The government has decided to "postpone indefinitely" a controversial multi-billion ringgit rail project, the Edge Daily financial newspaper reported today.

The newspaper's online edition quoted unnamed government sources as saying the decision to shelve the plan was taken at today's cabinet meeting and was driven by "priority of needs" and affordability.

The project, which forms part of an ambitious 5,600-kilometre trans-Asia link, ran into controversy recently when Malaysia dropped a consortium of Indian and Chinese contractors in favour of a 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 RM42 billion bid was too high.

The job was then handed to local infrastructure group Malaysia Mining Corp. (MMC) and its partner Gamuda Bhd. for RM14.45 billion.

Low in priority

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.

"After reviewing the matter, it was felt that going ahead with a project that will require such a large sum of money was not a priority of the moment," the Edge Daily quoted a government source as saying.

"We want to focus on going ahead with other more needy development projects as approved under the eighth Malaysia Plan."

The newspaper said it was unlikely that the project would be revived in the near future as the government of new Prime Minister Abdullah Ahmad Badawi is giving priority to more urgent development projects while trying to balance its budget as soon as possible. - AFP