Cracks appear in Malaysia’s building spree, once a model for development

Elections have consequences, and in Malaysia’s case, apparently big ones. Malaysia’s new prime minister is 93-year-old Mahathir Mohamad, who led the country from 1981 to 2003.  Deciding factors in his victory were Mahathir’s persistent criticism of the costs of some big projects, and charges of corruption in how a number of such projects were financed from 1Malaysia Development Berhad (1MDB), a national infrastructure investment fund that Najib started and supervised.

Within eight weeks of taking office, Mahathir took a red pen to most of the really expensive projects, cancelling a 40-kilometer (25-mile), 26-station, $11.25 billion metro rail  line in Kuala Lumpur, and suspending two big rail projects. One is the 350-kilometer (220-mile) high-speed rail line between Kuala Lumpur and Singapore, citing costs he said would reach $27 billion. The principal contractor for the line was scheduled to be named in the fall.

These decisions imperil the development of Bandar Malaysia, a 190-hectare (468-acre) mixed use $40 billion real-estate project planned for a shuttered military air base and centered around Kuala Lumpur’s high-speed rail terminal. Bandar Malaysia was one of the principal projects promoted by 1MDB.

The other is the 688-kilometer (428-mile), $14 billion passenger and freight train line between Kuala Lumpur’s port on Malaysia’s west coast, across the center of the peninsula, and north along the east coast to Pengkalan. The Chinese-financed and constructed rail project is connected to the tide of capital flowing to Malaysia from China’s Belt and Road Initiative, a $1 trillion project to build new trade and commerce routes from Beijing and Shanghai to Europe, Africa and Southeast Asia.

Before the May 9 election, Malaysia was engaged in one of the most prodigious building sprees in its 61-year history, planning and constructing roads, rail lines, ports, housing and office buildings, energy systems, water supply and treatment infrastructure. Some of the largest transportation, manufacturing and real-estate projects in the world are under construction along Malaysia’s east and west coasts, its two Bornean states, and in its largest cities.

But as Malaysia churned toward its 30-year-old goal of becoming what Najib called “a top-20 nation,” the gale of construction and its cost pushed it to a new reckoning. Monumental public spending on infrastructure, a sizable portion connected to the alleged massive plunder of 1MDB funds, has produced signal consequences for the country’s political and financial stability. Malaysia’s national debt more than doubled under Najib’s administration, threatening its credit rating.

It also put at risk the safety of Malaysia’s globally significant tropical forests, rivers and marine ecosystems. Not since the Asian financial crisis of the late 1990s, which plunged Malaysia and other Southeast Asian nations into a deep recession that devalued currencies, has the country been so shaken.

In the spring, Mongabay was on the ground, at the front lines, to report on the mammoth infrastructure construction projects occurring against the backdrop of the national election. Our intent was to understand the dimensions of Malaysia’s contemporary makeover and the environmental consequences for a nation of 31 million people that ranks as Southeast Asia’s fourth-largest economy.

We discovered that while the concerns about the security of air, water and land are justified, Malaysia’s big investment in new operating equipment also produced unexpected economic gains, as well as considerable financial and political challenges.

Over the coming weeks, in this and five other reports, Mongabay will assess the development strategy in Malaysia’s 11 peninsular states, and its value or its flaws as a model for 21^st-century nation building. We did not visit the two states on the island of Borneo, where a big highway is being built and a Chinese-financed natural gas pipeline was just blocked.

As might be expected, Malaysia’s infrastructure development is a story evolving in many dimensions. In Kuala Lumpur, Malaysia is steadfastly realizing transportation and real-estate development goals it set over two decades ago to ensure that the capital is competitive with Shanghai, Hong Kong, Singapore and Jakarta as a principal center of international finance in Asia.

Much of it displays Malaysia’s interest in joining environmental performance with infrastructure investment.

Mongabay will examine Najib’s grand vision of connecting the capital region with fast, clean and convenient rail transport — and the ways in which this year’s elections may derail those plans.

In Kuala Lumpur, we look at the $1.3 billion River of Life project, one of the world’s largest river restoration attempts. Its target is the Klang River, which flows through Kuala Lumpur and essentially served as an open sewer. The multi-phase program, underway since 2012, fits wastewater treatment with stormwater management and diversions, trash and grease control, and urban park construction. Now 90 percent complete, the project is intended to make the Klang’s water clean enough for swimming and to lure shoreline development.

Our project also will report on how flooding, mudslides and other severe ecological disasters are challenging real-estate development and seabed reclamation on Penang Island, one of the country’s fastest-growing areas.

We look at Kuantan, where titanic industrial parks, a new port, the expensive East Coast Rail Link project, and mixed-use real-estate development are planned to serve China’s Belt and Road Initiative. Malaysians worry that China’s sphere of influence, which Citibank researchers estimate could amount to $100 billion in Malaysia alone over the next two decades, is too robust. Prime Minister Mahathir latched onto the issue as part of his winning election campaign.

And we will report on new construction practices and environmental challenges in Johor, Malaysia’s southernmost state, bordering Singapore, where a Chinese real-estate developer is building Forest City. The mammoth mixed-use project, constructed on artificial islands reclaimed from the sea, is the largest real-estate investment by a Chinese developer outside China. Its scale and land-acquisition practices, mimicking similarly enormous projects in China, also became an issue in the elections over concerns about the extent of Beijing’s influence in Malaysia.

This project comes during a socially raucous season, a time when political decisions are having significant economic outcomes. Events are moving fast. Mahathir launched audits and turned investigators loose to determine how 1MDB operated, where it invested sovereign funds, how much was allegedly stolen, and the extent of the losses. Among its investments was a big financial center that is under construction in Kuala Lumpur and appears on solid financial footing.  Another investment in a natural gas plant, and Chinese financial deals to pay off some of 1MDB’s debt, may have been diverted to personal accounts of 1MDB managers, including Najib. The former prime minister denies any wrongdoing.

Investigators dispatched by the new prime minister have recovered tens of millions of dollars in cash, jewelry and luxury goods from residences owned by Najib. In May, Mahathir barred Najib and his wife from leaving the country. Then, in early July, Najib was arrested and charged with theft and money laundering. He was released on bail and remains under investigation.

The 1MDB fund is insolvent and cannot pay its debts, Mahathir announced after the election. The new finance minister says the government will be held responsible for around $13 billion in liabilities. The losses pushed the national debt to $250 billion, the government said, and concerns over the debt have caused the stock market to fall 5 percent. Analysts in Asia said Malaysia’s financial crisis could erode the country’s international reputation for political and financial stability and weaken government programs, including for land conservation and environmental enforcement.

“The financial situation of the Malaysian government is more severe than previously thought,” wrote Kota Hirayama, an emerging market economist for SMBC Nikko Securities, a Japanese financial services group, in a May report.

“The government has been opaque,” added Steve McCoy, a sustainability consultant based in Kuala Lumpur.  “We don’t really know how bad things are.  We don’t know how they are paying for this stuff that’s been built.”

Since its independence from the British in 1957, Malaysia has amassed a record of economic development and resource conservation that is better than most, not only in Southeast Asia but also around the world.

In the span of two generations, and especially in the last eight years, devotion to economic expansion and income growth turned a developing tropical country into one of the most prosperous nations in Asia. The country was deliberate and persistent in gaining its contemporary global status.

Nearly from the moment it became a nation, Malaysian leaders embraced a planning strategy that set out development and social goals in successive five-year plans. Ever since, Malaysian leaders have agreed to increasingly sophisticated means to invest public and private funds, much of it from foreign financial institutions, for constructing the apparatus that makes it possible for a modern state to move, eat, work, bathe, trade and live. Since the 1990s, those plans have included clear environmental safeguards.

“Malaysia’s development experience is a rich source of solutions and lessons for developing countries in Asia and in other regions transitioning out of poverty,” wrote the authors of a World Bank report in 2016.

One of the priority lessons is Malaysia’s devotion to new civic equipment. Generations of national and regional leaders rejected the chronic underinvestment in transportation, water, ports, government facilities and the like that has characterized infrastructure spending in the United States and other democracies.

Another priority lesson is that Malaysia turned aside from the “growth at any cost” principle that wrecked land, water and air in China, India, the Philippines and so many other countries. A sizable share of the country’s considerable natural bounty is intact.

Malaysia measures its environmental achievements in a number of dimensions. According to government reports, Malaysia has safeguarded more than half of its forest cover and has promised to keep it that way in its commitments under the 2015 U.N. Climate Accord.  More than 22,000 square kilometers (8,500 square miles) of its territory are permanently protected as reserves or parks. Some 63 marine ecosystems have been secured in a network of sanctuaries that span almost 16,500 square kilometers (6,400 square miles). Air and water quality are improving, according to government assessments. Malaysia has done this while nearly eradicating absolute poverty, raising incomes and electrifying almost every home.

“Malaysia tends to look quite good from the outside. We have shiny nice veneer,” said Steve McCoy, the sustainability consultant. “But if you [scratch]the surface and look underneath, things are slightly different.”

Malaysia isn’t yet a showcase of environmental performance. Extensive areas of the land the government lists as “forest cover” are in fact highly degraded logged over forests, and even listed reserve forests are not always safe from conversion for industrial use. Considerable expanses of rainforest are falling for valuable hardwood timber and oil palm plantations. The country’s rivers are polluted by discharges of wastewater from treatment plants not required to install contemporary tertiary treatment systems. Half of its electrical generating capacity comes from coal-fired power plants, and the national energy department’s plan for developing renewable energy is weak. Rain washes red mud from thin tropical soils into the sea. Residential and industrial infrastructure projects on Malaysia’s coasts are making it difficult for fishing villages and sea turtles alike to survive.

Still, Peninsular Malaysia’s spine of forested mountains and uninterrupted marine shoreline are outstanding and beautiful.

They also are magnets for big new projects.

On a warm day in April, Yap Teck Sing, Spring Energy’s 34-year-old general manager, and the son of the company’s founder, led a reporter to the summit of Spring Energy’s quarry near Kuantan. A lawyer educated and trained in London, Yap returned home to harvest the opportunities afforded by Malaysia’s construction spree. But he’s conflicted and wary.

“People are being careful now. They are nervous,” he said. “A lot is going on. There’s money to be made. There also could be damage from construction that we haven’t had before.”

From a perch high above the quarry’s stone crushers and sorters, a sweep of coastal Pahang unfolded. Within easy eyesight, cast against the baby-blue waters of the South China Sea, was the $1 billion expansion of Kuantan’s existing port. The cost of the project is nearly evenly split between IJM, Malaysia’s second-largest construction company and the project’s prime contractor, and Guangxi Beibu Gulf International Port Group, a Chinese state-owned company.

Never before has Kuantan experienced such a full-moon tide of infrastructure activity. China, according to Citibank’s research arm, is spending almost $5 billion annually and preparing to spend over $100 billion over the next 20 years in Malaysia.

Yap describes the work Spring Energy is doing to construct the new port’s rock seawall and pave its loading docks and storage areas for a new terminal. The environmental consequences are negligible, he says, a view supported by the project’s environmental impact statement. Sand dredged to deepen the new harbor for world-class container and bulk cargo ships is being recycled for reclaimed space large enough for new docks and berths.

Turning north, Yap pointed in the distance to the colossal storage buildings and enormous steel mill under construction at the Malaysia-China Kuantan Industrial Park. The 12.3-square-kilometer (4.8-square-mile), $2 billion manufacturing base is also a joint project of IJM and Guangxi Beibu Gulf International Port Group. It is the first of three planned industrial parks that will house a new aluminum plant, palm oil refinery, and other manufacturing facilities served by the expanded port. Spring Energy is supplying aggregate for roads and loading areas for the park.

Yap nods at both enormous infrastructure projects and describes his divergent views.  He’s principally concerned with two issues. The most significant, he says, is China’s influence in Malaysia. Along with the port and industrial bases, Chinese institutions were also financing the $14 billion, 688-kilometer East Coast Rail Link. Mahathir suspended construction on the line in July.  He noted that if costs were reduced he would support restarting the project. Mahathir announced he is scheduling a trip to Beijing in August to negotiate new terms for reducing construction and financing costs for the suspended East Coast rail line and other suspended projects.

One of the line’s 22 stations is proposed for a site outside Kuantan, where the state government of Pahang is building its new administrative center, and where developers are constructing homes for the thousands of Chinese engineers and technical specialists working at the industrial park.

“All this construction will not be for Malaysian people. Chinese companies bring their own workers. And the companies are very tough negotiators,” Yap says. “The Chinese are very efficient. The price is ridiculous. They won’t let us die but they won’t let us earn much as well. They allow you to manage to survive.”

Yap also worries about the effect of Pahang’s infrastructure development on its water, air and forests, concerns shared by the state’s environmental groups. Part of the new rail line, for instance, cuts through forest that Pahang, Malaysia’s largest state, had set aside as preserves. In building new steel, aluminum, chemical plants and refineries, Kuantan residents worry that China may be exporting air- and water-polluting industries that Malaysian authorities will not strictly monitor.

“As long as there are humans on the earth, the environmental damage won’t stop,” Yap says. “There is pollution going on. There can’t be zero pollution with industry. There’s some impact. These projects have an environmental effect and we have an environmental control department. They need to be responsible.”

As Malaysians witness game-changing construction projects, and corruption at the country’s highest level, it’s almost as though they’ve chosen to collectively cross their fingers. After decades of steady growth that joined sound investment principles with ambitious environmental safeguards, Malaysia is an unsteady nation. Weeds sprout in the country’s imperfect garden of progress. That was never included in any national plan.

Banner image: Forest City, one of the largest mixed use real estate projects in the world, rises on reclaimed land in Johor Bahru in southern Malaysia near Singapore. Image by Keith Schneider for Mongabay.

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Article published by Isabel Esterman

Cities, Climate Change, Development, Environment, Environmental Politics, Featured, Governance, Government, Impact Of Climate Change, Infrastructure, Sustainable Development, Urban Planning

Asia, Malaysia, Southeast Asia

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