Sarawak's renewable energy corridor to boost investment significantly

 

At the heart of Malaysia’s economic transformation ambitions to rise to a high-income economy by 2020 is the initiative to extract greater value from its natural resources by shifting away from a primarily raw or minimally processed resource exporting country to a high-tech, high-value-added industrial base. While much of new industries such as IT hubs and high-end electronics manufacturing are being developed around the country’s economic and political epicentre in Peninsular Malaysia, Sarawak has focused on promoting its natural resources to attract global investors.

In exploiting the state’s numerous rivers with a series of large hydroelectric power plants, Sarawak has managed to create a plentiful supply of inexpensive and reliable electricity ready to serve a wide array of power-hungry industries. As the development of these resources is accelerated, the resulting investment in primary industries is expected to trigger spin-off effects in downstream and upstream industries.

FOREIGN DOMINATION: Foreign companies are now dominating Sarawak’s investment sector, accounting for $2.08bn, or 83%, of the $2.52bn proposed state-approved investments in 2013, according to Malaysian Investment Development Authority (MIDA) statistics. This ranked the state second in foreign direct investment (FDI) on the year, accounting for 22% of all Malaysian FDI behind only Johor state’s $3.52bn (spearheaded by its massive Iskandar Malaysia development). This trend continued into 2014, with FDI figures through September easily eclipsing the state’s 2013 annual total of $2.67bn in approved investments out of its $3.06bn total inflow. This nine-month tally amounted to more than a fourth of national FDI and launched Sarawak into first place in FDI rankings, comfortably in front of Johor with $2.14bn and more than $1bn over third place Pahang state with $1.48bn.

SCORING ONE FOR THE HOME TEAM: One of the largest beneficiaries of incoming investment has been the Sarawak Corridor of Renewable Energy (SCORE), one of five regional economic development corridors planned by the federal government. So far the primary growth nodes of the SCORE project have been Samalaju, Mukah and Tanjung Manis. The Samalaju Industrial Park, which has attracted foreign investments in heavy industries such as aluminium, polycrystalline silicon (polysilicon), metallic silicon, ferroalloys and other metal-based industries, attracted 21 companies with total approved investments of RM34.5bn ($10.49bn) by the end of 2013, according to MIDA.

As of the end of 2014 nearly a dozen international companies have committed to developing projects in the industrial area, the majority of them energy-intensive operations such as basic metal smelting and manufacturing. One of the largest successful projects, already up and running since 2013, is the Press Metal Bintulu factory, which produces up to 320,000 tonnes of aluminium ingots and billets for export annually. Although the factory is owned by its Malaysia-based parent company Press Metals, Japanese metals conglomerate Sumitomo purchased a 20% share in both the first, 120,000-tonnes-per-annum (tpa) developmental phase of the project and the more recent upgrade phase for which Sumitomo paid a reported $140.05m in early 2014. The company also purchased a 20% stake in another Press Metals affiliate in 2010, which operates an 115,000-tpa aluminium smelter in Mukah, another growth node.

SILICONES: Tokuyama Malaysia, which produces polysilicon, a material used in computer chips and solar cells, among other things, commenced operations at SCORE in September 2013. The Japanese company spent RM2.98bn ($906.52m) to build its first foreign polysilicon plant with capacity of 6000 tpa in Sarawak, and followed this up with an additional RM3.72bn ($1.13bn) to construct a second plant in the state. Although mechanical complications have hindered output at the first factory, Tokuyama’s second facility in Bintulu’s Samalaju Industrial Park is expected to boost the firm’s exports by adding production capacity of 13,800 tpa once the plant is operational in 2015.

METAL PRODUCTS & FOOD PROCESSING: These ongoing projects place Sarawak squarely in the centre of the country’s growing basic metal products sector, which was the third-greatest recipient of investment in Malaysia from January to September 2014, with $2.91bn of total proposed capital investments, according to MIDA. The bulk of this cash influx was sourced from overseas, with $2.35bn of the funds (81%) coming from foreign sources, placing it second out of all industries for FDI, behind only the booming electronics and electrical products sector, which garnered $2.55bn FDI over the same time period.

Complementing the basic metals production taking off in Samalaju and Makah, a large Taiwanese investment in the Tanjung Manis Halal Hub also began processing food in 2013. A pioneer investor in Tanjung Manis, Sea Party International committed nearly RM2bn ($608.4m) worth of investments in this SCORE growth node as of the end of 2013. Under the first phase of its development, Sea Party spent approximately RM318m ($96.74m) on aquaculture activities such as tilapia breeding, chlorella cultivation and production of halal collagen and gelatine. The second phase of the project involves production of gelatine from tilapia scales, bones and skin; organic prawn farming; and a vendor development programme. All told, the company operates four subsidiaries in Sarawak covering a wide spectrum of the sector value chain.

GEARING UP: These early pioneer investments represent the just the tip of the iceberg in terms of planned investment within Sarawak. Billions of dollars in FDI continue to pour into the state in preparation for the next wave of industrial projects. One of the most developed of these is the tripartite consortium of South Africa’s Assmang, Sumitomo of Japan and Taiwan’s China Steel Corp, which operates under the name Sakura Ferroalloys, to build and manage a smelting plant in Samalaju Industrial Park producing manganese alloy. Construction of the site is already under way, with initial production capacity of the plant expected to be approximately 169,000 tpa of manganese alloy upon start-up expected in late 2015. As of the end of 2013, the consortium had committed RM1.08bn ($328.54m) to the project, according to Regional Corridor Development Authority data.

Sumitomo has a 17% stake in Assmang through its investment in Oresteel Investments (Proprietary), the parent of Assore. Assore and African Rainbow Minerals each have a 50% stake in Assmang, the largest shareholder in Sakura Ferroalloys. A power supply has also been secured for the project through a power purchase agreement secured in 2012 by Sakura Ferroalloys with Syarikat Sesco, an electricity supplier in Sarawak, for 80 MW of electric power supply.

UPCOMING PROJECTS: One the most expensive projects currently under construction is OM Materials’ new manganese and ferrosilicon alloy smelter in Samalaju for which the company invested RM1.5bn ($456.3m) through 2013. Developed by a Singapore-Malaysian partnership, the plant boasts a projected annual production capacity of 575,000 tpa of ferroalloy, comprising 265,000 tpa of manganese ferroalloys and 310,000 tpa of ferrosilicon alloys.

Hong Kong-based Pertama Ferroalloys has also invested RM490m ($149.06m) through 2013 to construct a manganese ferroalloy smelting plant in Samalaju. Phase-one construction started in 2012 and the facility is expected to commence production in the second quarter 2015 with commercial operation coming on-line a few months later. The second phase of operations is scheduled for early 2016. Upon completion, the project will have an annual production capacity of 120,000 tonnes of silicomanganese; 54,000 tonnes of medium- and low-carbon ferromanganese; 60,000 tonnes of ferrosilicon; and 200,000 tonnes of manganese ore sinter.

Two producers of high-tech electrical components are also moving forward: the South Korean firm Asia Advanced Material, which invested in a 33,000-tpa metal silicon production plant in Samalaju to the tune of RM720m ($219.02m), as well as another metallic silicon factory being constructed by Japan Silicon.

GASES: To supply inputs to the growing number of industrial operations in the state, Japanese outfit Iwatani Industrial Gas has also teamed up with Malaysia-listed Southern Industrial Gas (SIG) in a joint venture to supply industrial gases such as liquid oxygen, argon, carbon dioxide and nitrogen to customers within the Samalaju Industrial Park. First established in March 2012 to create an air separation unit (ASU) at the site, Iwatani-SIG Industrial Gases is structured in a 60/40 partnership with Iwatani controlling the majority share and the company holding a total paidin capital of RM16.4m ($4.99m) in 2014. After investing RM18m ($5.48m) in its first gas plant and support buildings to serve customers including Tokuyama’s polysilicon plant in 2012, the company opted to invest in construction of a second ASU in 2014 to serve the growing number of customers in SCORE. Ground was broken on the new RM13m ($3.95m) ASU in 2014 with completion scheduled for the first quarter of 2015.

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The Report: Sarawak 2015

Trade & Investment chapter from The Report: Sarawak 2015

The Report: Sarawak 2015

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