Barjoyai Bardai of Universiti Tun Abdul Razak said the Chinese government would understand the new government’s decision to suspend work on the project to renegotiate contract terms.

He doubted that the freeze would affect foreign investor confidence. There would be cause for concern only if projects were cancelled without proper justification, he said. Investors would then lose confidence in the government’s willingness to honour contracts.

Barjoyai said payments under the ECRL contract were made according to a schedule rather than by performance milestones.

“So you may have a situation where the payment made doesn’t reflect the progress of the project,” he said, adding a 15% upfront fee also had to be paid by the government.

Another analyst, Ngeow Chow Bing of the Institute of China Studies at Universiti Malaya, said he understood the disappointment of the main contractor, state-owned China Communications Construction Company, about the suspension of the project.

However China must also understand why the new government wanted to renegotiate terms, he said. “China, in good faith, should be open to renegotiating the contract.”

China should take into account the new government’s intention to continue the excellent China-Malaysia ties.

The project was ordered to be suspended after the Finance Minister, Lim Guan Eng, said the total cost would reach RM81 billion, instead of RM55 billion as stated by the previous government.

The amount needed to be reduced significantly for the project to be financially viable, he said.

Lim had also previously questioned the payment of a large amount in fees even though the project had made little physical progress.

The project had also recently given rise to allegations of cronyism after news broke of a substantial purchase of shares in a contractor company, bought by Berjaya Corporation Bhd executive chairman Vincent Tan, who is known to be close to Prime Minister Dr Mahathir Mohamad.

News of Tan’s purchase came after the government said the project would be reviewed, after having announced that the project would be cancelled. Tan said he was not aware that the company, T7 Global, was an ECRL contractor. He said he had since sold his shares.

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