Beyond Energy

Malaysia

Economic News

22 Jul 2010
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With recent global industrial trends pointing to a demand for affordable and reliable power, the Sarawak Corridor of Renewable Energy (SCORE), unveiled in February, is clearly looking to exploit the region's vast resources. Now, in an effort to diversify its economy, the state is also aiming to spread development into other industries that demonstrate strong potential.



With known reserves of around 50trn cubic feet of natural gas, 800m barrels of crude oil and some 20,000 MW of potential hydroelectric power, according to the Bintulu Development Authority, major investors such as global mining giant Rio Tinto are already moving into Sarawak to take advantage of the abundance of affordable energy allocated for development.



However, a total of 10 priority sectors have been identified within SCORE, of which oil-based and energy-intensive activities comprise just two. Others, such as timber, palm oil, marine engineering and aquaculture and livestock, are all non-energy areas in which Sarawak also has significant resources. A key thrust moving forward is to move up the value chain from being a simple exporter of raw materials to capturing more value-added at home.



In one such example, Len Salleh, general manager of the Sarawak Timber Industry Development Corporation, told OBG, "To date, we have not been that aggressive going downstream and have mostly gone horizontal into varying tree types. We are now in the works for constructing a major pulp and paper mill in Bintulu, which is scheduled to be operational in late 2011 and will receive an initial investment of over $1bn."



Three separate geographic areas within SCORE are being developed as "growth centres", each focusing on a particular sector. Similajau in the north, with its proximity to the Bakun dam, is very much focused on heavy industry. While certainly aided by access to nearby power sources, Tanjung Manis in the south will concentrate on resource-based industries. With a dedicated port and industrial free zone, the area will focus on the downstream development of palm, timber and aquaculture in order to produce oleo- and petrochemicals, industrial roundwood, pulp and paper, as well as fish processing. Mukah, located in the centre of the corridor, is set to become SCORE's smart city through the establishment of universities, research and development centres and administrative authorities.



Just as there is more than energy to SCORE programme, the three growth nodes are by no means intended to become the state's sole industry clusters. Kuching, the state capital, while not technically under SCORE, has long been home to the Sama Jaya free zone, which hosts a number of global electronics and electrical manufacturers such as Germany's X-Fab, the US's Sanmina SCI and Japan's Taiyo Yuden. Meanwhile, the Miri, Samarahan, Mukah and Kapit areas each have their own light industrial estates.



The area around Miri, which is host to the state's petroleum activity, is already well established in shipbuilding, with much of the construction and maintenance activity geared toward the oil and gas sector. With regional petroleum exploration and production on the rise, current demand for ships and ship repair outstrips supply. Emerging markets such as China, Vietnam and Indonesia are all looking to purchase good quality, low-cost vessels, something Sarawak feels it is well positioned to offer. The government has also allocated 81 ha of land in Tanjung Manis for shipbuilding and related activities, with another 49 ha recently added due to strong initial take up. Plans are underway to dredge the existing port to accommodate ships with greater draughts.



Several incentives for investment in Sarawak have been laid out. High-impact projects, for example, can obtain attractive land and electricity rates, and if they qualify for "pioneer status" can be entitled to 100% exemption on statutory income for a period of five years. As many of the sectors identified for growth, such as aquaculture and marine engineering, are more suited to small- and medium-sized companies than multinationals, those with shareholder funds not exceeding RM500,000 ($160,000) can also apply for pioneer status so long as they have Malaysian equity of at least 60%.



While the construction of major energy sources such as the Bakun dam are bringing investors in, energy alone cannot pull investors into the state. Dick Evans, chief executive of Rio Tinto Alcan, which, along with Cahya Mata Sarawak, is behind the new $2bn Sarawak Aluminium Company, told OBG, "Access to a skilled labour force, strong support from the Sarawak state government and a progressive federal government whose policy framework supports foreign investment are also very important aspects from our standpoint."

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