SOPPOA wish list for Federal Budget 2021 to enhance the economic sustainability of the Palm Oil Industry in Sarawak

Monday, 2 November 2020

With the highly anticipated announcement of the new budget for 2021, the Sarawak Oil Palm Plantation Owners Association (SOPPOA) has compiled a wish list for the Federal Government to consider which would greatly assist in assuring the sustainable development of the Palm Oil Industry in Sarawak.

1. To exempt the 7- year limitation on carried forward of unabsorbed business losses for Oil Palm plantation companies operating in Sarawak under the amended Income Tax Act 1967 effective from year of assessment 2019. Based on MPOB (Malaysian Palm Oil Board) statistics, average CPO yields in Sarawak are comparatively lower compared to companies operating in Peninsula and Sabah. Furthermore, production costs are also relatively higher in Sarawak. In view of the high capital-intensive nature of the industry and volatile unfavorable CPO prices over the last few years. Extending the accumulated business losses and unutilized capital allowances to infinite as per the previous taxation regulation will enable plantation companies operating in Sarawak to remain competitive in the global market and not suffer irrecoverable losses as palm oil sector has a longer gestation period than other industries such as manufacturing, etc.


2. To provide government green tax incentives to plantation such as introduction of new mill technologies such as CPO washing, water polishing, ESP plants at palm oil mills/refineries to meet the stringent requirements of licensing conditions of MPOB & DOE. Implementation of Biogas plant to capture methane gas under the renewable energy initiatives to reduce the carbon footprint of CPO production and to enhance its marketability is also expensive and can cost up to 8-10 million ringgit per unit as mandated by MPOB over a time frame. Palm oil mills operating in Sarawak need to adhere to the government directive to be ‘green’, therefore, methane gas capture and air pollution control are becoming mandatory in order to obtain licence for palm oil mills. Unlike the grid line supply in Peninsula and Sabah, the captured methane gas from mills in Sarawak have little or no uptake for conversion to Green electricity, hence the gas has to be flared with no income generation. Incentives for gas capture have to be provided for mills to comply with the directives. The expensive capital outlay is additional to the mill original design and will only result in higher CPO production costs for the palm oil industry in Sarawak even less competitive and a extended period to cost break even. We also request soft loans be considered to cover up to 75% of these capex items, taking into account these expenditures are mandated to comply with higher environmental standards, and they do not generate any revenue as they are added costs. We propose 2% or lower interest rate, 10 -15-year term with repayment from Year 6 onwards.


3. To consider duty free import for all categories of agricultural machines for plantation use.
   
   With escalating cost for labour in the palm oil industry due to higher minimum wages, more companies are resorting to the use of machineries for mechanization or automation wherever possible to reduce operational costs and increase work productivity. It is essential to provide duty-free imports of machineries that are to be imported into the country for use in the oil palm estates and mills in order to increase efficiency and also reduce foreign labour requirements. Currently, the Customs Department under the purview of the Ministry of Finance are still imposing import duty /tax as high as 35% for machineries for use in plantations. This will not encourage companies to venture into mechanization/automation due to initial high cost of machineries. This will in turn can reduce national productivity index as Plantation companies will continue as high labor-intensive sector having to rely on foreign labour. It is imperative to reduce our labour dependency which at present average at one (1) worker to 7-8 hectares. The plantation companies are endeavoring to increase this ratio to: one worker to 9- 10 hectares.


4. Tax incentives for foreign and local investments, for downstream investments in the palm oil related industries in Sarawak. Total planted area in Sarawak is currently at 1.6 million hectares – the region with the biggest oil palm cultivation in Malaysia. In view of the large tracks of immature and young plantings in Sarawak, it is expected that crude palm oil (CPO), palm kernel oil (PKO) production and related by products will thus increase considerably in the coming years. To reduce dependency on export of only crude CPO and PKO, incentives for setting up downstream value-added products and processing activities will attract foreign investors. It is timely to offer attractive incentives to investors expressing interest to set up processing plants to utilize the sizable volume of CPO, PK and PKO due to its economy of scale. We have the land area, port facilities and cheaper hydro power electricity supply.


5. Setting up of a Palm Oil Industrial Cluster (POIC) in Sarawak.
   To encourage investments in further downstream activities related to the palm oil industry in Sarawak, there is a need to establish a POIC Sarawak, preferably in Bintulu to facilitate export of more finished high-value products. This will provide oleochemicals and related products from the industry for other applications in various spin-off industries. With the cluster in place, services and supply link industries will converge on the area to provide the required services and logistics for the cluster industries around the POIC. Apart from the current excellent port facilities, there will be new jobs creations for the locals. Provisions to be made for the immediate set up of the POIC to be located in Bintulu, Sarawak.


6. With the completion of the Pan Borneo Highway expected within the next five years, the government also need to consider the accessibility of feeder roads linked to the highway. Currently the feeder roads to the main trunk roads are in need of urgent upgrading works to enhance connectivity and mobility of heavy vehicles. This is essential for movement of palm produce, fertilizers, chemicals, machinery, building materials, etc.; needed for the plantation and mills. It is timely that well maintained and accessible feeder roads are upgraded from these rural settings to provide the much-needed supporting road infrastructure for the plantations as well as for the local residents in the rural environment.


7. To consider setting up an oil palm Plantation Academy in Sarawak customized for the needs for the plantation sector in order to maintain a constant and sustainable supply of plantation professionals/technicians to meet the demand of the expanding industry. Out sourcing from outside of Sarawak is now posing difficulties as they are fewer professionals willing to work in Sarawak as terms and conditions offered in neighboring countries are far more lucrative. Logistic constraints are also an issue for expatriated families. The proposed Academy could be linked to one of the local universities.


8. To request MPOB to set up a Research & Development Unit with adequate laboratory facilities in Sarawak to cater to the special needs of the industry, especially to address the critical areas of productivity, sustainability, quality and food safety aspects of the industry. Marketing of palm products is becoming a challenge due to demands for higher sustainability standards like RSPO, MSPO, SCCS & ISCC, the need to conform to EU standard for 2.5ppm 3-MCPDE in refined palm oil. In fact, most large plantation companies have adopted a policy of NDPE: No Deforestation, No Peat & No Exploitation in order to create a transparent and traceable network to enable them to export their produce to Western markets. More R&D advancement will enable the plantation companies in Sarawak to keep pace with sustainable development in view of the varied local soil types, changing weather patterns, terrain limitations manpower shortage and other issues. The Research Unit with its new facilities will complement the current existing research and development activities in Peninsula and Sabah.


9. To allocate adequate infrastructural funding to improve IT connectivity in the rural areas where the plantations and mills are mostly located. We may have 4iR technology to improve work efficiencies but without the connectivity, this cannot be implemented effectively


10. Covid 19 relieve /prevention provision allocations to be made available to change or transform to new norm of work culture in plantation with strict SOPs, quarantine centers, COVID 19 testing, PPE, social distancing that involves building, equipment and transportation capex and additional medical personnel /services and monitoring to stay COVID 19 free and business more sustainable.