Malaysia: Malacca Terminates $10.5B China-Backed Harbor Project

By Hadi Azmi

The Malaysian state of Malacca has terminated a $10.5 billion Chinese-supported harbor development project because the developer had failed to complete the job on time, a statement from the chief minister’s office said.

The Malaysian company, KAJ Development Sdn. Bhd., which was backed by state-owned PowerChina, immediately has to return the 609-acre site where it had agreed to build economic parks and tourist attractions on artificially constructed islands.

The statement from the chief minister’s office noted that the Melaka Gateway project agreement, which was signed on Oct. 4, 2017, expired at the end of three years on Oct. 3.

“The company, KAJ Development Sdn. Bhd., was found to have failed in completing the project. Therefore, a notice of termination of agreement was filed to the company on Nov. 16,” the office said in a news release.

The chief minister’s office declined to comment when contacted later by BenarNews. In addition, KAJ and Chinese Embassy officials did not immediately respond to email and text-message queries from BenarNews.

A locally registered company, KAJ was awarded a contract to revitalize Pulau Melaka, another artificial island on the Malacca Strait in 2011, which was to form part of the Melaka Gateway project.

On May 13, 2017, KAJ signed a collaboration agreement with three Chinese companies – PowerChina International Group Ltd., Shenzhen Yantian Port Group and Rizhao Port Group – to develop three other islands to create the gateway.

At the time a development contract was signed in October 2017, then-Prime Minister Najib Razak announced his support for the gateway, noting it was backed by PowerChina, which is under the Chinese government-owned State Power Investment Corp.

Then there was a change of government in Malaysia in May 2018.

On July 2 of that year, Malacca State Executive Councilor Mohd Rafiq Naizamohideen told journalists that the project had been delayed over issues involving the agreement with Chinese investors. He did not give other details except to note that the first of the project’s four islands was 60 percent complete.

Ten days later, then-Transport Minister Anthony Loke acknowledged concerns.

“We notice there are a few issues with the project. There have not been any signs of development at all,” he said in a July 12, 2018, news conference in Klang, according to local media.

Planned to be Southeast Asia’s largest private marina containing facilities to berth four cruise ships at a time, a commercial and tourist park and a free-trade zone, the Melaka Gateway project saw its license to operate a port revoked on Oct. 5, 2018, by the government of then-Prime Minister Mahathir Mohamad. The reason for the revocation was not made public.

Mahathir’s government collapsed in February 2020.

In response, the developers filed an appeal on March 13, 2019, seeking a declaration that the revocation announcement was null and void along with damages totaling 139 billion ringgit ($34 billion) because of delays caused by the decision.

Two months later, the Transport Ministry allowed the license, prompting KAJ to drop its appeal.

Not part of One Belt, One Road

Contradicting reporting that the gateway was part of China’s One Belt, One Road (OBOR) project, Oh Ei Sun, a senior fellow with the Singapore Institute of International Affairs, noted that it was a private endeavor outside of the Chinese government’s oversight.

“Apparently from the very beginning this was a private China-Malaysia project which tried hard to wedge its way into one of those so-called affiliates to the OBOR, but was never recognized,” Oh told BenarNews on Wednesday. “So it followed its natural course and withered away.”

Oh said existing OBOR projects, including the East Coast Rail Link, likely would continue.

OBOR is Beijing’s ambitious program to build a global network of ports, highways, railways, bridges and power plants to connect China to markets abroad and countries that can supply the world’s most populous nation with resources.

A 2019 report by Francis E. Hutchinson, senior fellow and coordinator of the Malaysia Studies Program at the Yusof Ishak Institute of Southeast Asian Studies (ISEAS) in Singapore, said there had been economic concerns about the gateway project. He noted its proximity to other Malaysian ports.

“At present, there is over-capacity in Malaysia’s port sector and the growth of containerized traffic through the region has plateaued,” he said.

Hutchinson noted that Mahathir had said the country did not need another harbor.

China, along with the United States, is one of Malaysia’s largest trading partners. In 2019, the Malaysian government approved investments valued at $3.74 billion (15.28 billion ringgit) from China, according to the data issued following Chinese Foreign Minister Wang Yi’s visit in October.