By Rozanna Latiff and Aradhana Aravindan
SINGAPORE/KUALA LUMPUR (Reuters) - Singapore and Malaysia said on Friday a long-delayed project to build a high-speed rail (HSR) link between the two neighbours will be terminated, with Kuala Lumpur to pay compensation for costs incurred.
First announced in 2013, the 350-km (217-mile) project linking Kuala Lumpur to Singapore has been estimated by analysts to cost around $17 billion.
It was suspended in 2018 shortly after former Malaysian prime minister Mahathir Mohamad came to power with a pledge to tighten finances and review major deals made by his predecessor Najib Razak.
In May, the suspension was extended another six months to allow discussion of changes to the project.
Malaysia had proposed several changes but was unable to reach an agreement with Singapore on them before the suspension period lapsed on Dec. 31, Malaysian Prime Minister Muhyiddin Yassin and Singapore Prime Minister Lee Hsien Loong said in a joint statement.
"Both countries will abide by their respective obligations, and will now proceed with the necessary actions, resulting from this termination of the HSR agreement," said the statement, released by Muhyiddin's office.
Malaysia's economy minister Mustapa Mohamed said the original terms signed in 2016 were no longer viable, given the country's economic and fiscal position which had been severely impacted by the COVID-19 pandemic.
It had proposed changes to the project structure and station design, Mustapa said in a statement.
The changes would have provided Malaysia with more flexible financing options and brought forward the construction phase by two years to help boost the country's post-pandemic recovery, he said.
Malaysia and Singapore would work together to determine the amount of compensation owed, he added.
In 2018, Singapore said it would seek to recover over S$250 million ($189.14 million) should Malaysia cancel the project.
The rail link's operations had been set to begin in January 2031. Companies from China, Japan, South Korea and Europe had expressed interest in winning contracts to build, operate and finance the trains and rail assets, people close to the bidding process previously told Reuters.
($1 = 1.3218 Singapore dollars)
(Reporting by Aradhana Aravindan in Singapore and Rozanna Latiff in Kuala Lumpur; Editing by Kim Coghill)