Did a Belt and Road project in Malaysia just crash and burn?
Termination of agreement to build Melaka Gateway could mean the end for US$10.5 billion development.
Project’s suspension comes after years of neglect by administrations of Najib Razak and Mahathir Mohamad.
Published: 9:15pm, 17 Nov, 2020
The government of the Malaysian state of Melaka has terminated an agreement with the main developer of a Belt and Road Initiative infrastructure project after years of delays, raising questions about its future and the Malaysian government’s commitment to other projects under the strategy.
The Melaka Chief Minister’s Office said in a statement that the agreement with KAJ Development on the Melaka Gateway mixed development had been ended after the developer failed to complete the 246.45-hectare maritime initiative, which it signed on to in October 2017 and was meant to include port facilities, economic parks and tourist attractions on three artificially constructed islands.
“The company is also required to return the project site, effective upon the termination notice issued by the state government,” said the statement on the 43 billion ringgit (US$10.5 billion) project, which saw KAJ Development working with three Chinese companies, including state-owned Chinese energy firm PowerChina – the main financial backer.
P PREM KUMAR, Nikkei staff writer
December 3, 2020 17:40 JST
MALACCA — On a vast artificial island off the coast of Malaysia where a $10.5 billion development has been taking shape, barricades bar entry to all but a select few private vehicles.
Inside the perimeter of the Melaka Gateway project, reclamation works are underway to complete a modern cruise terminal for extra-large ships. Other land allotted for a ferry terminal, commercial and property developments has been reclaimed from the Straits of Malacca, one of the world’s most important seaways.
Mounds upon mounds of sand are scattered across the island. Further away, another land reclamation project is taking place for a second island. The entire project was expected to be completed in 10 years.
Any signs of progress, however, have not been enough to satisfy the state government of Malacca — a tourism hub less than 90 minutes by road from the center of Malaysia’s capital Kuala Lumpur.
In late November authorities canceled the land reclamation contract awarded to KAJ Development after four years of “no development,” leaving doubts as to how long it might be before the hoped-for stream of ships and commercial traffic shows up.
Local media Utusan Malaysia quoted Malaccan Chief Minister Sulaiman Ali as saying the Melaka Gateway project will not be abandoned but will be taken over by a new developer. “The development will continue, but we have some technical issues that we need to fix,” he was quoted as saying.
For the Malaysian developer of the harbor project, the decision makes no sense as they contemplate legal action against the state.
“We are left with no choice. Our project is canceled after we spent millions of our own resources to conduct various environmental studies and pay licensing fees,” said Michelle Ong, chief executive of KAJ.
Ong, 61, who spoke to Nikkei Asia from the land reclamation site, said her company of over three decades had to sell other assets for the initial funding of the project. “We have been doing government contracts for a long time, and along the way we built up our financial strength.”
For many, the furor over the roughly 246-hectare Melaka Gateway is a sign of how developments involving China have been under intense scrutiny in Malaysia.
The massive project was awarded to KAJ, a Malaysian-registered and -owned developer, in 2016 during the administration of former Prime Minister Najib Razak. The following year, the company roped in Chinese companies PowerChina International Group, Shenzhen Yantian Port Group and Rizhao Port Group to develop the project jointly. PowerChina is an entity of China’s state-owned State Power Investment.
Although it was purely a private project, speculation that it was part of Beijing’s rising investment in the country — in line with Chinese President Xi Jinping’s Belt and Road Initiative — raised eyebrows within the Mahathir Mohamad administration after it came to power in May 2018.
Mahathir has been a vocal opponent of Chinese influence, labeling it “modern-day colonization.” Besides Melaka Gateway, a comprehensive review was made which resulted in the cancellation of the $16.2 billion East Coast Rail Link and two gas pipelines worth $2.3 billion that were awarded to the China Petroleum Pipeline Bureau. The rail project was later allowed to continue after the cost was cut by $5.3 billion.
Mahathir’s government revoked KAJ’s port operating license during the review. But after a judicial submission by the developer seeking damages totaling billions of ringgit, the license was reinstated after seven months.
Media reports suggest that besides the involvement of Chinese parties, another sore point for Mahathir was the proximity of the Melaka Gateway to existing Northport and Westports — two primary port operators in central Malaysia.