One of five regional economic corridors being developed throughout the country, the Sarawak Corridor of Renewable Energy (SCORE) is part of the federal government’s national agenda to propel the country into achieving high-income nation status by 2020.
SCORE’s game-plan for transitioning Sarawak into a high-income state is premised on transforming its economic base towards advanced industry by more optimally utilising and adding value to its vast natural resources. At the same time, clean and affordable power provides a competitive advantage for attracting energy-intensive investment. The arrival of industrial projects into the state’s less-developed central region will then act as a catalyst for rural growth and provide the impetus for hard and soft infrastructure development, bringing about new employment opportunities and improving the overall socioeconomic well-being of all Sarawakians.
SETTING TARGETS: At a state planning level, SCORE constitutes the flagship programme underpinning Sarawak’s Vision 2030, which was conceived in 2006 and aims to expand the economy five-fold over a 25-year period from a GDP of $6.7bn in 2006 to $34.6bn by 2030, by which point Sarawak will have attained the position of Malaysia’s richest state.
According to the State Planning Unit (SPU), SCORE is expected to accelerate annual GDP growth over the 25-year period to 7%, compared with the 5% growth rate projected if the corridor development was not in place. The total number of new jobs created in the state is expected to reach 2.5m versus an anticipated 1.7m jobs without the programme.
VISION: In all, 67% of capital called for under Vision 2030 is expected to be ploughed into priority industries. Some 12% will be directed to power-related projects, and the remainder will go towards physical infrastructure and human capital development.
The state government is intending to primarily play the role of an investment enabler and facilitator rather than providing funds itself. It is aiming for the private sector, in the form of foreign direct investors and global private equity funds, to put up between 70% and 75% of the required capital. Government-linked-companies (GLCs) should further account for between 5% and 10% of investment spend with public coffers making up the remainder.
COMPETITIVE ADVANTAGE: Authorities have identified energy, land and a strategic location as the three main pull factors for enticing investment into the corridor. Sarawak is the largest and arguably the most resource-rich of Malaysia’s 13 states, comprising around 40% of the country’s land mass and accounting for around half of its gas reserves, a third of its oil, a quarter of its planted oil palm plantation land and 44% of the country’s loggable forest area.
Of the roughly 124,500 sq km of land the state covers, just under half (approximately 70,100 sq km) is encompassed within SCORE, making it the most sizeable and resource-abundant of the country’s five regional development projects.
According to the SPU, a survey of the corridor’s energy resources reveals the central region as containing 20,000 MW of hydropower potential, 1.467m tonnes of coal and 40.9trn standard cu feet of natural gas. The state’s energy mix blueprint calls for power generation to reach 10,000 MW beyond 2020, with the majority (64%) of the output coming from hydropower, 19% from coal and 17% from gas.
Indeed, Sarawak is deemed to have the ideal rainfall level and topography for exploiting clean hydroelectric power at a competitive price. And alongside ample supplies of indigenous coal and gas, authorities believe that Sarawak boasts a robust and stable energy supply that can be better harnessed to realise the downstream potential of its other resources including palm oil, timber, aquaculture and livestock. Ultimately, the objective is to transition the state’s economy from one that primarily exports raw materials into one that not only adds value to its commodities onshore, but also advances to the point where it processes inputs – such as metal ores – that originate elsewhere.
GEOGRAPHICAL BOUNTY: With most of the land contained within SCORE contiguous and yet to be exploited, there are plenty of opportunities for greenfield investors to acquire large tracts of land for industrial development at attractive prices. SCORE’s spacious hinterland lies adjacent to 320 km of coastline stretching between Tanjung Manis at the corridor’s southern tip and Samalaju at its northern boundary, providing plentiful maritime access.
With only the South China Sea separating the state from North Asian powerhouses such as China, Japan and South Korea, there exists a real opportunity for Sarawak to emerge into a production base for goods destined to these markets, especially as some of the region’s traditional manufacturing centres for semi-finished materials such as metals and glass have become more congested and costly to operate from.
A further compelling proposition associated with the state’s geography is that it is largely unaffected by natural disasters such as earthquakes and hurricanes that plague other countries in the region.
In addition to industrial opportunities, the large tracts of land can also be partitioned for agricultural use. Of Sarawak’s 2.23m ha of arable land, some 1.7m is located within the corridor. Lastly, there is untapped natural tourism potential in the central region of the corridor in the form of beaches and lakes that stand to become unlocked once hospitality and transportation infrastructure are in place.
TARGETED INVESTMENT: The SCORE master plan calls for the development of five major growth nodes, each of which is premised on a different value proposition and each of which is being positioned to attract investments into one or more of SCORE’s 10 priority industries. Four of these are so-called trigger sectors – aluminium, glass, steel and oil-based industries – expected to provide the initial impetus for growth. Though equally important, the six other priority industries of palm oil, fishing and aquaculture, livestock, timber-based activities, marine engineering and tourism are expected to develop at a more latent pace. The most advanced of the five nodes to date, as well as the one with the most pronounced industrial aspirations, is the Samalaju Industrial Park (SIP). Located outside of Bintulu, SIP is focused on attracting energy-intensive industries that also have deepwater bulk-port requirements.
The town of Tanjung Manis is earmarked to become a halal production hub, a centre for timber and palm oil processing, and the re-located base for a marine engineering industry (see Industry chapter). Mukah, meanwhile, is designated to become the corridor’s administrative centre and will house the headquarters of the Regional Corridor Development Authority (RECODA). The “smart city” will also act as SCORE’s knowledge base and become the location for most of the corridor’s newly built research institutes, universities, polytechnics and training facilities.
Less advanced due to their remoteness in the deeper portion of the hinterlands are Baram and Tunoh, both of which are eventually expected to focus on tourism and resource-based industries such as aquaculture and plantations.
POWERING UP: Responsibility for powering the corridor rests with Sarawak Energy, which as the state’s sole fully integrated electric utility, manages all generation, transmission and distribution infrastructure. The provider projects demand from its residential, retail and commercial customers to reach 8000 MW by 2030, with two-thirds of consumption (6000 MW) coming from energy-intensive industries in SCORE.
Current generation capacity stands at 2437 MW. Studies estimate that the utility will need expand its state-wide power generation capacity to 7000 MW by 2025 if it is meet organic growth from its existing customers, fulfil the power purchase agreements already signed and expected to be signed with SCORE investors, realise its export commitments to Indonesia, and build in the requisite reserve capacity of 600 MW to ensure network security.
So far, most of the major industrial investments into SCORE have been concentrated in SIP, where the likes of Press Metal’s aluminium smelter and Tokuyama’s polycrystalline silicon plant are receiving their bulk power directly from the 2400-MW Bakun hydroelectric dam. The Murum Dam, anticipated to be fully commissioned by the second quarter of 2015, will churn out an additional 944 MW of power.
The next scheduled major power project will take the form of coal generation, with the RM1.5bn ($456.3m), 600-MW Balingian plant expected to come on-line in early 2018. At the turn of the decade, another two hydroelectric dams, Baram and Baleh, with combined generation capacity of 1200 MW, are intended to become operational. Both are currently undergoing pre-engineering assessments, with Baram experiencing some delays over land acquisition disputes. Surplus to the anchor hydro and coal projects, Sarawak Energy has identified an additional 12 sites for smaller hydroelectric plants. In addition, the utility has also stated that there exists the potential for generating 425 MW of electricity from biomass sources (see Energy chapter).
PHYSICAL INFRASTRUCTURE: Of the government’s anticipated 20% contribution to statewide investment taking place up until 2030, some RM61bn ($18.6bn), or 18%, will be devoted to physical infrastructure, RM3bn ($912.6m) (1%) will be directed to human capital, and another RM3bn ($912.6m) (1%) will go towards institutional infrastructure.
According to research from Maybank, by the end of 2013 the state government had committed RM1.9bn ($578m) towards hard infrastructure roll-out within SCORE. Sarawak ranked fourth after Selangor, the Federal Territory and Johor as the state with the most new construction projects taking place between 2010 and September 2014. With state elections set for mid-2016, the bank expects the construction sector’s order books to continue to grow until then as lead-ups to elections typically result in an uptick of “look and feel” projects being put out to tender, as is commonplace elsewhere.
On top of the aforementioned upgrade of power generation and transmission being spearheaded by Sarawak Energy, hard public infrastructure spend is mainly being prioritised towards transportation, water supply and telecommunications.
CONNECTIONS: “Attracting private investment to the rural areas is a daunting task unless the basic infrastructure especially roads are first put in place to provide accessibility and connectivity to these areas,” Adenan Satem, the chief minister of Sarawak, said in November 2014.
Multi-lane, tar-sealed roads are needed to facilitate the movement of resources, manufactured goods and human capital between SCORE’s five major growth nodes and the state’s other commercial and population centres of Kuching, Miri and Sibu. The most critical ongoing road projects related to SCORE include the RM27bn ($8.2bn) upgrade of the 1663-km Pan-Borneo Highway, which interconnects Sarawak with Sabah and Brunei Darussalam, intersecting the corridor en route, as well as intra-state roads linking Tanjung Manis to Sibu and Sarikei, and Mukah to Sibu and Bintulu (See Transport chapter).
Bintulu will act as the corridor’s international aviation gateway, while Sibu’s airport and a forthcoming airport in Mukah will act as the regional air hubs for the corridor’s western and eastern portions, respectively. Each of Tanjung Manis, Kapit, Bukun and Tuno are set to have their own smaller-scale airports catering solely for locally generated traffic.
In terms of new ports and expansions, 450 ha of land has been allocated for a RM1.8bn ($547.6m) port project in Samalaju that is planned for completion by early 2016. The Tanjung Manis Integrated Port, meanwhile, is undergoing an expansion that should see its handling capacity reach 220,000 twenty-foot equivalent units (TEUs) in 2018, compared with the 93,000 TEUs handled in 2013.
In addition to its new airport, Mukah, SCORE’s administrative and academic centre, is expected to be the focal point for the bulk of the corridor’s initial installation of telecommunications infrastructure.
SOCIAL INFRASTRUCTURE: Social infrastructure priorities under SCORE focus on the educational, health, housing and recreational facilities needed to cater for the corridor’s expanding population.
While health care provision, housing and recreation requirements are variably linked to the pace in which the corridor’s growth nodes receive an influx of migration, education is a pre-requisite to SCORE gathering momentum, as bolstering human capital and skills development is essential to achieving the critical mass of highly skilled and technically competent workers the corridor’s investors require.
An insufficient local talent pool is often referenced as the main risk and constraint SCORE faces. It is also cited as one of the shortcomings that prevented the Sama Jaya Industrial Park, a high-tech free zone set up outside of Kuching in 1991, from gaining the traction its planners had hoped for.
It is estimated that by 2030 the number of jobs to be filled statewide will have expanded 2.5 times from 900,000 in 2006 to 2.5m, with most of the new employment opportunities veering towards the skilled and semi-skilled end of the spectrum. SCORE on its own will create the demand for 300,000 new positions by 2030, and according to Mohamad Morshidi Abdul Ghani, Sarawak state secretary, between 2016 and 2020 the shortage of mechanical engineers alone could amount to 27,600.
“While it is difficult to retain an entirely local workforce in Sarawak’s heavy industry, investors are committed to localising and integrating the sector here in the state. Over a six-year period we plan to gradually phase out foreign labour and to especially reduce dependence on expatriate workers in maintenance and engineering,” Andrew Talling, general manager of Pertama Ferroalloys, told OBG.
State authorities are cognisant of the prevailing mismatch between Sarawak’s current labour pool and future industry requirements, and in response the state government has established the U-SCORE initiative as a joint collaboration between all private and public institutions of higher learning to assist in monitoring and devising solutions for addressing labour gaps. Prior to SCORE’s conception, a large proportion of locally created jobs were in low-paying, labour-intensive sectors such as plantations. The state has thus experienced a “brain drain” as skilled local talent has been attracted to the mainland and nearby markets such as Singapore by higher-paying and more exciting career prospects.
Even if the outflow of skilled labour was to be plugged entirely, relying on organic population growth to meet the projected labour demands of SCORE would not be sufficient, necessitating a concurrent reliance on immigration. According a study by the SPU, by 2030, non-native Sarawakians will account for 800,000 of the 2.5m-strong state workforce.
RESPONSIBILITIES: The attraction for prospective investors of bountiful and competitively priced land and energy would be nullified without confidence in the governing authorities’ ability to deliver on their commitments. As such, institutional capacity building and improving the professionalism and responsiveness of the state’s civil service has been an integral focal point of SCORE’s master plan.
Established in 2009, RECODA is the entity tasked with ensuring the successful implementation of all of the major development initiatives falling under SCORE, with the state body overseeing the execution of all federally funded infrastructure projects.
The SPU, which comes under the auspices of the Chief Minister’s Department, is responsible for coordinating all of the concurrent development plans taking place, and is thus another key state body involved in SCORE’s oversight. It maintains a client-facing role, screening potential investors for capabilities and contributions and acts as a one-stop shop for handling and coordinating enquiries.
Soft incentives beyond land and energy will be afforded to strategic investors the SPU deems to offer strong potential to support growth in downstream activities, service uptake and job creation. Benefits range from preferential port charges and port access to duty and tax exemptions granted by the federal government.
OPEN COMMUNICATION: SCORE’s ultimate success rests not only on securing buy-in from the business and finance community, but also on ensuring the commitment of local communities. Effective management of information flow and public transparency about the corridor’s development takes on added importance considering that some of the major dam projects have received significant scrutiny from nongovernmental organisations and environmental groups due to their encroachment on indigenous community land and associated flood risk.
The Sarawak Development Institute, established in 2005 as a non-profit research institute focused on state policy matters, has been tasked with formulating the communications strategy for SCORE.
At an August 2014 workshop announcing the initiative, chief minister, Adenan Satem acknowledged that shortcomings and inconsistencies in information flow had created challenges in the past, stating that, “SCORE provides a solution to the issue of underdevelopment, but we need to have better and more strategic communication planning so that our communities on the ground can share our vision of the state’s future.”
KEEPING SCORE: SCORE is being developed in three phases, and so far, it appears that the programme’s early ambitions have materialised. The first phase, which runs from 2008 to 2015, emphasises the construction of high-priority infrastructure and attracting investments into trigger industries. As outlined earlier, with the Bakun Dam in operation and Murum set to come on-stream in 2015, power supply is expected to comfortably match demand for the foreseeable future so long as the new coal plant and other dam projects are delivered on schedule. At the Sarawak Business Summit in November 2014, Ismawi bin Ismuni, director of the SPU, said, “We are now trying to bring in investments into rural areas where we have developed hydro projects, like Bakun and Murum dams. Bakun Lake, for example, has the potential for eco-tourism development. We need to bring in more private investments, not necessarily only foreign investment, but a mix of foreign and local investments or joint ventures.”
In terms of investments, as of July 2014, 19 projects at an estimated investment value of RM30.4bn ($9.2bn) had been approved within SCORE. Over the first half of that year, Sarawak ranked as the top state in Malaysia in terms of foreign capital secured.
Most of the investments SCORE has received to date have gone towards big-ticket projects in heavy industries such as steel, aluminium and polysilicon that offer significant downstream manufacturing spin-off potential, as well as strong requirements for support services in areas such as catering and logistics (see Industry chapter). If progress continues to proceed according plan, SCORE’s second phase, running from 2015 to 2020, should see clusters sprouting up around the trigger investments as well as increased research and development efforts. During the third phase, running from 2020 to 2030, SCORE is expected to undergo maturation and fully reap the rewards of foreign investment and knowledge transfer, with home-grown Sarawakian businesses increasingly taking the lead.
ENERGY ENVIRONMENT: Sarawak Energy employs a blended pricing mechanism for negotiating contracts with its bulk customers, and as the corridor’s newer dam and coal projects are expected to entail higher cost structures, the mechanism should result in newer industrial tenants having to pay more for their energy than earlier entrants. Even as tariffs increase, the rates offered over the shelf life of a purchasing power agreement are still favourable. It is unclear what impact falling global oil and energy prices might have on investment decisions over the course of 2015. However, the effect on Sarawak should be minimal as the state is looking to pursue capital-intensive investments that have a long-term horizon and would have been undergoing due diligence for some time, making them less susceptible to short-term fluctuations in energy prices. Furthermore, though competitively priced energy is an important criterion for investors, it is only one of the many components being packaged by SCORE.
OUTLOOK: While ambitions for the corridor are lofty, the master plan appears underpinned by solid fundamentals. Worldwide, heavy industry is congregating in locations where power is in ample supply, affordable and generated cleanly. Meanwhile, the North Asian markets that SCORE’s manufacturers are set to serve represent some of the world’s largest and fastest-growing consumers of metals, petrochemicals and other energy-intensive products. Port projects are being monitored closely, as not only does capacity need to be expanded, but the construction of purpose-built storage facilities is also required to cater to new materials being produced in SCORE.
Of the five nodes earmarked for development, SIP has gained the earliest traction and appears to be delivering on its mandate, while some question marks persist on the commercial viability of the others. Tanjung Manis’s large land bank, proximity to offshore oil and gas activity, and natural deep port anchorage position it as a logical destination for fostering a marine engineering industry. Doubt persists over the feasibility of it becoming a base for food and beverage manufacturing considering its relative isolation, and there are competing halal hubs operating elsewhere in the country. However, the authorities are committed to spreading opportunities.
“SCORE is not just about pure economics but political aspirations, and even though it will be costly to put up new infrastructure in Tanjung Manis and other nodes, the government is doing all that it can to help the central region catch up with the rest of the state,” Abdul Karim Openg, president of the Sarawak Chamber of Commerce and Industry, told OBG.
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