Mahathir's statement about the cancellation of HSR marks the end of the HSR deal between Singapore, KL.

Looking Beyond the HSR: Considering Contractual Damages, a Potential Diplomatic Pivot, and GST

by Remy Choo Zheng Xi

The Mahathir Government’s decision to scrap the High-Speed Rail (HSR) with Singapore is disappointing, but hardly unexpected.

It was never clear how the economics of the HSR were supposed to make sense: the construction cost of the HSR was estimated at USD$14 – 16 billion, while the benefits said to accrue to both countries’ Gross Domestic Product (GDP) was projected to contribute a mere RM21 billion (S$6.7 billion) by the year 2060.

The symbolic power of a modern umbilical cord connecting two countries separated at birth cannot be gainsaid, but it would be difficult to fault the Malaysian Government for prioritizing present economic imperatives before sentimentality. The imperative to cut costs and raise revenue is particularly acute given Pakatan Harapan (PH)’s commitment to zero-rating Goods & Service Tax (GST).

What next? Teams of lawyers will be poring over the 13 December 2016 bilateral HSR agreement to review the dispute mechanism clause as well as the liquidated damages clause to try to ascertain how much in damages Malaysia will have to pay for the termination of the HSR agreement (preliminary figures suggest RM500 million).

Subject to issues of mitigation of damages, Singapore would likely be well within its strict legal rights to insist on the highest quantum of damages ascertainable. Singapore has stood firm on our strict legal rights internationally especially when these concern matters implicating our sovereignty, be it on Pedra Branca or wrt our water agreement with Malaysia.

However, in addition to working out the cost of Malaysia’s HSR agreement breach, it is worthwhile giving equal weight to the diplomatic value of working out an exit to the HSR that could be a win-win for both countries, one that isn’t solely wedded to strictly insisting on the full measure of damages under the HSR agreement.

There is room to think creatively about how Malaysia can work with Singapore in lieu of the HSR to develop infrastructure in Jurong where the 12 ha HSR terminus was supposed to be.

The shorter Rapid Transport System (RTS) Link between JB and Singapore is still in force and is likely to go ahead and launch in 2024. Could a creative re-negotiation of the terms of the RTS Link be worked out in a quid pro quo for Malaysia’s breach of the HSR agreement?

There are many positive structural examples of Singapore-Malaysia co-operation. The Duo Singapore, built on prime land in our CBD, stands physical testament to what a win-win project looks like.

While holding the line on our strict legal rights is important, it’s sometimes more meaningful to consider legal rights against the broader backdrop of relationships: how they work, and how they break down.

Finally, on the domestic front, a possible silver lining. About S$3 billion has been set aside for the RTS Link and the HSR project in the Ministry of Transport’s FY18 budget, and significant amounts would have been earmarked for projected future spending until the HSR’s projected completion in 2026. A significant part of those costs now no longer need to be incurred.

This might be an appropriate juncture to ask: to what extent can costs savings on the HSR obviate the need for the 2% GST hike which was planned to take place sometime in 2021?

While the new Malaysian Government looks to cut costs to, in part, finance a reduction of the tax burden on its citizenry, how should Singapore re-deploy our costs savings from the scrapped HSR?

This article was first published on Remy Choo’s Facebook page and reproduced with permission