A controversial multi-billion-dollar rail deal appears to have been shunted into a siding as steam rises in Malaysia, China and India over a contract seen as a policy test for new Prime Minister Abdullah Ahmad Badawi

One of Asia's biggest infrastructure contracts, the double-tracking rail project forms part of an ambitious 5,600-kilometre trans-Asia link that runs from Kunming in China through Vietnam, Cambodia, Myanmar, Thailand and Malaysia to Singapore.

It involves building a dual track and electrifying a 600-kilometre (372-mile) north-south rail line straddling the length of peninsula Malaysia.

The project was originally promised to state-owned Indian Railway Construction Co. (Ircon) and China Railway under a government-to-government deal involving a barter trade of some eight million tonnes of palm oil worth RM12 billion (US$3.16 billion).

But Malaysia dropped the Indian and Chinese contractors despite signing letters of intent last year, citing overpriced bids of RM42 billion, which were later reduced to RM24 billion.

Indian protest

The job was handed instead to politically well-connected infrastructure group Malaysia Mining Corp. (MMC) and its partner Gamuda Bhd. for RM14.45 billion, just days before former premier Dr Mahathir Mohamad retired on October 31.

Beijing has stayed silent so far but India has reportedly lodged a protest through its high commission here.

"India has not been formally notified about the contracts being reassigned to Malaysian companies," an Indian commerce official in New Delhi told AFP .

Both Ircon and China Railway have rejected offers by the local consortium to participate in the project as sub-contractors, and Malaysia's Primary Industry Minister Dr Lim Keng Yaik said he feared the two countries may cut palm oil imports in retaliation.

Analysts say the row is shaping up as a policy 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, said P Ramasamy (left), political analyst at a local university.

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.

"It is indeed a policy test for Abdullah and will signal how he conducts his future economic affairs. He wants to end corruption and has promised to be transparent but the jury is out on whether he can make a clean break from some of the past unpopular policies," Ramasamy told AFP.

Blow to Malaysia

The opposition Democratic Action Party (DAP) chairperson, Lim Kit Siang, said the row was a blow to Malaysia's reputation in regard to transparency and integrity, and its handling of international relations.

He urged Abdullah, who has promised a "clean and incorruptible" government, to reopen bidding for the project to ensure fair play, competitive pricing and transparency.

Abdullah, who is also finance minister, has said there were no plans to review the award of the project but indicated last week that things may change if negotiations with Gamuda-MMC on the terms of the contract fell through.

"The letter of award has already been given but we still have to negotiate on the agreement in detail and that will take some time, naturally. Everything will have to depend on whether they can have an agreement or not," he said.

Some analysts have raised concerns about Gamuda-MMC's ability to handle the project. Both firms have said they would be liable for any delays or cost overruns, and denied having bailout clauses in their contracts. - AFP