Railway projects worth US$41 billion announced in the past six months by large economies in Southeast Asia provide "significant opportunities" for international businesses to venture into an economic powerhouse in the making, says HSBC.
A Southeast Asian railway network is one of seven major transport routes envisioned by China under its Belt and Road initiative. It calls for more than 7,000 kilometres of rail lines from Yunnan province through Laos, Cambodia, Thailand, Malaysia, Singapore and Indonesia. There are also spin-off lines linking industrial and commercial zones with major ports, such as the planned Eastern Economic Corridor (EEC) in Thailand.
The bank has highlighted four projects: the Gemas-Johor double-track line in Malaysia, the Jakarta-Bandung high-speed railway (HSR) in Indonesia, the Kuala Lumpur-Singapore HSR, and a Thai-Chinese line that has experienced numerous delays.
The projects represent 60% of Asean member states' planned investments in rail systems, many of which are still at an early stage of development.
"Overall, it is a very ambitious plan … but over the last 12-24 months we have seen a significant increase in terms of actual announcements, funding and various activities within the infrastructure projects where they are started, under way or being completed," Jim Cameron, HSBC's head of infrastructure and real estate in Asia Pacific, told Asean reporters in a telephone conference last month.
"The opportunities are both in the construction, engineering and architecture phase and in the second and third stages of each particular project which include long-term and downstream opportunities around sectors such as real estate, retail, healthcare, and new job creation also," added Sunil Hiranandani, head of the Belt and Road unit at HSBC Commercial Banking.
The Thai-China railway is the key to completing the northern part of the Kunming-Singapore route.
Despite multiple challenges, including a new public-private partnership framework, two dozen rounds of bilateral negotiations and a foreign ownership cap under the Foreign Business Act, Thailand's military government remains strongly committed to the project.
A $5.4-billion agreement calls for a 252km stretch from Bangkok to Nakhon Ratchasima as part of a 1,260km link that will run from Kunming in Yunnan through Laos and terminate at Bangkok, with a possible extension to Singapore.
The Bangkok-Nakhon Ratchasima route will link with another line from Nakhon Ratchasima to Nong Khai, with each section further split into smaller parts to hasten construction. The Finance Ministry is arranging funding as lending terms proposed by China proved unacceptable to the government.
Key stakeholders include the State Railway of Thailand (SRT), China Railway Construction Corp, China State Construction International, China Communications Construction, and China Railway Rolling Stock Corp. However, construction of a token 3.5km section between Klang Dong and Pang Asok stations in Nakhon Ratchasima is already two years behind schedule. The most recent deadline last month was missed because the environmental impact assessment report is still pending.
Meanwhile, the Chinese project team is supposed to submit the design plan for the second section next month. Testing and commissioning of the first section are scheduled for 2020 with both sections to be ready to operate by 2022.
HSBC attributed the chronic delays to red tape in both countries. Other challenges include lack of standardisation, with translation from Chinese specifications to Thai specifications leading to complications in designing and pricing construction materials. The SRT also has a less-than-stellar track record, which raises concerns over the management of the project.
"Any government-to-government project is complicated, while from Thailand's point of view, one of the major challenges is that the Sino-Thai railway will cut through a lot of land and there are a lot of issues regarding land usage," Kelvin Tan, CEO of HSBC Thailand, told Asia Focus.
The railway will have to cross farmland, which by law cannot be used for any other purpose. The government is still unclear on where the stations will be built, which hinders development of supporting facilities.
"A project like this will take long time to plan and develop but I can see the will from the Thai government and the devil is in the details," Mr Tan said. For the PPP framework to work well, the government will have to further clarify the risk-sharing agreement.
"Who will take a certain risk and how much risk they will take, all of this has to be ironed out and personally, I believe it should be spelled out in a very thoughtful and careful way before it being put out for tender," he added.
The 2022 timeline, he says, is "very ambitious" when compared with the $25-billion Kuala Lumpur-Singapore HSR project, which is shorter at 350 kilometres but has a later completion date of 2026 -- and the locations of the stations have already been decided.
The HSR, with a maximum speed of 350km per hour, is expected to reduce travel time between the Malaysian capital and Singapore to 90 minutes.
Construction is expected to begin next year with testing and commissioning from 2024-26. Mr Hiranandani said the project would create many upstream and downstream opportunities for Malaysian and Singaporean companies, while its PPP framework is attracting a lot of international attention from capital and equipment providers in Europe, China, Korea and Japan.
"What we have seen though the course of this year is a lot of details being provided, especially around the layout of the infrastructure and the design process to deliver the PPP which is well supported by the private sector over the last three to six months," he said.
The other two main projects include Malaysia's 197km Gemas-Johor Bahru electric double-track railway and Indonesia's Jakarta-Bandung HSR. For the Gemas-Johor Bahru line, the Malaysian Ministry of Transport has awarded the contract to a consortium comprising three China-based companies: China Railway Construction Corp Ltd (CRCC), China Railway Engineering Corp (CREC) and China Communications Construction Corp (CCCC).
The $2-billion Johor Bahru link was first mooted nearly two decades ago, scrapped, then revived in 2007. It will cut travel time from Johor to KL from six to 3.5 hours and enable the North-South electric spine to connect Johor Bahru, close to the causeway to Singapore, with Padang Besar bordering Thailand. Construction will last from 2017 to 2021.
Major local subcontractors were supposed to have been announced last month but that deadline has been missed.
In Indonesia, the $5.5 billion, 142km Jakarta-Bandung HSR is being handled by PT Kereta Cepat Indonesia-China (KCIC), a joint venture of Indonesian state enterprises and China Railway Corp. The majority of the funding will come from the China Development Bank and it includes 71.6km of railway track, 53.5km of elevated tracks and 15.5km of tunnels.
Once the line completed, travel time from Jakarta to Bandung will be shortened to 45 minutes compared with 3-5 hours now.
Each station will have a transit-oriented development or mini-city featuring business, commercial and residential properties. The project will absorb 39,000 workers during construction, 20,000 during the development of each mini-city and 28,000 during its operation.
Construction has already started and the first trains are expected to start running by 2019.