Malaysia’s Skewed Transport System: Rising Costs Demand Bolder Solutions

The economic implications of Malaysia’s skewed transport system will deepen with high petrol prices and rising interest rates. The country’s heavy dependence on private passenger cars and penchant for rail-based “big toy” public transport projects are coming home to roost. With fuel subsidies – petrol, diesel and liquefied petroleum gas – estimated to reach RM37.3 billion this year, the need to build a highly connected and bus-centred public transport systems has never been greater.

There are now 33 million registered vehicles in Malaysia. In 2020, Malaysia’s vehicle ownership reached 993.7 registered vehicles per 1,000 inhabitants, second highest in Southeast Asia to Brunei Darussalam at 997.8. Very few adults do not own a vehicle, yet the mobility needs of many are unmet and traffic congestion is rife. Climate crises and severe flooding are further ramifications.

The skewed transport system imposes three major economic problems.

First, fuel subsidy burns a huge hole in the Budget. Finance Minister Tengku Zafrul Aziz has flagged the fiscal challenge. RM30 billion was budgeted for subsidies for 2022 but the government worries that this bill will reach RM77.3 billion, of which fuel subsidies alone cost RM37.3 billion, an explosive rise from RM13.2 billion in 2021 and RM 6.1 billion in pre-pandemic 2019.  

Zafrul suggests that generous subsidies are untenable, but with a general election not far off, the government will be very careful with the unpopular step of reducing fuel subsidy. The finance minister is hinting at some form of targeted subsidy but the RM625 one-off payment during the June 2008 fuel hike was a disaster. No one has convincingly explained whether and how such a programme should be implemented today.

Second, transport-related public infrastructure projects constitute the bulk of the nation’s off-budget debts. Over the past decade or so, many big ticket transport projects were implemented, consisting of highways, city rail networks and inter-city electrified double tracking, and megaprojects such as the East Coast Railway Line (ECRL). Most of these projects were funded through off-budget channels with government-owned special purpose vehicles (SPVs) raising government-guaranteed debts. Should these SPVs become unable to service their off-budget debts, the government will be required to undertake the payments.

The most recent data show that government guarantees for DanaInfra Nasional Berhad, Prasarana Malaysia Berhad, Malaysia Rail Link Sdn Bhd, and Projek Lebuhraya Usahasama Berhad summed to RM149.1 billion, or 49.6 per cent of the RM300.4 billion of guarantees provided by the federal government (Table 1). Several of these guarantees, including DanaInfra and Prasarana, are considered committed guarantees as these companies are already unable to service their debt without direct financial assistance from the government.

The majority of projects covered by these government-owned companies involve existing transport infrastructure, including the Klang Valley Mass Rapid Transit Projects (MRT1, MRT2), Light Rail Transit Line 3 Project (LRT3), Pan Borneo Highway Project Sarawak, PLUS North-South Highway, as well as operations of the LRT, MRT, KL Monorail, and bus services in various cities.

The fundamental weakness of these “big toy” projects is that they still do not solve the issue of first and last mile connectivity challenges. They do not cover areas beyond the Klang valley, leaving other parts of the country even more dependent on private vehicles. Having spent or committed so much to “big toy” public transport, the onus is now on Malaysia to make the pricey infrastructure work better and to be commercially viable, or at least less anaemic than the current 20 per cent public transport use rate.

Subsidising public transport in a big way, especially through supporting bus services nationwide, would be more sustainable – both financially and for the climate – in the long run, rather than prolonging cheap fuel forever.

Since Penang pioneered free buses in 2008, other schemes at various levels of governments have followed suit — but in an uncoordinated and disjointed manner. An ad hoc arrangement recently announced by Prime Minister Ismail Sabri promises a RM155 million outlay for one month’s free public transport in Kuala Lumpur.

Unfortunately, the current administration still proposes to build 3 more highways around the Klang Valley. This is the wrong approach. Building more highways will only lead to a phenomenon known as “induced demand” – the more highways or roads you build, the more cars will be on the road and the more congested the city will be.

Third, loans for the purchases of private cars form a significant portion of private debt. Bank Negara Malaysia statistics showed that in April 2022, car and housing loans comprised 43 per cent of total loans provided by banks. Car loans to pay off a continuously depreciating asset are especially unproductive, but a lucrative and relatively straightforward business for the banks.

The fundamental weakness of these “big toy” projects is that they still do not solve the issue of first and last mile connectivity challenges, nor cover areas beyond the Klang valley, leaving other parts of the country even more dependent on private vehicles.

Bank Negra reported that, for first half of 2021, approximately 70 per cent of new banking system disbursements (excluding credit cards) are channeled to middle to high income borrowers, with 40 per cent and 20 per cent respectively of total new disbursements going towards purchasing residential properties and cars. Within the region, Malaysia has one of the highest household debt-to-GDP ratios at 89 per cent, equivalent to Thailand (90 per cent) but exceeding Singapore (66 per cent) and Indonesia (10 per cent).

In sum, the failure to build an efficient and functioning public transport system has a price tag: a huge fuel subsidy bill, sizable accumulated public debts via “big toy” transport infrastructure, and a very high level of household debts partly caused by car loans.

Policy makers and political leaders must first agree that transport cost is at the heart of Malaysia’s various economic questions. We must then be bold to think out of the box. 

The notion of ‘paying’ the people to take the bus is not as outlandish as it may seem. Much more can be done to subsidise bus-based public transport and incentivise the public to take public transport, guided by three key elements:

First, public transport is unlikely to generate profit and thus must be largely paid for by the public coffer, in exchange of public goods such as less private cars on the roads, better mobility, savings on fuel subsidy, and reduction in carbon emission.  

Second, public transport must go beyond “big toy” infrastructure; having many buses running on time is crucial in linking up the system and running it efficiently.

Third, regular use of public transport renders private vehicles a luxury and no longer a necessity. Confidence must be instilled, satisfaction earned. But should these happen, removal of subsidy will be the natural course of action. 

The transport question in the Malaysian economy is huge and serious. Doing more of the same is a recipe for disaster.

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