Written by Carmelo Ferlito, CEO of Center for Market Education

First published in Asia Times on 11 January 2021

Mega-projects have always played an important role in the Malaysian economy, but the difficulties created by Covid-19 and the restrictions imposed in an effort to slow the contagion have slowed down their pace and their positive impact.

The most unfortunate recent victim has been the high-speed rail (HSR) project aimed at connecting Kuala Lumpur and Singapore in just 90 minutes. In particular, differences over the choice of one of the external contractors pushed Singapore to scrap the project, forcing Malaysia to deal with the need for compensation.

The two countries have now officially abandoned the project, but I believe it is in Malaysia’s interest to keep it alive, while rethinking its scope and how to finance it. In fact, this moment of difficulty could present the chance to imagine the future of the transportation system in Malaysia not only for passengers, but for cargo too.

For reasons of both economic and environmental sustainability, Malaysia needs to rethink its entire north-south connection and move people and goods traffic from roads to trains.

Malaysia could implement a successful north-south high-speed rail for both passengers and cargo (with all the due differences), creating opportunities for economic development and at the same time reducing the environmental impact created by cars, buses and trucks.

The project should therefore shift its focus from the Kuala Lumpur-Singapore connection to the entire Penang-KL-Johor Bahru line, including other main hubs and creating a point of contact for an east-west connection.

This is an ambitious target, but if successful it would surely develop further to include not only Singapore in the south but also Thailand in the north, opening the doors for a modern and integrated logistics system for the entire region.

However, to be economically sustainable, the process cannot be funded by governments, and a sound and ambitious development pace cannot be maintained exclusively with publicly funded initiatives.

In several recent works, Peter Newman, professor of sustainability at Curtin University in Perth, Australia, has proposed the so-called Entrepreneur Rail Model, which seems the way to follow for future infrastructure development without stressing public purses. It is a model of development fully funded with private capital, while government’s role would be to ensure land acquisition and the definition of the regulatory framework.

According to Newman, the Entrepreneur Rail Model (ERM) can be defined as a proposal developed to plan and deliver rail infrastructure on commercial principles, funded by land development and built, owned, operated and financed by the private sector; it is based around the notion of land value creation.

Being an approach based on the discovery of new markets for rails and development, it cannot be implemented by the government but it needs private enterprises responsive to market signals. The approach requires a shift in focus from revenues via taxation to value creation.

In the traditional approach, the first step in designing rail infrastructures is usually to predict the number of potential users based on the current land use. Under ERM, instead, candidates for developing the project would need to provide an estimate of private capital to be contributed by combining land redevelopment potential and patronage potential for capital and ongoing costs; only then should they produce transit numbers and detailed routes and regeneration plans.

The big difference is that, with the new approach, entrepreneurs would need to exercise their essential function of imagining the future and to develop a project accordingly, while traditional rail development done by governments is based on current conditions. Such an entrepreneurial action is necessary in order to produce the necessary financing.

Currently, under the “welfare state” model of developing infrastructures, land investors or developers come in later and take windfall profit from the land around stations – a sort of transfer of wealth from ordinary taxpayers to a fortunate few landowners.

By contrast, in the Entrepreneur Rail Model the development activity can be – and should be – an integral part of the project from the very beginning. This would introduce also a difference in the way in which cities and urban spaces are conceived, from being the expression of centrally planned activities to becoming the result of urban land value creation shaped by entrepreneurial creativity within the market process.

The role of government remains crucial for land acquisition and the regulatory framework, that goes without saying. The bidding process, for example, could be coordinated by those agencies that are now in charge of developing – with poor results – affordable home projects. In this way, the process would ensure the achievement of public goals while at the same time granting the necessary profitability to attract investors into the project.

The ERM could help Malaysia reshape its urban and extra-urban transportation landscape, creating also opportunities for development in areas that are currently underdeveloped. Furthermore, it could push Malaysia toward a more sustainable transport system, creating profit opportunities and without harming the government’s purse.

The current crisis over the HSR project could become a great opportunity to design the future of Malaysian transportation while at the same time reshaping urban development methods.