The government announced yesterday that it will shelve a controversial RM14.5 billion rail project, one of Asia's biggest infrastructure deals, to focus on more needy development schemes and trim a serious budget deficit.

The final decision was taken during yesterday's weekly cabinet meeting, Prime Minister Abdullah Ahmad Badawi said in a statement to Bernama news agency.

The government is committed to spending RM160 billion under the Eighth Malaysia Plan from 2001-2005 but it is mindful of the need to be prudent to ensure sustained economic development and a balanced budget, said Abdullah, who is also finance minister.

Despite the benefits of upgrading and developing Malaysia's rail system to meet future logistical needs, priority has to be given to development projects with significant direct impact to improve the people's quality of life, he said.

"In view of this and although Malaysia's reserves as at Nov 28, 2003 stand at an all time high of US$44 billion , the cabinet has decided to postpone the double-tracking project," the premier added.

The statement said the cabinet recognised the letter of award to the local consortium comprising infrastructure group Malaysia Mining Corp (MMC) and Gamuda Bhd but did not elaborate.

Budget deficit

The decision came as no surprise as Abdullah last week said the cabinet strongly felt the project should be postponed because the country faced a towering budget deficit and the focus should be on projects already committed under the five-year plan.

The project involves laying a dual track and electrifing the main rail line straddling the length of peninsula Malaysia, which forms part of an ambitious 5,600-kilometre trans-Asia link. It ran into controversy recently when Malaysia dropped a consortium of Indian and Chinese contractors in favour of the politically well-connected local group.

State-owned Indian Railway Construction Co (Ircon) and China Railway Engineering Corp (Crec) had been awarded letters of intent for the deal but just days before former premier Dr Mahathir Mohamad retired on Oct 31, the government said their RM24 billion bid was too high.

The job was then handed to the MMC-Gamuda consortium for RM14.50 billion.

The move prompted concerns that relations with China and India would be affected and worries the two countries would cut their purchase of Malaysian palm oil in retaliation.

It was also seen as an early test for Abdullah on the way the government conducts business.

As in many previous huge projects, the deal was awarded to Gamuda-MMC without a competitive bidding process, raising questions about government transparency and the traditional linkage between business and politics, analysts said.

MMC is the flagship of prominent tycoon Syed Mokhtar Albukhary, a close ally of Mahathir who has amassed a wide array of businesses ranging from ports, power and plantations to manufacturing, health care and tourism. - AFP