Malaysia will cancel the $20 billion East Coast Rail Link project with contractor China Communications Construction Co. Ltd, the country’s Economic Affairs Minister Mohamed Azmin Ali said on Saturday.

The decision was taken because the cost of the project was too high and beyond the governments financial capability, Azmin told reporters in Kuala Lumpur. If the project is not cancelled, the government will have to bear the interest rate of about half a billion ringgit a year, which we can’t afford. Therefore, the project needs to be terminated without jeopardizing relations with China.

Azmin said the amount of compensation for the cancellation will be determined by the Finance Ministry, which is conducting due diligence process, to ensure that the cost would not weigh on the country’s financial position.

He said while the government had received several proposals, it had yet to decide on whether it would appoint a new developer for the rail project as that would depend on the country’s financial capability.

China Communications Construction took steps on Thursday to rationalize its workforce following the Malaysian finance ministry’s instruction last year to suspend all contracts related to Malaysia Rail Link Sdn.

Malaysia Rail Link was appointed to oversee the East Coast Rail Link with China Communications Construction as the main contractor. Total cost for the project was expected to reach 81 billion ringgit ($19.6 billion).

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