SINGAPORE — Singapore’s diplomatic relations with Malaysia are expected to worsen under the new Pakatan Harapan government led by Prime Minister Mahathir Mohamad, said an international research firm.

In a political risk analysis report, BMI Research noted that Dr Mahathir was confrontational towards the island-state during his previous stint from 1981 to 2003, and is expected to resume this stance now.

“We expect his administration to be more confrontational towards Singapore,” said the research paper released by the firm’s Singapore office.

“This will mark a shift in relations, which had been friendly under the leadership of previous Malaysian Prime Minister Najib Razak.”

BMI Research, which has offices in seven countries and is a Fitch Group company, noted that issues that were flashpoints during Dr Mahathir’s first stint as prime minister remain today, such as the supply of water to Singapore as well as maritime borders.

It noted that bilateral ties had been tense during Dr Mahathir’s first term, despite Singapore’s late founding prime minister Lee Kuan Yew stating in his memoirs that more was achieved with the Mahathir administration then than with the two preceding Malaysian prime ministers.

One major issue was with respect to the Points of Agreement of 1990 that both sides signed on November 27, 1990 to resolve the issue of railway land owned by the Malaysian government through Malayan Railways in Singapore.

Malaysia subsequently stated that the agreement was unfair, and it was not until 2010 that Prime Minister Lee Hsien Loong and Najib managed to end the 20-year deadlock and reached an agreement, which saw the permanent closure of the railway station in Tanjong Pagar and Bukit Timah on July 1, 2011, BMI noted.

“We are already seeing signs that relations between Singapore and Malaysia have cooled since the PH coalition took over as the Malaysian government, and this is likely to persist over the coming years,” it said.

The research firm cited two points of contention that can be expected in the new dynamics — the 350-km Kuala Lumpur-Singapore High-Speed Rail project and the 1962 Water Agreement.

Putrajaya is seeking to either halt or delay the HSR and is again agitating over the price of raw water sold to Singapore.

In an interview with Bloomberg on June 25, Dr Mahathir said the price of water sold to Singapore was “ridiculous” and renegotiation of the terms of the agreement should ensue.

On the HSR, BMI noted that Malaysia’s position has shifted between wanting a cancellation and a postponement, which it believes is “a bid to avoid compensation to Singapore while still effectively cancelling the project.”

It added that Malaysia had also not officially conveyed its intent to Singapore, and even after Transport Minister Khaw Boon Wan told Parliament on July 9 that Singapore continues to incur cost on the project, with expenditure expected to hit some S$300 million by year-end, Dr Mahathir merely said the next day that Singapore would “know what we want to do’.

A week later, Malaysia’s Economic Affairs Minister Azmin Ali said that Malaysia had not excluded the possibility that the HSR project could go ahead, pending a meeting with Mr Khaw at the end of this month.

Mr Azmin added that Putrajaya’s estimated RM110 billion cost for the HSR project includes expenses and items not disclosed by the previous administration and stated that he would renegotiate all the components involved which bloated HSR’s costs when he visits Singapore for talks.

Amid the confusion over the Malaysian government's intentions, Singapore's Ministry of Transport said on July 20 it had asked Putrajaya to clarify its official position in writing by July 31 and to indicate, also by that date, if it still wished to hold bilateral talks on the strained project.

“The seemingly deliberate lack of clarity on the issue by the Malaysian government despite repeated requests for official clarification from their Singaporean counterpart, is a clear sign that bilateral relations are likely to be more fraught under Mahathir,” said BMI.  

“We further highlight that the upcoming negotiations on the HSR is another potential flashpoint, specifically, whether both sides can agree on what ‘postponement’ means and whether that entails compensation to Singapore and if so, the amount.”

However, BMI Research noted that despite the cooler ties, both countries will likely continue to work with each other economically.

It cited how Malaysia is Singapore’s second largest export destination, even though its share has trended lower from a high of close to 20 per cent in 1994 to 10.6 per cent in 2017.  

Singapore is also among Malaysia’s top overseas shipment locations, accounting for 14.3 per cent of total exports in 2017, despite declining from 23.3 per cent in 1991, added BMI.

“Despite cooler ties, both countries are likely to remain dependent on each other, particularly on trade, given the high degree of geographical proximity.” AGENCIES