Kuala Lumpur - Singapore High Speed Rail Project January 2017 Kuala Lumpur - Singapore January 2017 1 Contacts If you would like further information on any aspect of this client note, please contact: Alex Wong Partner, Singapore T +65 6302 2557 [email protected] Benita Lee Associate, Singapore T +65 6302 7132 [email protected] This note is written as a general guide only, in respect of the Kuala Lumpur – Singapore High Speed Rail Project as of January 2017. It is not intended to provide legal advice and should not be relied upon as a substitute for specific legal advice. 2 Hogan Lovells Lee & Lee Introduction Background An agreement for the implementation of the HSR was signed by Singapore and Malaysia on This note serves as an update to an earlier note 13 December 2016 ("HSR Agreement"). A dated August 2015 on the landmark Kuala joint committee will be set up to discuss and Lumpur – Singapore High Speed Rail (the manage cross-border aspects of the HSR. “HSR”). The attached schedules provide Further, a Joint Development Partner will be further insights on the rationale for the HSR appointed in early 2017 to advise on related and general structuring issues. technical and procurement issues, and assist The HSR with the preparation of the tender documents. In 2013, Singapore and Malaysia formally If successful, the HSR will be the first high announced plans to develop the HSR. At speed railway in South East Asia. around 350km, the HSR will connect Jurong East in Singapore with Bandar Malaysia (Kuala The HSR and existing travel modes Lumpur) in Malaysia with six stops along the Singapore and Malaysia are presently very well- way (Putrajaya, Seremban, Ayer Keroh, Muar, connected by land, air and sea, and the HSR Batu Pahat and Iskandar Puteri). Services are must be viewed as a complementary addition to intended to run at speeds of up to 320 km/h the existing infrastructure as opposed to filling and are planned to run four times an hour, in a complete vacuum. including a non-stop service from Bandar (a) Land – Singapore and Johor are connected Malaysia to Singapore. by the causeway and the second link. Proposed HSR line from Kuala Lumpur Numerous public and private bus services to Singapore use these routes and continue along the North-South Highway to Kuala Lumpur. Singapore and Malaysia are also connected by a railway service operated by Malaysian Railway (“KTM”), and there are plans to construct a Rapid Transit System connecting Woodlands North (Singapore) and Johor Bahru Sentral (Malaysia) which will replace the above mentioned railway service. (b) Air – There are full-service airlines and budget airlines plying the Kuala Lumpur – Singapore route. Source: The Straits Times, “Historic agreement for Singapore- (c) Sea – There are sea crossings between Kuala Lumpur high-speed rail line signed; service targeted to start Singapore and Johor, as well as pleasure by Dec 31, 2026” retrieved 4 January 2017 – cruises between Singapore and various http://www.straitstimes.com/singapore/historic-agreement-for- Malaysian ports. singapore-kuala-lumpur-high-speed-rail-line-signed-service- Notwithstanding the existing plethora of targeted options for travellers, the HSR offers an Presently, the HSR is expected to be completed attractive transportation proposition, and is also in 2026. Construction is estimated to take place a political, economic and social development in the period of 2018 to 2025, followed by tool. Please refer to Schedule 1 for further testing and commissioning in 2026. Kuala Lumpur - Singapore January 2017 3 details on the rationale for the construction of (c) Operation – It appears that the the HSR. construction and operation of the HSR will be undertaken by multiple parties. Project structure Separating construction from operation Key details of how the HSR will be structured could allow for specialisation and greater have yet to be announced. However, some transparency. However, it might also create considerations are likely to come into play: interfacing difficulties and inefficiencies as (a) Financing – The HSR’s estimated cost is multiple parties will be involved and each US$14 billion. Given that the development party is entitled to a different income costs are high and the return on investment source which might not always be will be on a long term basis, some level of commensurate with its investment costs. government funding may be necessary Responsibility will be more diffused than (even if financing is mostly privately under a single-contractor model, and each sourced, which appears to be the case). contractor may be less incentivised to adopt Should there be any public funding a broad-based view of the project. It should involved, the issue then centers on the also be noted that the Malaysian domestic distribution of costs between the Singapore HSR service will be operated separately and Malaysia governments, with ownership from the express non-stop HSR service of the rail tracks and rolling stock being a between Kuala Lumpur and Singapore, related consideration. Although the HSR is which will allow Malaysia to have complete a bilateral project, most of the HSR will be autonomy over the domestic service and the situated in Malaysia (15km of the HSR in ability to tailor it to meet local needs. Singapore versus 335km of the HSR in (d) Regulation – Presently, it appears that the Malaysia). It will be important for both HSR fares will be set by the private governments to reach an equitable solution operators. The HSR fares are required to be on this point. benchmarked against air fares, but are not (b) Construction – According to the HSR anticipated to be significantly regulated by Agreement, MyHSR Corporation of either government. Customs, Immigration Malaysia and the Land Transport Authority and Quarantine ("CIQ") facilities will be of Singapore will each be responsible for located at Bandar Malaysia, Iskandar Puteri the development, construction and and Singapore, and it is anticipated that maintenance of the HSR-related passengers will only need to clear CIQ once infrastructure in their respective countries, as both countries will locate their CIQ and the lines in Singapore and Malaysia will facilities at the above areas. This may be connected by a 25m above sea level indicate that the ability to provide robust bridge over the Straits of Johor. This security measures will be a key suggests that each country may be consideration in the operations package appointing its own separate contractor to tender. construct the line within its territorial Please refer to Schedule 2 for more details on boundaries. This approach may be structuring the HSR. considered more efficient from a project management basis, since each country will manage the construction within its soil, but interfacing will become a more pronounced issue. 4 Hogan Lovells Lee & Lee International interest Conclusion The HSR has generated a significant amount of The HSR currently occupies a Goldilocks sweet- international interest, with companies from spot, as it connects two major cities at an ideal China, France, Germany, Japan and South distance of 350km that will bring substantial Korea expressing interest. A total of 98 cost and time savings. submissions were received in response to the That being said, cross-border railway projects Request for Information exercise called in are complex and challenging, as clearly evinced October 2015, the bulk of which were primarily by the lengthy period of time that both countries European companies and consortia. have been at the drawing board. This year, we Time frame anticipate more light to be shed on the project structure for potential tenderers to consider. The indicative schedule for the project is as follows: Event Year Appointment of a Joint 2017, 1Q Development Partner Award by MyHSR Corporation of a 2017, 1Q tender for reference design consultants for the Malaysian portion of the HSR Acquisition of land for the 2017, 3Q Malaysian portion of the HSR Issue of the tender for the systems 2017, 4Q package (namely the rolling stock and rail tracks) Award of the tender for the 2018, 4Q systems package Construction of the HSR 2018 - 2025 Issue of the tender for the 2023, 4Q international and domestic (Malaysian) operations packages Testing and commissioning of the 2026 HSR Commencement of HSR operations Kuala Lumpur - Singapore January 2017 5 Our select rail experience Some of our select experience in the high speed lots of the ICE (high speed railway) track rail sector include: from Cologne – Frankfurt Sojitz Corporation on the A bidding consortium in connection construction contracts and with the procurement of the Perpignan arrangements relating to the Western Figueres HSL concession (€1.1bn) Dedicated Freight Corridor freight railway linking Delhi and Mumbai The shareholders on the restructuring of the €1.32bn high speed rail link from On three different schemes for the Amsterdam to the Belgian border Channel Tunnel High Speed Rail Link: On the acquisition of the Arlanda High Speed Rail project in Sweden Scheme 1: the British Railways Board on its original proposed The Hong Kong MTRC in relation to joint venture with two leading numerous projects, including developing private sector developers/ the contractual structure and contract contractors to jointly build, own documents for the construction of the and operate a high capacity link rail link to Hong Kong Airport between London and the PT Sarana Multi Infrastruktur Channel Tunnel (Persero) on its feasibility Scheme 2: