KUALA LUMPUR, Jan 1 — Malaysia will honour its obligations under the High Speed Rail Bilateral (HSR) Agreement with Singapore and pay compensation, Putrajaya announced today after both governments failed to reach a deal on new changes affecting the cross-border project.

Minister in the Prime Minister’s Department Datuk Seri Mustapa Muhamed said representatives from both countries will hold discussions soon to determine the compensation amount.

“By virtue of the Bilateral Agreement and previously agreed terms, Malaysia will honour its obligations under the Bilateral Agreement,” Mustapa said in a brief statement.

“Both countries will initiate the necessary to determine the amount of compensation,” he added.

The bilateral agreement, signed in 2016, automatically lapsed on December 31, 2020. 

Both governments had reached an impasse in negotiations on several key changes to the project that started in 2018.

Singapore’s Ministry of Transport issued a statement earlier this morning that Putrajaya had allowed the HSR bilateral agreement to be terminated, and has agreed to compensate the island republic for costs already incurred in fulfilling its obligations under the agreement.

The construction of the project was suspended from September 2018 to December 31, 2020 at Malaysia’s request.

Singapore claimed the understanding that the extension of the suspension period until December 31, 2020 would be the “final extension”.

Malaysia had proposed some changes to the project that included the project structure, alignment and station design. 

Mustapa said the original project structure would have required substantial and long-term government guarantees, and suggested that it may not be financially feasible. 

The new project structure, the minister explained, is expected to provide the Government the flexibility in financing options, such as deferred payments, public-private partnerships and the possibility of accessing financing at favourable rates.

Malaysia had also sought to leverage on the project to accelerate the country’s economic recovery by bringing forward the start of the construction phase by almost two years.

“Taking into account these changes, both Governments had conducted a number of discussions on our respective positions,” Mustapa said.

“However, we had not been able to come to an agreement on these changes. The Bilateral Agreement had therefore lapsed on 31 December 2020.”

The country unveiled one of its biggest federal budgets to date to revive an economy ravaged by the Covid-19 pandemic. 

Mustapa said the government had explored a number of alternatives to reduce the cost of the HSR project, which became more urgent with the onset of the novel coronavirus outbreak.