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Road infrastructure development in Singapore and Malaysia

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Asia Pacific Journal of Transport. Vol. 1, No. 1, 1996

ROAD INFRASTRUCTURE DEVELOPMENT

IN SINGAPORE AND MALAYSIA

Preprint version with no figures

Piotr Olszewski
Centre for Transportation Studies
Nanyang Technological University
Nanyang Avenue, Singapore 2263
Tel: +65-791-1744
Fax: +65-791-0676
E-mail: colsze@ntuvax.ntu.ac.sg

Richard Tay
Department of Decision Sciences and Managerial Economics
Chinese University of Hong Kong
Shatin, N.T., Hong Kong
Tel: 852-2609-7796
Fax: 852-2603-5104
E-mail: richard@baf.msmail.cuhk.hk

1
 ROAD INFRASTRUCTURE DEVELOPMENT
IN SINGAPORE AND MALAYSIA

Abstract

The rapid economic development over the last two decades has exerted enormous pressure on
road networks in Singapore and Malaysia. To deal with the substantial increase in traffic
demand, Singapore has implemented various pricing policies with the aim of restraining car
ownership and usage. These measures generate substantial revenue which helps finance
transportation projects. Malaysia, on the other hand, has greatly expanded its road network,
introduced road tolls and embarked on an aggressive privatisation programme to help
finance its infrastructure projects and increase their cost efficiency.

Key words: Singapore, Malaysia, roads, development, infrastructure, privatisation

1 INTRODUCTION
The economic and social significance of investment in infrastructure, particularly
transportation infrastructure, is well recognised in the literature. Transport has generally been
considered a necessary but not a sufficient interactor with development. While the importance
of transport in economic growth and development is widely accepted by economists, its exact
role and influence have been subjected to periodic reappraisals (Button, 1993). Interest in this
issue, however, has increased in recent years since Aschauer (1989) found a striking
correlation between the decline in investment in public capital and the productivity slowdown
in the United States in the 1970s and early 1980s. Similar results were also found in other
studies conducted at the national and regional levels for the US, Japan and India.1

Public capital contributes to output directly as a factor input and indirectly by creating a
positive externality2 which improves the environment and raises the productivity of private
capital. Within the group of core infrastructure, investments in transportation infrastructure
were found to be most influential. Over the period 1983-92, the average economic rate of
return on World Bank supported infrastructure projects was estimated at 16%, with highways
yielding about 29% (World Development Report 1994).

Some recent work, however, suggests that the supply side relationship between public capital
and private sector productivity may be spurious.3 Tatom (1993a,b) conducted a series of lead-
lag tests which indicated that the causality may be more from economic output to
infrastructure investment rather than the other way round. Economic growth boosts the
demand for, and therefore the quantity of public capital. This is not difficult to accept,
particularly in the transportation context since the demand for transportation services is
essentially a derived demand.

1
Gramlich (1994) provides a literature review of infrastructure investments.
2
Although provision of transport infrastructure has also some negative externalities (Williams, 1991), these
are generally outweighed by the positive effects.
3
Some recent studies found relatively little evidence on the positive impact of infrastructure on the
productivity of private sectors. For examples of these studies, see Lall and Tay (forthcoming).

2
Current development of economies in South East Asia, particularly those of Singapore and
Malaysia, seems to support Tatom's demand side causality. Over the last two decades, real
Gross Domestic Product (GDP) in these two countries has increased at an annual rate of
around 6 to 10 percent. Such phenomenal growth over a short period of time has created an
imbalance between the demand for and supply of infrastructures. To meet the substantial
increase in the demand for new transportation facilities, Malaysia allocated $5 billion4 for its
spending on transport infrastructure between 1991 and 1996 while Singapore had a
corresponding budget of $3 billion (Business Asia, November 2, 1994).

Singapore and Malaysia are interesting cases because of their economic success in the last two
decades and their different, yet successful, approaches toward infrastructure investment.
Singapore, with a per capita GDP of $18,800 in 1993, is classified as a Newly Industrialised
Economy (NIE) and Malaysia, with a corresponding per capita GDP of $3,440, is considered
as one of the Dynamic Asian Economies (DAE). As evident from Table 1, both countries
continue to have high growth rates, savings rates and foreign reserves. Furthermore, the
central governments of Singapore and Malaysia, unlike most other governments, have been
running budget surpluses. Therefore, for developing or newly industrialised countries, their
reliance on external funding in the past has been relatively low, an achievement that is
exemplary for other developing nations.5

Table 1: Key Economic Indicators 1993

Indicator Singapore Malaysia

Land Area ('000 sq km) 0.64 330.4
Population (million) 2.87 19.17
GDP per Capita (US$) 18,800 3,340
Real GDP Growth (%) 9.9 8.6
Savings as % of GDP * 48.3 38.3
Inflation (%) 2.9 3.3
Exchange Rate to US$1 S$1.61 RM2.55
Trade Balance (US$ b) -8.00 1.48
Current Account (US$ b) 2.10 -2.10
Debt as a % of GDP 0.0 29.9
Budget Surplus (%GDP)# 9.2 0.3
Foreign Reserves (US$ b) 48.36 34.25
Sources: South East Asia Monitor, 1994, various months.
* Asian Development Bank Report, 1993.
# 1992 estimates. World Bank Report, 1994.

Even though economic growth, industrialisation and urbanisation in Singapore and Malaysia
have resulted in a huge growth in demand for both passenger and goods transport, these
countries are coping rather successfully with the increasing demand. Owing to different
geographical, political and economic conditions, however, their approaches to transport
policies and project financing have been quite different.

4
All $ are US dollars; as of April 1995 US$1 = Singapore $1.4 = Malaysian Ringgit 2.48
5
Between 1975 and 1985, Malaysia had borrowed only $134 million from World Bank and $149 million
from Asian Development Bank for its transport and Singapore had no external lending (Leinbach, 1989).

3
Singapore is a fully urbanised city-state with about 10% of its scarce land already being used
for road transportation infrastructure. This physical restriction severely limited the scope of
road expansion in Singapore and resulted in the government having to adopt tough demand
management and pricing policies to restrict the growth of car ownership and usage. Besides
increasing the efficiency of infrastructure investment, these fiscal measures generated
substantial revenue that is used, in part, for the financing of road and public transport projects.

Malaysia, on the other hand, has no physical constraints on urban development and has been
promoting motorisation both as a transport policy as well as an industrial policy for the
development of local car manufacturing, employment and export growth. To help finance the
necessary road expansion, the Malaysian government has embarked on a rather aggressive
privatisation program that has seen several large scale road Build Operate Transfer (BOT)
projects completed successfully. In addition to increasing the total investment in
infrastructure, private involvement also improves the quality of the projects selected as well as
increases their technical and cost efficiency (Gomez-Ibanez et al., 1991).

2 SINGAPORE
2.1 History of the road system development
Singapore, with a total land area of 640 km2, is an island located at the southern tip of the
Malayan Peninsula. Modern Singapore was founded in 1819 by Sir Stamford Raffles who
was also the author of the first road network plan for the settlement. Singapore grew quickly
as a trading centre and soon became the headquarters of the British Straits Settlements. The
influx of immigrants from China, India and the neighbouring countries resulted in rapid
growth of the colony. As the town expanded, more roads appeared along the coastal areas and
river banks.

By 1920, one hundred years after it was founded, Singapore had built about 340 km of roads
(Cheong, 1992). In 1924 the Singapore-Johor Causeway was opened to traffic, forming a
permanent link with the Malayan Peninsula. Over the next 40 years, the road expansion
continued, interrupted only by the Second World War. To meet the immediate needs, roads
were often built in a haphazard manner with route location being dictated mainly by the
topography (Menon, 1988).

Singapore joined the Malaysian Federation in 1963 and subsequently became a separate
republic in 1965. Soon after its independence, the government embarked on an ambitious
program of industrialisation that was spearheaded by the development of the Jurong Industrial
Estate in the western part of the island. The construction of low cost public housing was also
given a high priority and the first New Town, Toa Payoh, was built near the centre of the
island. This accelerated development, coupled with expansion of port facilities in the south,
exerted great pressure on the road system and ad-hoc measures were no longer adequate to
deal with the situation (Menon, 1988).

In 1971, the first concept plan for long-term urban development was drawn. The 25-year
development strategy incorporated a comprehensive land use and transport study that
envisaged the construction of a 150-km system of expressways, complemented by a network
of dual carriageway arterial roads. The land transportation plan also envisaged a substantial
improvement in public transport by the construction of a 67-km Mass Rapid Transit system.

4
2.2 Car ownership and usage restraints
By the early 1970s, the motor vehicle population had exceeded 300,000 and traffic congestion
was becoming a serious problem in the city. The first comprehensive transport study warned
that congestion would soon lead to urban strangulation if the uncontrolled growth of traffic
continued. These warnings lead to the formulation of an integrated Land Transportation
Strategy, adopted in the mid 1970s, with the following stated policies:6

1) integrating land use and transport planning,

2) increasing road capacity as far as practicable,
3) managing demand for travel, especially that of the private car, and
4) providing an efficient public transport system.

The rapid economic growth in Singapore over the past two decades has increased the desire of
the people to own a car. As shown in Table 2, around 600,000 vehicles are currently
registered resulting in a density of almost 200 vehicles per km of road which is perhaps the
highest in the world. With about 10% of its land area devoted to road transport uses, there is
little scope for major increases in the road capacity. Therefore, some control on vehicle
ownership and usage is deemed necessary to prevent traffic gridlock. Ownership restraints
include a variety of taxes and registration fees, and more recently, a direct quota on the
number of new vehicle registrations. Usage restraints include high gasoline taxes and parking
fees, an Off-Peak Car Scheme and an Area Licensing Scheme which will soon be replaced by
an Electronic Road Pricing Scheme, currently undergoing field trials.7

Since Singapore has no domestic automobile manufacturer, a logical first step was to impose a
high customs duty that amounts to 45% of the Open Market Value of a vehicle.8 A one time
registration fee of $714 is also payable when registering a vehicle. In addition, owners of all
new vehicles are required to pay an Additional Registration Fee (ARF) which has been
recently reduced from 175% to 150% of the OMV due to the introduction of the Vehicle
Quota System (VQS). Under the VQS, anyone wishing to register a new vehicle (with the
exception of scheduled buses and emergency vehicles) must first successfully bid for a
Certificate of Entitlement (COE), a fixed number of which are auctioned to the highest
bidders each month.9 Together, these fiscal measures have raised the price of cars in
Singapore to an exorbitant level of over five times their OMV. Singapore is perhaps the only
country in the world where automobiles can appreciate in value.

The taxes and registration fees aimed at limiting the growth of car ownership have drastically
reduced the actual growth in automobile numbers. Between 1973 and 1982, the car population
grew from 136,000 to 184,000 as compared to a fleet of between 270,000 and 340,000
forecast by the OECD (1988). With the implementation of the VQS, the growth of vehicles is
controlled at about 3% which is the rate estimated to be sustainable by the road system, taking
into account the expected expansion of the infrastructure.

6
Opening speech by the Minister of Communications, Mr Mah Bow Tan, at City Trans Asia '91 Conference
in Singapore. See also Tan (1992).
7
For a comprehensive review, especially for economic and welfare implications, of the various demand
management policies, see Tay (1995).
8
The OMV is the value declared by local distributors which includes factory and shipping cost of the vehicle.
9
For more details on the Vehicle Quota System, see Olszewski and Turner (1993) and Tay (1994, 1995).

5
 Table 2: Road Transport Statistics

Indicator Singapore Malaysia

1980 1993 Average 1980 1993 Average
annual annual
growth % growth %
Total motor vehicles 371.3 584.3 3.5 2,617.8 6,699.7 7.5
(thousand)
Private cars 152.6 303.9 5.4 832.1 2,247.3 7.9
(thousand)
Cars per 1000 63.2 105.7 4.0 60.5 118.0 5.3
population
Total road length (km) 2,356 2,989 1.8 30,456 57,491* 5.4
Vehicles per km of 157.6 195.5 1.7 86.0 109.9* 2.1
road

Sources: Singapore Yearbook of Statistics, Malaysian Yearbook of Statistics

*Note: 1992

In addition to curbing car ownership, several bold and innovative measures aimed at reducing
the usage of cars were also introduced. The most well-known and studied of these measures
is the Area License Scheme (ALS) which was started in 1975.10 Under this scheme, motorists
entering the Central Business District (CBD) during peak periods have to buy a license which
is currently priced at $2.15 for peak periods 7:30-10:15 am and 4:30-6:30 pm, and $1.44 for
the period in between. Although some doubts were raised about its welfare implications
(Wilson, 1988) and the level of charging (McCarthy and Tay,1993a), the ALS is nevertheless
effective and shows an extremely attractive rate of return.11 After its introduction in 1975, the
morning peak period volume of cars entering the CBD decreased by over 70% and in 1992 it
was still at 54 % of the pre-1975 level, despite the fact that the value of ALS fee expressed as
a percentage of the daily wage rate has in the meantime declined by 62% (Polak et al., 1994).
Thus, ALS has been generally regarded as a simple and successful travel demand management
scheme.

In a continuing effort to improve the road system, the Singapore government has decided to
implement an Electronic Road Pricing (ERP) scheme which is currently under trial. Although
the initial focus will be on automating the current ALS, the proposed island-wide system will
have the ability to charge differential prices for different types of vehicles, at different times
and places, depending on the level of congestion. This system will thus enable the society to
optimise the allocation of resources for trip making in a manner as close to road pricing theory
as practically possible. In addition, the use of optimal pricing will improve the efficiency of
infrastructure investment by incorporating both pricing and investment decisions in policy
formulation (Keeler and Small, 1977).

10
Examples of studies on the ALS are Holland & Watson (1978), Wilson (1988), Hau (1992), McCarthy and
Tay (1993a,b), Polak et al. (1994), Tay (1995).
11
Hau (1992) estimated that over the period between 1975 and 1989, the net financial rate of return for the
ALS was 1590%.

6
Besides reducing both current and latent demand, the Singapore pricing and restraint polices
have generated a substantial amount of revenue for the government. As shown in Table 3, the
revenue generated from the motor vehicle taxes amounted to over $3.12 billion which
constituted an incredible 22.4% of the total operating revenue of the government in 1993.
Unlike in some Western countries, road revenues are not used specifically for transportation
related expenditures but form part of the consolidated revenue fund. On the other hand, total
expenditure on road projects between 1989 and 1993 was only about $673 million.12

Table 3: Singapore Revenue from Motor Vehicles

Sources 1990 1991 1992 1993

COE Premiums 116.0 241.3 597.5 945.2
Additional Registration Fees 520.6 453.8 536.8 759.5
Road Tax and Diesel Veh. Tax 476.4 493.9 525.4 552.8
Registration/Transfer Fees 102.2 55.6 66.6 88.2
ALS Fees 24.4 25.4 27.3 26.9
Vehicle Import Tax 183.0 177.8 214.7 297.3
Petroleum Tax 357.2 381.1 398.9 418.0
Miscellaneous 12.2 14.7 27.5 34.3
Total "Motor Vehicle Revenue" 1,792.5 1,843.4 2,395.0 3,122.6

Source: Revenue figures are extracted from the Annual Report 1990-3, Registry of
Vehicles, Singapore and Monthly Digest of Statistics, July 1994.
Note: Converted to US$ at S$1.4/US1. (Goods and Services Tax not included).

Figure 1 shows government spending on road construction (in five-year periods) and the total
length of roads. Although both have been increasing, owing to the physical constraints, it is
unrealistic to expect that higher revenue will translate into a greatly increased supply of road
infrastructure. The government, however, can and has been directing some of the revenue
from motor vehicles to expanding non-polluting public transportation modes such as the mass
rapid transit (MRT) which so far serves directly only 25% of population. Recently, plans
were announced to develop two light rapid transit (LRT) systems which will complement the
MRT and improve the attractiveness of public transport. This intermodal substitution in
supply is also environmentally beneficial to society as it reduces pollution and energy
consumption.

Figure 1. Total road length and expenditure in Singapore.

2.3 Recent developments

Expressway system
The expressway system was first conceptualised in the land use-transport study of 1971. Its
overall objective is to provide an integrated network of high-speed high-capacity links to all
parts of the island (Yang and Looi, 1995). The system, shown in Figure 2, has since been
12
Source: Annual Report, Public Works Department, 1993/94.

7
built in stages and is nearly completed. It now has a total length of 141 km. The
characteristics of some recently completed expressway projects are shown in Table 4.

The first portion to be built was the 35-km Pan-Island Expressway which formed the main
East-West thoroughfare. It was constructed in stages between 1966 and 1981; initially as a 4-
lane expressway, later widened to 6 lanes and then to 8 lanes along the most heavily used
central stretch. A second East-West corridor was later added along the southern coastline. It
comprised the East Coast Parkway, built on reclaimed land, and the 14-km Ayer Rajah
Expressway, completed in 1988.

Figure 2. Road network in Singapore.

Table 4: Recently completed expressway projects in Singapore

Expressway Year of Length Number of Total cost Cost per

comple- inter- kilometre
tion changes
km US$ m US$ m
Bukit Timah 1986 11.0 4 110.7 10.1
Ayer Rajah 1988 14.0 9 157.1 11.2
Central 1991 3.5* 6 223.6 63.9
Pan-Island extension 1993 6.2 5 57.9 9.4
Kranji 1995 8.4 5 91.4 10.9

* includes 2.4 km of tunnels

Source: ‘Spectrum’ (various months and years)
Note: converted to US$ at S$1.4/US$1.

In 1985, the 11-km Bukit Timah Expressway was constructed, providing a high speed link to
the Singapore-Johor Causeway. A second North-South corridor was formed by the Central
Expressway with an underground section providing direct access to the CBD. The
underground system which comprises two tunnels with a total length of 2.4 km and an
underground interchange was opened to traffic in 1991.

The most recent addition is the Kranji Expressway which forms a diagonal connection
between northern and western parts of the island. It links the Bukit Timah Expressway with
the Pan-Island Expressway which was extended by 6.2 km westwards in 1993. Parts of two
more expressways: the Seletar and Tampines are still under construction. The entire
expressway system, with the addition of the Kallang and Paya Lebar Expressways which are
still on the drawing board, will be completed by the end of the century.

Arterial roads
The expressway system is complemented by a network of arterial roads. In the central area,
many roads operate as one-way pairs which increases capacity and simplifies signal control.
Several roads have been widened and improved to increase efficiency. Most roads radiating
from the city now have a minimum of 6 lanes and existing roads going around the city were
upgraded to form the Inner and Outer Ring Roads (Yang and Looi, 1995). The ring roads now
provide a system of efficient bypass routes around the central area and the CBD Restricted

8
Zone in which vehicles are subject to ALS fees. In addition, to further improve the system,
several grade separated intersections were built and more are under construction.

Arterial roads in the new residential districts are constructed as dual carriageway, 4 or 6 lane
roads. The tendency over the last 20 years has been to standardise the cross section design,
junction layout and signal control. All arterial road intersections are now channellised and
most have slip roads for left turning traffic.

2.4 Future plans

Second link with Malaysia
With increasing numbers of vehicles crossing daily between Singapore and Malaysia, the
Singapore-Johor Causeway is clearly no longer adequate. Congestion is especially severe
during holidays when long queues are a common occurrence. A second link has been under
consideration for some time but its location was only finalised in 1990. The construction at
Tuas, the westernmost end of the island, is scheduled to start in 1995 and to be completed by
1997. To meet the expected increase in traffic due to the new link, the Ayer Rajah
Expressway is now being extended 13 km westwards by upgrading existing arterial roads.

Underground road system

Owing to the land constraints, there is not much scope for further road expansion without
compromising other important land use needs and the quality of the environment. However,
demand for road space is expected to grow with the continuing economic boom and the ever
increasing, albeit slowly, vehicle population. Two possible solutions for built-up areas are
being considered: double-decker and underground roads (Tan, 1988). Double-decker roads
are expected to be cheaper and easier to construct but to have a greater negative environmental
impact. Underground roads, on the other hand, are environmentally more acceptable but at
the same time more expensive.

A system of underground roads was proposed with the aim of increasing road capacity in the
central area by 40% and keeping congestion within manageable limits in the long term. A
feasibility study, completed in 1992, identified 3 possible networks and recommended the
Ring Road concept as the best solution. Under this proposal, a ring tunnel having 2 lanes in
each direction would be constructed around the city, roughly following the existing Inner Ring
Road. It is estimated that the project will take 10 years to implement at a cost of $2.7 billion
(Spectrum, Sept. 1992). The proposal, however, is still under consideration and no definite
decision has yet been made.

Semi-expressways
A revised land-use concept plan has been published recently by the Urban Redevelopment
Authority (1991). In the transportation area, the 1991 plan envisaged augmenting the
expressway network with a secondary network of “semi-expressways”. A semi-expressway is
basically an upgraded arterial road, with some grade-separated interchanges but lacking the
full control of access and geometric standard of an expressway. Semi-expressways are
expected to have an increased capacity for handling through traffic without taking up more
land than arterial roads. As a first step towards upgrading the Outer Ring Road to a semi-
expressway, two intersections are being converted to three-level interchanges with
uninterrupted traffic flow for all through movements.

9
3 MALAYSIA
3.1 History of road development
The Federation of Malaysia consists of two main parts: West or Peninsular Malaysia and East
Malaysia which comprises the states of Sabah and Sarawak located on the island of Borneo.
Despite competition from river transport in the early days, and later from rail, roads proved to
be more flexible and became the dominant mode of transport in Malaysia. The road network
is relatively better developed in West Malaysia which accounts for 40% of the land area and
79% of the road length. Topography was an important factor affecting the development of
roads. A large part of the road network is built along the relatively flat coastal areas since the
interior regions of both East and West Malaysia are dominated by inaccessible mountain
ranges. Road construction along the coastal areas, however, was hindered by wide river
estuaries and swamps.

Leinbach (1989) observes that the history of road expansion on the Malay Peninsula illustrates
well how roads can play a major role in opening new areas for development and exploiting
their full potential. The historical development of modern roads started on the Peninsula in
the 19th century as British influence spread from the Straits Settlements of Penang, Malacca
and Singapore. Roads were built to establish political control and provide access to the
surrounding areas. In the second half of the century, tin mining became the driving force of
development and by 1900, commercial agriculture was established, both generating great
demand for transport services.

The early post-war years were dominated by reconstruction of transport facilities that were
disrupted and partially destroyed during World War II. Prior to the independence of Malaya
in 1957, the west coast of the Peninsula had a basic trunk road structure but very few roads
existed on the east coast or in Sabah and Sarawak. After 1957, some effort was made to link
smaller towns and villages with the national network but comprehensive policies and
guidelines for road development were only formulated in the General Transportation Study of
1967 (Chew, 1993). Since then, the Malaysian national development has been guided by a
series of Five-Year Malaysia Plans in which the importance of road transport was fully
recognised. The Second (1971-75) and Third (1976-80) Malaysia Plans put relatively more
emphasis on the development of regional and rural roads.

By the 1980s, the Malaysian economy had ceased to rely mainly on primary commodities and
had began a rapid industrialisation process. Economic growth during the last decade has been
very rapid with real GDP increasing by 6-10% annually. With rising incomes, the private car
population grew at 8% annually during the 1980s (Table 2). Although expansion of rural
roads supporting the rubber and oil plantations continued, the subsequent development plans
had shifted attention to the provision of urban expressways and inter-urban highways. The
Fifth Malaysia Plan (1985-90) allowed for a 7-8% annual expansion of the road system.
Figure 3 illustrates the changes in government road expenditure and the total road length.

Figure 3. Total road length and expenditure in Malaysia.

3.2 Privatisation programmes to finance road projects

Given the substantial anticipated investment in infrastructure projects, it is unlikely that the
traditional sources of government revenue will be sufficient to meet the demand without
incurring heavy debts. The Malaysian government, therefore, has embarked on an aggressive
privatisation programme to encourage participation from the private sector. This programme,

10
which covers a wide range of public services and infrastructures, is one of the most ambitious
in the developing world.13 It seeks to relieve the government of the financial and
administrative burden of public enterprises, to promote competition, to simulate private
entrepreneurship and to reduce the size of the public sector.

Most of the privatisation projects for road infrastructure are arrangements of the Build,
Operate and Transfer (BOT) type whereby the state concedes the rights to provide a service in
exchange for an agreement to perform specific construction and operation obligations on the
part of the private party. Initially, only relatively small road projects like the North Klang
Straits Bypass and the Kepong Interchange were privatised. After their initial success, larger
projects, like the North-South Expressway which was completed in 1994, were subsequently
privatised.

BOT concessions in Malaysia allow for a varying degree of shared decision making between
the government and the company. In the North-South Expressway, for example, detailed
design had been done by the government and the project was ready for tendering in the
conventional way. In the Kepong Interchange case, however, only the feasibility study and
preliminary design were done by the government. Lastly, in the North Klang Straits Bypass,
neither preliminary nor detailed designs were available to the company. Detailed designs,
which can be submitted in stages, must be approved by the government before construction
can commence (Chew, 1993).

Although the government reserves the right to inspect any work-in-progress and to examine
test records, the responsibility for quality assurance, however, lies entirely with the company.
As the company will also be responsible for road maintenance over a long period, it is within
its own interest to ensure quality construction. In addition, since the period of concession
includes the construction time, the company also has an incentive to complete the project
sooner.

Tolls are the main source of revenue for the private company in most of the BOT projects.
Two tolling systems, the open and closed toll systems, are in use in Malaysia. As a general
rule, the open toll system is used in urban and semi-urban highways where access is not fully
controlled whereas the closed toll system is used only in long inter-urban expressways. The
Kepong Interchange and North Klang Straits Bypass use the open toll system with rates fixed
at $0.20 for passenger cars and $0.40 for commercial vehicles. The North-South Expressway,
on the other hand, uses a closed toll system with the rate set presently at $0.03 per km for
passenger cars. For the purpose of toll collection, cars are used as a reference: taxis pay only
half the car toll, buses pay about three-quarters, goods vehicles with two axles and six wheels
pay one and a half times, and vehicles with three or more axles pay twice the amount (Chew,
1993).

Toll collection on both privatised and state toll roads in Malaysia is manual. The main
disadvantages of this method are the delays at toll plazas and the high cost of tolling.14
Despite these problems, the performance of the privatised highway projects has so far been
very encouraging and more projects are now in the pipeline for privatisation (Chew, 1993).
Increased reliance on BOT is expected, at least in the near future, in order to meet the greater
demand for infrastructure investments. The Sixth Malaysia Plan (1991-95) allocated $4.32
billion for transport infrastructure development. BOT concessions in all sectors are said to
13
Lall and Tay (forthcoming) provide some examples of other privatisation projects in non-road related
infrastructure.
14
Johansen (1989) estimates that manual tolling doubles the recurrent costs of highway projects.

11
have saved the government approximately $1.9 billion in operating expenses and $14.8 billion
in capital outlays between 1990 and 1993 (Institutional Investor, 1994).

In addition to increasing the total investment in infrastructure, privatisation is expected to

increase technical or cost efficiency since private operators are often asserted to be able to
build and operate infrastructure facilities at a lower cost than their public sector counterparts.
These potential cost advantages are created by the profit incentives, avoidance of some
cumbersome public sector bidding and contracting requirements, and achieving efficiencies of
scale, scope and experience (Gomez-Ibanez et al., 1991).

The privatisation of transport infrastructure, in general, has not always been successful.
Williams (1995) identified several factors that would contribute toward the success of
privatisation. In the case of Malaysia, two of these factors are significant: relatively short
intercity distances and the concentration of development along the west coast of the Malay
Peninsula.

3.3 Recent developments

North-South Expressway
Completed in 1994, the North-South Expressway is by far the most ambitious road project in
Malaysia. As shown in Figure 4, it stretches for 782 km along the west coast of the Peninsula
from the Thai border to Johor Bahru near Singapore. With full control of access, it makes fast
inter-urban travel by land possible, reducing the travel times between major cities by 20% to
30%. As a result, the Malaysian Airlines had to cancel 30-35% of its domestic flights
between cities serviced by the highway due to the drop in demand (The Straits Times, 5
September 1994).

Figure 4. Road network in Peninsular Malaysia.

The first stage of the North-South Expressway project was the Kuala Lumpur-Seremban
segment which opened in 1977. In 1980, the Malaysian Highway Authority was set up with
the responsibility of constructing the entire highway. By 1987, sections of the expressway
with the total length of 324 km have been completed. However, the project ran into financial
difficulties and the government decided to privatise it. The 30 year BOT concession for the
remaining 458 km was awarded in 1988 to United Engineers of Malaysia, a public listed
company. Subsequently, with the approval of the government, the concession was transferred
to a new company, PLUS Ltd. which was set up by the UEM.

The concession agreement also included operation and toll collection along the previously
existing sections of the expressway. The contract included many safeguards to make it more
attractive financially and to protect the company against lower-than-expected revenue
(Johansen, 1989). The total construction cost was around $2,414 million. Although the
original budget was exceeded, the project was completed ahead of schedule and toll revenues
were exceeding projections.

Other projects
Although the North-South Expressway is perhaps the most spectacular road project, in terms
of length, it constitutes only a small fraction of the Malaysian road development programme.
Since 1980, the road network has almost doubled in length, increasing by some 27 thousand
kilometres (see Table 2). A large part of this construction activity occurred in rural areas
where the village road network was expanded and upgraded. By 1990, 74% of all roads were
12
paved (Sixth Malaysia Plan, 1991). Earth and gravel roads, however, were still being built in
remote areas as forerunners to development.

Several other major new roads were also completed with an aim of opening new areas for
agricultural cultivation. One such development road was the East-West Highway linking
Kota Bharu with Penang. This highway also had an additional strategic objective of
improving security along the Malaysian-Thai border (see Figure 4). Other new roads
constructed across the Peninsula include the 149-km Kuantan-Segamat highway and the road
linking Kuala Lipis with Kota Bharu.

Under the Fifth and Sixth Malaysia Plans, more road development funds were allocated to the
Eastern states of Sabah and Sarawak. Apart from rural road schemes, these allowed for the
completion of the basic all-weather trunk road network in both states.

Urban roads in and around the major cities have been expanded and upgraded through the
“traffic dispersal schemes”. However, the increases in road capacity could not keep up with
the rapid growth of motorisation and in many areas traffic conditions have actually
deteriorated. Two projects have been of major significance:

• The Penang Bridge which created the first permanent link between the island of Penang
and the mainland. The bridge, one of the longest in the world, was completed in 1985 at a
cost of $345 million (Hunt et al., 1994). The total length of the bridge including the
approach roads is 13.5 km.

• The New Klang Valley Expressway which serves the densely populated urban corridor
between Kuala Lumpur and Port Klang. Construction of this 35-km project was part of the
North-South Expressway BOT arrangement and the road is now operated by PLUS.

3.4 Future projects

Several more road projects under the Malaysian privatisation programme are in the pipeline.
In the Kuala Lumpur area these include:

• the 48-km Shah Alam Expressway which will provide a third East-West highway corridor
along the Klang Valley at an estimated cost of $392 million;
• the 34-km North-South Link Expressway which will connect the north and south branches
of the main North-South Expressway through the Kuala Lumpur suburbs (expected to be
completed by 1997); and
• the Kuala Lumpur-Karak Highway upgrading, estimated to cost $196 million.

In response to the worsening urban traffic congestion, major traffic improvement schemes
have been announced by the Malaysian Public Works Department. These were identified in
the recently completed Highway Network Development Plan Study which outlines strategies
to meet the traffic demand up to the year 2010. The four schemes to be implemented by the
year 2000 include ring roads around the city centres of: Kuala Lumpur, Johor Bahru, Penang
and Malacca.

4 CONCLUSIONS
Over the last two decades, the phenomenal economic growth in many Asian developing
countries has created an increase in the demand for transportation services that has outpaced

13
the growth in supply. Singapore and Malaysia, however, have been rather successful in
meeting this challenge with different approaches. To finance its infrastructure expansion,
Malaysia has embarked on an aggressive and relatively successful privatisation programme.
Singapore, on the other hand, has chosen to restrain the demand for road space with various
pricing policies. The different approaches taken by the two countries are reflected in the
official statistics: since 1980 the number of motor vehicles in Malaysia has been growing
annually by 7.5% and the road length by 5.4% whereas the corresponding growth rates for
Singapore are 3.5% and 1.8%.

Road pricing has long been advocated by economists. Not only does an optimal pricing
scheme improve the allocation of scarce land transport resources, it also increases the
efficiency of infrastructure investments. In addition, by inducing commuters to shift from
private to public modes of transport, it also creates incentives to alter the distribution of
infrastructural investment away from urban roads and towards public transit (Borins, 1984).
As suggested by Tay (1995), many of these schemes can and are currently being considered by
other regions facing an imbalance between transportation demand and supply. Caution,
however, must be exercised in implementing these pricing policies. Without proper estimates
of the optimal pricing, these policies may not be welfare improving, as demonstrated by
McCarthy and Tay (1993b).

The relative success of the Malaysian privatisation program has enabled the government to
meet the increasing demand for infrastructure investments. Furthermore, private provision is
often touted to improve efficiency in project selection, construction and operation.

The examples of Singapore and Malaysia show how road transport policies in each country
are a product of geographical, economic and political factors. Singapore has chosen to
restrain car usage and ownership mainly due to the very limited land supply. Malaysia’s
transport policy promoting motorisation and local car industry is in line with its general policy
of industrialisation and export growth.

ACKNOWLEDGEMENT
The authors would like to thank Mr A.P.G. Menon, Chief Transportation Engineer at the
Public Works Department, Singapore, for providing data and checking the factual accuracy of
the article as well as Ms Robyn Collins for her editorial help. The useful comments and
suggestions made by the anonymous referees are also much appreciated.

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