Interview: Pang Teck Wai
What downstream advancements have taken place in palm oil over the past few years?
PANG TECK WAI: Just three years ago the barriers to entry into the biochemicals industry were high, at a cost of $200m-300m. Even in the US and Europe, where technologies have evolved, there are hardly any major producers of biochemicals products, with perhaps M&G Chemicals in Italy the lone exception. It is frontier technology – the risk is high, the investment substantial – but over the last three years the situation has changed, and technological advancement has pushed the entry cost down. A biochemicals plant could be started today for $50m-100m, and the products that come out of these facilities are more varied: some can produce four or five different products. This has generated renewed interest, but there is a perception that around the corner is a cheaper and more efficient way of doing things, which is leading to some hesitation. But with market demand for these products in the billions of dollars, the challenge now is how to realise the opportunities.
What has been done to alleviate the problem of insufficient feedstock supply in Sabah?
WAI: The biggest challenge is in the aggregation of biomass at a cost-competitive level. In Sabah there are 120 oil palm mills in the east, but it has been difficult to secure agreements with individual mills for the long-term supply of feedstock needed to make investment in biomass viable. One oil palm mill can only supply so much, so there needs to be a cluster of mills, each of which has different owners, to ensure consistent supply of biomass for a certain price over a certain number of years. We are now close to solving the problem and reaching terms for stable supply. We intend to act as the owner of feedstock rather than the mills. We already have a cluster of 16 mills that have signed an agreement with us, so we can promise investors a stable supply of feedstock on a 10-year basis. Prior to this we had only secured contracts of two to three years, so this is a major breakthrough that will simplify the process for investors immensely.
How can Sabah capitalise on the growing global market for halal products?
WAI: The global halal market’s potential is not limited to the Muslim population but includes health-conscious individuals due to its association with quality produce. We have recently had enquiries from Japanese and Korean investors looking to enter the halal industry, for example. There is a huge market and global potential: it is just a matter of unlocking it. Malaysia has greater credibility than other nations when it comes to halal certification, but the industry has not yet blossomed. We see it as a key industry for Sabah as even simple things like palm oil could be halal certified. Several companies entered the Halal Park in 2015, so we are optimistic that we can build momentum. The region is also rich with seafood, and there is good potential to develop halal canning factories for tuna and other marine products. With our facilities and geographical positioning, we are well placed to become a regional processing centre.
What benefits could Sabah reap from Malaysia’s strong relationship with China?
WAI: To take full advantage of the ASEAN Economic Community you need to be on ASEAN soil, so we see Sabah as an ASEAN distribution hub for Chinese firms, as China lacks a major shipping presence in the region. On Sabah’s east coast is a deepwater port and an industrial park, both on the Lombok and Makassar Straits – a key route for ships going from Western Australia to China and one of only two major shipping routes in the region, the other being the Malacca Strait. This also makes it exciting in terms of oil and gas. We could emulate the role Singapore plays for the Malacca Strait as a logistics and shipping hub.
Read More from OBG
