”. (The Star, 2017) To engage one of the best project managers in Malaysia is a clever move. MMC manage some of Malaysia’s largest rail projects: the Klang Valley Mass Rapid Transit project, and the Electrified Double Track project.
Chinese confidently signalled so far to the industry world that they will go alone. However, addition of Singapore firms to their consortium would help them in many ways. Firstly, Singapore’s obsession with quality will surely improve their bid, secondly, local knowledge of Foreign Exchange (FX) and operations and pricing (OpCo) risks will make the bid more price efficient, and thirdly, the Singapore companies will bring the regional stakeholder experience that might get this project through the approvals stage.
The third ‘dream team’ could be the combination of Korean and European technology. European companies are deemed independent, thus, their addition would take off the national edge and therefore make a political argument for a best technical solution rather than the political decision between China or Japan. In case of Korean consortium winning the AssetsCo bid, the other international and national players would still benefit from many large and lucrative real estate deals around the HSR stations.
What is needed to win this race, though? The technical score, of course.
To be continued…..
Andrej Frizler joined the TA Europe team in August as a Technical Director to strengthen our strategic advice team for Rail, Highway, Airport and Port schemes in Asia and Europe. TA Europe is an independent consultancy in infrastructure. We specialise in technical-commercial management of transactions and PPP projects. From our offices in Berlin, Essen and Brussels we are leading a network of consultants and experts located across several countries and sectors. We deliver complex projects all over the world.
Sources:
Western firms are coining it along China’s One Belt, The Economist (2017).
LTA and MyHSR. (13. December 2016). Joint Factsheet by the Land Transport Authority (LTA) & SPAD: Highlights of the Kuala Lumpur-Singapore High Speed Rail Bilateral Agreement. Von abgerufen
LTA and MyHSR. (05. July 2017). LTA Pressroom.
Malaysia’s 1MDB sells power assets to China firm for $2.3 billion. Reuters. (23. November 2015).
Exclusive: China’s Belt and Road acquisitions surge despite outbound capital crackdown.Reuters. (2016. August 2017).
KL-Singapore HSR assets firm tender may draw up to 10 bids. The Edge Communications Sdn. Bhd. . (20. June 2017).
