Multiple transportation projects planned up to 2020 in Malaysia

The 11th Malaysia Plan (11MP) lays out the government’s latest five-year development strategy, covering the period 2016-20. It is also the final five-year plan leading up to Wawasan 2020, the year by which the government’s vision to make Malaysia a high-income, knowledge-based economy is meant to be realised. For this seminal five-year period, the plan lays out initiatives for the transport sector including the construction of a seamless transportation system and facilitating enhanced mobility for citizens and visitors. The latter involves ensuring that 40% of transport in the Greater Kuala Lumpur-Klang Valley region is composed of public options. In the country’s other state capitals the target is 20%.

In addition to boosting intercity public transportation, the 11MP also aims to strengthen connectivity in rural and rural-urban areas by improving bus, rail and air transport options. With exports also playing an increasingly important role in economic growth, the ability to move cargo in to, out of, and around the country in a straightforward manner is key for the logistics industry to grow. The 11MP is striving for an 8.5% annual growth rate for the transport and storage subsector by 2020, as well as a top-10 ranking in the World Bank’s Logistics Performance Index.

Focus Areas

These initiatives are laid out as two “focus areas” in the 11MP. The first focus area, titled “Building an integrated need-based transport system,” includes four strategies. The first of these strategies involves enhancing connectivity across transport modes, with the following three covering improved safety, efficiency and service levels; expanded port capacity, access and operations; and strengthened regulatory and institutional frameworks for the transport industry.

The strategies covered by the second focus area, titled “Unleashing growth of logistics and enhancing trade facilitation”, include implementing a national logistics task force; strengthening institutional and regulatory frameworks; enhancing mechanisms for trade facilitation; fostering efficiency and capacity in freight infrastructure; applying technology to the logistics chain; and reinforcing logistics service providers’ capabilities via training and accreditation.

Projects

One of the most significant projects associated with these strategies includes a plan to develop the rural highways in order to achieve balanced economic development across the country. This will involve continuing work on the Central Spine Road in central Malaysia, the Kota Bharu-Kuala Krai Highway in the north-east, the East Coast Expressway in Peninsular Malaysia, the West Coast Expressway and the Pan Borneo Highway, linking Sabah, Brunei Darussalam and Sarawak in East Malaysia.

Transport projects focused on improving options in urban areas include the Klang Valley Mass Rapid Transit (KVMRT) system. Phase one of KVMRT’s first line, from Sungai Buloh to Semantan, will be operational by the end of 2016. When the second phase is completed in mid-2017, the 51-km line will stop at 31 stations and serve about 400,000 passengers per day.

In addition, a proposed second rail link crossing the Straits of Johor, the Johor Bahru-Singapore Rapid Transit System (RTS Link), will relieve traffic pressure on the Johor Causeway – over which 100,000 vehicles travel per day – and function as a station-to-station connection with integrated Customs and immigration. In February 2016 the Ministry of Transport confirmed that Bukit Chagar would be the Malaysian terminus for the RTS Link. Phase two of a joint engineering study, expected to take two years, will now begin. The link is expected to be operational by 2018.

Congestion, Safety & Expense

Even when the KVMRT system is fully operational there are still the issues of the last mile. This is the term used to describe the final (or initial) part of a journey that may not be covered by the major mode of transport – in this case, rail. If stations are not located close to residential and business areas, commuters may decide to opt to drive private cars rather than use public transport.

The secretary-general of the Federation of Malaysian Consumers Association, Paul Selvaraj, addressed such a shortfall in the Klang Valley’s bus system, which he blames for the public’s excessive car-buying behaviour. “The light rail transit (LRT) is good, but the bus systems are bad, and that is the main public transport people would depend on,” Selvaraj told local press. “If the service is not focused on, people would still rather buy their own cars, which are more expensive.”

Transport Costs

People living in Kuala Lumpur and other urban areas in Malaysia spend almost 10% of their total expenditure on transportation, according to the World Bank’s “Malaysia Economic Monitor” June 2015 report. Yet because the report did not take into account the effects of the December 2014 removal of fuel subsidies, the up-to-100% rise in toll fares on 18 expressways in October 2015 or the depreciating ringgit, the actual transportation costs for urban Malaysians is likely now higher than 10%.

The World Bank report cited statistics from the Ministry of Works’ Highway Planning Unit showing that 38% of federal roads in Peninsular Malaysia are either severely or extremely congested. Many of these roads also provide radial access into city centres, further backing up traffic into and out of urban areas. Such traffic congestion costs between RM12.7bn ($3.1bn) and RM24.7bn ($6.1bn) per year, or 1.1% to 2.2% of Malaysia’s GDP, the report estimated. “Malaysia today is among the countries in the world with the highest incidence of private vehicle ownership,” the report said. “While the total population grew by about 10% to 28.3m between 2005 and 2010, the number of registered private cars increased by over 40% over the same period.”

The high number of cars also contributes to the high road accident rate. In 2015 Malaysia had 361,408 road accidents. A total of 4,940 of these resulted in fatalities, 60% of which were motorcyclists, according to comments from the minister of transport, Liow Tiong Lai. Despite this, safety is not high on automobile purchasers’ list of priorities. “Before the ASEAN New Car Assessment Programme by MIROS, partly due to the lack of any objective safety information systematically made available to the public across ASEAN, safety was not among the main priorities in choosing a car,” Wong Shaw Voon, director-general of the Malaysian Institute of Road Safety Research and ASEAN Road Safety Centre, told OBG.

Budget 2016

In October 2015 Prime Minister Najib Razak announced the federal government’s annual budget allocations would include RM40bn ($9.9bn) for upgrading the country’s public transport infrastructure. The spending was aimed at extending the Bus Rapid Transit (BRT), LRT and KVMRT systems. In addition, a RM900m ($222.8m) public-private partnership for a traffic dispersal system was proposed for Kuala Lumpur’s Jalan Tun Razak, a highly congested main thoroughfare.

The KVMRT project’s MRT2 – known as the SSP Line because stations include Sungai Buloh, Serdang and Putrajaya – had a RM28bn ($6.9bn) price tag. Construction on MRT2 is expected to start in the second quarter of 2016, with a completion date of 2022. MRT1 – known as the SBK line because stations include Sungai and Buloh-Kajang – has been under construction since 2012 and will commence operations in mid-2017. Spending on LRT3 – the Bandar Utama-Klang Line – was estimated to equal RM10bn ($2.5bn), with a construction-to-operation period from 2016-20. Finally, the BRT Kuala Lumpur-Klang was set to be extended at a cost of at least RM1.5bn ($371.3m), while expansions to Sabah’s BRT Kota Kinabalu were going to total nearly RM1bn ($247.5m).

Recalibration

However, just over two months after the 2016 budget was tabled, the prime minister announced a “recalibration” of the budget in light of continued declines in oil and gas prices, which were at $48 per barrel when the original budget was drawn up – revenue on which much of the budget was based. When prices dropped to $32 a barrel in January 2016 the government made public the recalibration, which resulted in saving RM9bn ($2.2bn) in operating and development expenditure.

What percentage of the savings is set to be derived from suspending transport-related projects was not immediately disclosed by the government, but Prime Minister Najib said that spending priorities had been readjusted to focus on projects that are “rakyat-centric” (people-centric) as well as those that have “a high multiplier effect and low import content”. This narrowing of focus was expected to reduce cash-flow commitments by RM5bn ($1.2bn).

Among the priority projects are roads and public transportation, hospitals, schools, affordable housing and security. Prime Minister Najib reassured the public that implementation of major transportation projects, such as the KVMRT, LRT, Pan-Borneo Highway and Kuala Lumpur–Singapore High-Speed Rail, would continue. However, any “non-physical projects” and projects still in the development and planning stage would be postponed until further notice, potentially delaying some transport projects and adding uncertainty to the investment climate.

Penang Bridge

The Sultan Abdul Halim Muadzam Shah Bridge – Penang’s second bridge – opened in 2014 after a six-year construction period and a cost of RM4.5bn ($1.1bn). Measuring 24 km in length, it connects Batu Maung on Penang Island to Batu Kawan on the mainland. Not only is it South-east Asia’s longest bridge, it’s also an award-winning example of bridge building. In addition to reducing traffic congestion by 25%, the second bridge to Penang has brought economic development to the newly linked areas of the region’s industrial powerhouse.

“Penang’s second bridge has not only reduced congestion on the first bridge but has also triggered development in Batu Kawan and mainland Penang’s southern part,” Ismail Mohamed Taib, managing-director at Jambatan Kedua, told OBG, COMPETITION IN THE AIR: Malaysia’s domestic aviation market will also see faster growth in 2016 than it did in 2015, when it grew by only 2% – the slowest growth rate since 2006, according to aviation-sector industry group CAPA. This growth will be aided by AirAsia’s regional expansion, which has more than doubled the size of the domestic market since 2003.

Meanwhile, competition in the domestic market may increase in the coming years as Malaysia Airlines, AirAsia and Malindo Air are joined by newcomer Rayani Air, a low-cost, Islamic-compliant airline in competition for the region’s congested domestic trunk routes. However, in April 2016 Rayani Air’s operations were suspended for three months by the Department of Civil Aviation after the airline did not meet certain legal requirements. Additionally, in March 2015 a planned government-owned low-cost regional airline, flymojo, was announced, although commencement of operations is not yet known.

Hitting The Reset Button

If 2014 was a black year for Malaysia Airlines, 2016 is set to mark a “step change” for the company, according to its outgoing CEO, Christoph Mueller. Mueller has overseen a substantial restructuring of the national carrier in the wake of the 2014 MH370 and MH17 disasters. In 2014 Malaysia Airlines’ majority owner, the Malaysian state fund Khazanah Nasional Berhad, took the carrier private at RM0.27 ($0.07) per share as part of a three-year, RM6bn ($1.5bn) plan aimed at returning it to profit. “We are technically bankrupt,” Mueller said at a June 2015 news conference. “The decline of performance started long before the tragic events of 2014.”

Malaysian Airlines had already suffered years of losses due to increasingly tough regional competition from competitors AirAsia and Malindo. The combination of these losses with the two aviation disasters made it necessary for the company to restructure. It subsequently laid off a third of its employees, ceded some of its long-haul international routes to Emirates, performed route rationalisation by cutting loss-making routes and reviewed its long-haul fleet.

As part of the restructuring, Malaysia Airlines became a new entity on September 1, 2015 when holding company Malaysian Airline System (MAS) changed to Malaysia Airlines as part of a five-year recovery plan. Since then, it has introduced product improvements such as new cabin seating, improved in-flight entertainment, and better customer service and on-time performance.

In 2017 the fleet will be significantly enhanced by new Airbus A350s. MAS was able to renegotiate its supplier contracts thanks to the MAS Act – a controversial bankruptcy protection act passed by lawmakers expressly for MAS in late 2014. The act gave MAS the freedom to cancel aircraft leases and renegotiate supply contracts without being sued for breach of contract. It’s been shaky so far, but a recovery of sorts has begun. In January 2016 Mueller told local press that “the patient has left the emergency room. We have stabilised the patient but he is still not able to walk alone without help”.

The next steps for 2016 include a brand refresh, transitioning to an unbundled pricing platform in which short-haul, lower-fare passengers might be required to pay surcharges for food and luggage, and denying lounge access to lower-fare business-class passengers. Additional upcoming aviation-sector improvements during the 11MP include upgrades to the safety and connectivity of the country’s rural air services, and improvements to short take-off and landing airstrips. Rural air services provide transport connectivity in East Malaysia, which is essential for economic growth and development because ground transit is made difficult by Borneo’s terrain.

Moving Cargo

In 2014, 98.5% of Malaysia’s cargo volume throughput was by sea, according to the Economic Planning Unit (EPU). Port Klang handled 40% of sea cargo throughput by volume, moving 200.3m tonnes, of which 63% was container trans-shipment. According to the Journal of Commerce, in 2014 Port Klang was the world’s 12th-busiest port, with a twenty-foot equivalent unit (TEU) volume of 10.95m, up 5.8% from 10.35m in 2013. On the Straits of Johor, the Tanjung Pelepas Port – Malaysia’s second-largest container port after Port Klang – was ranked 19th in 2014, with a TEU volume of 8.5m.

The small percentage of Malaysia’s cargo volume not handled by sea is transported by rail, air and land. Most rail cargo comes from Southern Thailand and is exported through Port Klang and Penang Port, via Padang Besar Terminal. For air cargo, Kuala Lumpur International Airport handled 77% of volume, while Penang Airport transported 12%. In terms of land transport, there were more than 1m goods vehicles on the road in 2014. Of this number, 65% were small commercial vehicles carrying less than five tonnes.

Logistics

A properly functioning logistics sector buoys all economic sectors by lowering business costs, expediting trade and boosting economic productivity and efficiency. Although Malaysia’s logistics sector generally operates very well, improvements can be made, especially if the country wants to extend its logistics reach regionally.

With this in mind, the EPU’s Logistics and Trade Facilitation Masterplan 2015-20 – the main tenets of which are included in the 11MP – lays out the government’s plan to bring Malaysia’s role in the region’s logistics industry to the forefront. Indeed, the EPU’s plan envisions Malaysia becoming the preferred logistics gateway to Asia and a key logistics link in the ASEAN region. The country’s strategic location, strong supply chain linkages and comprehensive transport services all play in its favour. In three phases, five strategic shifts and 21 action items, the plan tackles issues such as bottlenecks, domestic growth and regional expansion. If the plan is successfully implemented, the EPU forecasts the transport and storage subsector’s GDP contribution will grow from 3.6% in 2013 to 4.3% in 2020, equal to RM22.2bn ($5.5bn). The EPU also projects cargo volume will increase 8% annually to reach 880m tonnes in 2020, and an estimated 146,000 new jobs will be created.

Integrating & Consolidating Ports

Over the period from 2011-14, Malaysia’s ports saw combined container traffic rise from 20.1m TEUs to 22.7m TEUs, according to recent World Bank data. The country’s main container ports include Port Klang, the Port of Tanjung Pelepas, Penang Port, Johor Port, Kuantan Port, Sepanggar Port and Kuching Port.

Malaysia’s relatively minor increases in container traffic also extend to its bulk volumes. To give this sector a boost, in 2015 the government commissioned the World Bank to conduct a study to determine how to better promote trade competitiveness, strengthen transport efficiency and integrate Peninsular Malaysia’s port policy with that of East Malaysia.

The $1.1m study, which is due to be completed in the first half of 2016, will eventually form the basis of the country’s National Port Strategy. In particular, the study is expected to examine how to better align the states’ roles with federal port policy. The study will also look at a diverse array of funding mechanisms and regulatory models for port development and make recommendations on a framework for assessing port-development goals.

Meanwhile, Malaysia’s ports are undergoing a consolidation of sorts, with one company, MMC, set to secure its role as a key player in every major container port on Peninsular Malaysia’s west coast. MMC’s diversified utilities and infrastructure group includes core business segments in ports and logistics, as well as energy, utilities, engineering and construction. In October 2015 MMC acquired a majority stake of 53.4% in NCB Holdings, a maritime terminal group, for more than $258m. Operating out of Port Klang and wholly owned by NCB, Northport is a major import and export container gateway. This marks the latest edition to MMC’s expanding portfolio of Peninsular Malaysia’s ports, which includes a 100% stake in Johor Port and a 70% stake in the Port of Tanjung Pelepas.

Westports Malaysia, which also operates out of Port Klang on the Straits of Malacca, is expecting increased growth of trans-shipment cargo from April 2017 onwards. A new consortium formed by some of the world’s biggest container operators in April 2016 – OCEAN alliance – will be a key customer for West-ports, which should bode well for the port in its transport of cargo from Asia to Europe. In East Malaysia, a federal government allocation of RM360m ($89.1m) is funding a dredging project on the Sarawak River that should create better access for larger vessels to berth at Kuching Port. The depth of the Sarawak River will increase from approximately 4-7m to 12-14m when the dredging is completed. The project will be implemented in stages, with RM50m ($12.4m) earmarked for 2016. “I can foresee that Kuching Port will be a greater international port in the future, with more shipping activities,” Liow said in February 2016.

Outlook

Many issues are at stake in the transport sector in 2016. As the government attempts to strike the right balance between public and private transport options for an automobile-hungry population that is also growing weary of traffic jams, it is also looking to boost its logistics sector and rebuild Malaysian Airlines. With the ringgit and oil prices in decline, a new goods and services tax in place and the ending of fuel subsidies, consumers, businesses and government officials alike are having to make difficult choices about where and when to allocate resources.

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The Report: Malaysia 2016

Transport chapter from The Report: Malaysia 2016