Glynn Cooper, Raja Irfan and Nicole Ong

With the outbreak of the COVID-19 pandemic, countries around the world had imposed lockdowns in one form or another, such as Malaysia’s Movement Control Order (“MCO”) (and subsequent Conditional and Recovery orders) and Singapore’s “Circuit Breaker”. Certain countries are now beginning to re-open their economies with businesses and services resuming progressively.

Even the most sophisticated contracts could not predict the uncertainty that the COVID-19 pandemic wrought on construction and infrastructure projects. These contracts even more so do not account for the “new normal” for when we emerge from the COVID-19 crisis. At the initial stage of the pandemic, the construction and infrastructure sector was rightfully focused on a party’s ability to seek relief for costs, delay and disruption caused by the pandemic and the lockdowns as parties were at risk of not only missing contractual obligations but going out of business entirely.

Now with the possibility of projects being restarted, parties are beginning to look beyond the immediate effects of the pandemic. Project and infrastructure development can be expected to rebound as priorities would shift from crisis management to economic stimulus with regional governments being able to use infrastructure spending to quickly bolster their economies.

Ongoing Projects in Malaysia

Construction works within Malaysia were generally suspended under the MCO, but with Malaysia’s recent “flattening the curve” on the rate of infections and reduction of transmissions, this has allowed the resumption of construction works subject to the adherence of standard operating procedures.

During this recovery period, the Malaysian government had announced the PENJANA Short-term Economic Recovery Plan on 5 June 2020 detailing a short to medium term economic plan based on subsidies and incentives for attracting investments for businesses in general. The Malaysian government is also expected to release its Economic Recovery Plan in October 2020 detailing the medium to long term economic plan against the pandemic focusing on more capital heavy projects and incentives.

However, in view of the recent change in government in Malaysia, the enormous expenses spent to deal with the pandemic and the fall in oil prices affecting much of the Malaysian government’s revenue, it would be fair to not expect any announcement of new mega projects, particularly as the Prime Minister of Malaysia has publicly stated that only mega projects which have been decided and which will not require additional funding may proceed.

Instead, the Economic Recovery Plan would more probably be focused on having an immediate emphasis on financing and delivering ongoing projects such as:

1. East Coast Rail Link (ECRL) being the 640-kilometre rail connection for the east coast of Peninsular Malaysia with an estimated budget of RM44 billion. The Malaysian government has pledged to continue with the ECRL and construction has resumed with only an approximate 0.02% delay in its implementation schedule with a scheduled completion date of December 2026.
2. Johor Bahru-Singapore Rapid Transit System (RTS) being the rail connection between the Malaysian state of Johor with neighbouring Singapore via a light rail transit system with a reported budget of RM3.56 billion and a scheduled to be completed in 2026.
3. Mass Rapid Transit 2 (MRT2) which is the second of three planned MRT lines in the Klang Valley region of Malaysia with an alignment of 52.2 kilometres with a reported budget of RM30.5 billion and scheduled full operation to be in 2023.
4. National Fiberisation Connectivity Plan (NFCP) which is to be administered by the Malaysian Communications and Multimedia Commission covering the expansion of coverage and improvements in the quality of both fixed and mobile broadband, whilst laying the foundation for new fifth generation (5G) networks. The Malaysian government had announced an allocation of RM3 billion to roll out six projects this year.
5. Pan-Borneo Highway being the major road network on the Borneo island connecting the Malaysian states of Sabah and Sarawak with Brunei Darussalam and Kalimantan, Indonesia being approximately 5,324 kilometres.
6. Kuala Lumpur to Singapore High Speed Rail (KL-SG HSR) being the proposed train connection between the capital of Malaysia with Singapore with an estimated budget of RM110 billion. While initially having an expected operational date in 2031, the Malaysian and Singapore government have agreed to a deferment with a decision on its continuation to be made by end of 2020.
7. Bandar Malaysia, the urban re-development project of Bandar Malaysia, the 196.7ha development which is tied to the development of the KL-SG HSR as it is the intended site for the terminal station of the KL-SG HSR as well as connections with other commuter railways.

Large-Scale Solar 4 (LSS 4)

Malaysia has also looked to renewable energy as a post COVID-19 economic stimulus with the release of tenders for the fourth round of its large-scale solar scheme (LSS). The LSS4 programme is proposed to offer 1GWac worth of tender contracts for the construction and operation of LSS plants with scheduled completion dates in December 2023 and a term of 21 years for each LSS plant.

Conclusion

Projects are now facing unforeseen market conditions with various challenges beyond the typical cash-flow shortages with issues ranging from potential insolvencies, supply-chain bottlenecks and to multiple and interrelated claims of force majeure.

While uncertainty surrounding the pandemic will persist, optimistically, one can hope that project and infrastructure development to be on the uptake in 2021 and with it a more positive outlook for the construction and infrastructure sector in Malaysia.

However, in preparing for the path forward, besides addressing the immediate issue of the spread of COVID-19, parties will need to consider how to emerge from the crisis better positioned and more resilient.

Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.