economic transformation programme - palm oil · % reduction of hardcore poor jan%2010% jan%%2011%...

Economic Transformation Programme Palm Oil as a Na*onal Key Economic Area

4 strategic thrusts to transform us towards Vision 2020

1 Malaysia (People First, Performance Now)

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10th & 11th Malaysia Plan

4 Strategic Thrusts

People First Performance Now

was a first step to unite our people


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4 Strategic Thrusts

We introduced 6 NKRAs under the GTP based on what the rakyat wants

The GTP is already delivering results in 12 months ....

38% drop in Street Crime

Jan-Sep 2009

Jan-Sep 2010

29,596

18,299 -38.1%

-11,297

54,569 children are benefiting from

1,358 pre school classes

9,816 schools (primary & secondary)

have been ranked

99% reduction of hardcore poor

Jan 2010 Jan 2011

44,463

410

3716 government

contracts have been

published on line

myprocurement.treasury.gov.my

208 corruption offenders published

in MACC website

www.sprm.gov.my


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4 Strategic Thrusts

In order to achieve a high income nation, our GDP must grow at least..

6%

2011 2020

per annum

That means we must grow the

economic pie in the next

10 years

So that everyone in this country

can benefit

The new engine of growth

will come from the private sector P

rivat

e S

ecto

r

This is in line with the 10th Malaysia Plan..

Private Sector Driven

Public Sector Driven

So how do we achieve a high- income nation status ?

The NKEAs will identify projects that will achieve the Gross National Income

NKEA (driver)

National Key Economic Areas (NKEAs)

Wholesale & Retail

Oil, Gas & Energy

Palm Oil

Healthcare

Financial Services

Greater KL

Agri culture

Tourism

Educa*on

Electrical & Electronics

Business Services

Comms Content

Infrastructure

12 NKEAs 11 sectors 1 Geography

The 12 NKEAs are the growth engines (73% contribution to the Gross National Income)

Health Svcs

CCI Edu-‐ ca*on

Biz Svcs

E&E Tourism Others2 2020 GNI

523

380

Agri-‐ culture

W/sale & Retail

50

54

Palm Oil

55

Fin. Svcs

Oil, Gas & Energy

What are the unique features of ETP?

• ETP Is a Programme, and Not a Plan

• ETP is anchored on Gross National Income

• ETP is co-created by private sector

• ETP will shift the role of the Government

• ETP is for all

• ETP creates higher paying jobs

Overview of ETP unique features.. 1

2

3

4

5

6

12 Lab Reports

131 Entry Point Projects

60 Business opportunities

3.3 million jobs opportunities

1 30,000 X

3 X

131 Entry Point Projects (EPPs) worth USD 138 billion

188

523

Note : Nominal GNI (USD billions). Assuming population by year 2020 is 31.6 million

112

2020 GNI Target

Entry Point Projects (EPPs)

Growth in other Sectors

138

2009 GNI

Business Opportunities (Biz Opps)

1 2

86

3

USD

(bill

ion)

(RM 442 b)

(RM 359 b)

(RM 275 b)

(RM 1.7 t)

(RM 661 b)

2

60 Business Opportunities – (BOs) worth USD 112 billion to be identified in the next 10 years

2

ETP is co-created by the private sector 3

1,000 people workshop..

3

500 representatives from the private and public sector

3

Open engagement approach through ETP Open Day

3

13,000 people

Shifting the role of the Government from financier to facilitator

4

...92% of the investment will come from the private sector

100% = USD 444 billion

92% USD 410 b

8% USD 34 b

Public Sector

Private Sector*

* Includes GLCs & non-GLCs

4

73% of the private investment will come from Domestic Direct Investment (DDI)

4

ETP is for all (inclusive) 5

131 EPPs spread throughout the country...

Note : Illustra*ve

5

with potential

323,596 jobs to be created

in the rural sector

Agriculture

Oil Palm

CCI

Addi.onal Job Opportunity (rural areas)

94,100

83,485

3,135

Tourism 2,919

Wholesale & Retail

196,696

5

A lot of opportunities for women in Malaysia

5

14 3.9 1.2 million

women workforce are women

million million

female university students

EPPs are Entry Point Projects....

5

A lot more projects will be identified...

GNI Target (USD 15,000 per capita)

Entry Point Project (EPP)

Business Opportunity (B.O)

Unidentified / Other Unknown projects

Gross Na*

onal Income

Year 2011 2020 Note : Illustrative

5

EPPs are catalytic

Note : Illustrative

EPP 1

Project A

Project B

Project C

Project D

Supplier 1

Supplier 2

Supplier 3

Supplier 4

Manufacturer 1

Supplier 5

Supplier 6

Manufacturer 2

Manufacturer 3

Manufacturer 4

Manufacturer 5

Manufacturer 6

5

ETP creates higher paying job opportunities

6

A total of 3.3 million additional jobs will be created by year 2020... �

6

63% will be in the middle and higher income

2020 Projected Salary Distribu*on Number of jobs (millions)

0.6 0.2

3.7

4.7

2.8

1.3

4.6

3.3

0.3 1.2

2.3 2.9

2020 2009

< RM 750 RM 750 – RM 1.5k

RM 1.5k – RM 3.k

RM 3k – RM 5k

RM 5k – RM 7.5k

> RM 7.5k

Low Income Middle Income High Income

6

600,000 people will move out of the lowest income segment

6

The bottom 40% in Malaysia will enjoy a higher income

Source : Tenth Malaysia Plan

2009 2015

RM 2,300

RM 1,440

1980

RM 337

6

PM has announced in Budget 2011 that RM 6.0 billion will be allocated to catalyze the EPP projects

Public Funding

USD 410 b

USD 34 b

Private funding

8% public funding will catalyze 92%

of private investment

Clear Governance Structure is crucial to monitor the ETP projects

ETP Forum

Economic Council

NKEA Steering

Committee

EPP / BO owners

Semi-‐Annual

Weekly

Monthly

Year-‐round

Investment Committee

Monthly

Wholesale & Retail

Oil, Gas & Energy

Palm Oil

Healthcare

Financial Services

Greater KL

Agri culture

Tourism

Educa*on

Electrical & Electronics

Business Services

Comms Content

Infrastructure

Palm Oil NKEA

52

Accelerate Replanting

Improve FFB Yield

Improve Workers’ Productivity

Improve Oil Extraction Rate (OER)

Develop Biogas Facility at Mills

Focus on high value oleo derivatives

Commercialise 2nd Generation Biofuels

Expedite Growth of Food and Health Based Segment

1

2

3

4

5

6

7

8

8 Entry Point Projects (EPPs)

UPSTREAM GNI IMPACT : RM33.1 billion

DOWNSTREAM GNI IMPACT : RM14.0 billion

ENHANCE DOWNSTREAM EXPANSION &

SUSTAINABILITY ii

IMPROVE UPSTREAM PRODUCTIVITY & SUSTAINABILITY

i

53 (*) If necessary, this will be updated by MPOB during implementation (**) Includes cash and tax incentives

The first EPP aims at implementing an accelerated replanting policy to clear the backlog of old low yielding palms across Malaysia (2011 Budget : RM 297m)

Clear backlog of low yielding palms (> 25 years) across Malaysia: 365.414 hectares

Increase average yield of plantations across Malaysia

Secure buy in of plantations and smallholders for mandatory criteria

Ensure full collaboration between public and private sector R&D to ensure fast availability of high yielding new planting material

RM 4.6 b

Key challenges

Key stakeholders Plantation companies, Smallholders, MPOB, KPPK,

RISDA, FELDA, FELCRA, Sabah & Sarawak State Government Agencies

Key issues Cash flow considerations of

individual companies and smallholders have held up the replanting rate of old and low yielding palms

Implement mandatory replanting policy for plantations and smallholders If the current replanting is not

accelerated, it would take 14 years to clear the current backlog of trees over 25 years.

2 strict replanting criteria for smallholders: – No trees above 25 years, & – Plot average yield for past 3 years

<13 MT/Ha/year (*) for organised smallholders, <10 MT/Ha/year (*) for independent smallholders.

A strict replanting criterion for plantations: – Trees above 25 years and yielding

less than 16 MT/Ha/year (*) for the past 3 years must not exceed 5% of total planted area

New higher yielding planting material will be introduced in the plantations and smallholders (e.g.: clonal material)

Expected time to clear backlog is 2-3 years

GNI Impact in 2020

Public Investment 2010-2020 (**) RM 1.3 b

Jobs created 2010-2020 Nil

Objective Recommendations Impact

EPP 1 : Accelerate replanting

54

YB Tan Sri Bernard Dompok will be launching the Replanting and New Planting Programme on 31st January in Sabah�

EPP1: Accelerating Replanting

55 * Includes cash and tax incentives

The second EPP focuses on increasing the national FFB yield from a current 21 MT/ha/year to 26 MT/ha/year by 2020

Increase upstream yield from 21MT/ha to 26.2 MT/ha of current plantations

Implement best practices in new plantations

Improve quality of life of 161,000 independent smallholders across Malaysia

Ensure adequate resources for MPOB’s TUNAS and implementation of one reference Codes of Practice or company best practice equal r better than CoP

Prevent potential issues with formation of cooperatives (corruption, mismanagament etc.)

RM 10.2 b

KPPK, MPOB, smallholders, plantations, FELDA, RISDA, FELCRA, State Govt Agencies, SIRIM

Key issues Low yield of independent

smallholders (600.000 hectares or 12% of total palm oil areas in Malaysia)

Lack of access to best practices and small average size of independent smallholders dilutes average FFB output performance

The three reference Code of Practices are not applied by all plantations, which drags down average yield

Mandatory CoP Enforce mandatory implementation of

one of the 3 reference Codes of Practice or company best practice for plantations and organised smallholders

MPOB/SIRIM to conduct regular audits to ensure full implementation

Cluster independent smallholders in cooperatives Take stock of all independent

smallholders and group into cooperatives (2010-2013)

Cooperative membership to become mandatory for ALL smallholders after 2013

At least 1 of the reference Codes of Practice is mandatory for cooperatives

Implement yearly ranking MPOB to rank smallholders by yield

within cooperatives

MPOB to rank cooperatives by yield nationally on a yearly basis

GNI Impact in 2020

Public Investment 2010-2020 (*) Not Required

Jobs created 2010-2020 1,600 jobs

Objective

Key challenges

Key stakeholders

Recommendations Impact

EPP 2 : Improve fresh fruit bunch (FFB) Yield

56

No Activity Due Date Status 1 Job specification and distribution

(IRED) - Completed

2 Advertisement (HRD) 4 Oct - 1 Nov 2010 Completed

3 First screening (HRD) 2 - 10 Nov 2010 Completed

4 Second screening (IRED) 11 - 25 Nov 2010 Completed

6 Final list for interview 26 Nov 2010 Completed

6 Calling for interview 27 Nov - 3 Dec 2010

Completed

7 Interview (MPOB HQ) 4 - 10 Dec 2010 Completed 8 Interview (East, South and Northern

zone) 10 - 15 Dec 2010 Completed

9 Interview (Sabah and Sarawak) 16 - 20 Dec 2010 Completed

RECRUITMENT OF 100 TUNAS OFFICERS - Timeline

10 Appointment 20 - 31 Dec 2010 Completed 11 Report for duty 2 - 31 Jan 2011 Work in progress

12 Training 15 – 28 Feb 2011 Work in progress

57

RECRUITMENT OF 100 TUNAS OFFICERS - Timeline

TUNAS officers required by Feb 2011

posts filled posts to be interviewed on 2 Feb 2011,

to be interviewed on 15 Mar 2011 and

targeted to report for duty on 1 Apr 2011

58 • Includes cash and tax incentives • (**) Maximum potential expected

This next EPP is targeted at improving workers’ productivity in the fields through the introduction or scale up of new techniques for key activities

Increase average productivity of harvesters

Reduce dependence on foreign labor in Malaysia

Secure buy-in from companies for Cantas usage

Increase in production of Cantas production will require full commitment of selected manufacturers

Buffalos breeding program in Malaysia still small scale and ad hoc

RM 1.7 b

Plantations, MPOB, KPPK, Immigration Department, MOHR (Labor Dept.), Vet. Dept.

Key issues Growing shortage in labor, esp.

harvesters in oil palm plantations impacts overall industry yield

Lack of mechanisation options in oil palm plantations creates over dependence on manual labor

Over dependence on foreign workers creates a large outflow of money due to remittances abroad

Develop usage of Cantas Develop production of Cantas for

bulk purchase (high volume and lower price per unit)

Plantations to adopt Cantas Expected increase in workers productivity ~ 85%

Develop usage of diamond sharpening tool Contact agent for tool and negotiate

for bulk purchase (fix a lower price based on volume)

Promote distribution and take up by plantations, FELDA and smallholders

Switch from manual to buffalo assisted FFB collection in plantations

Veterinary Dept (1) to select local importer and supplier for buffaloes import, (2) to launch breeding programme is deemed necessary to meet demand

Need 32,000 in 5 years

GNI Impact in 2020


Jobs created 2010-2020

-110,000 (foreign) +25,000 (**)

Objective

Key challenges

Key stakeholders


EPP 3 : Improve workers’ productivity

59

From traditional sharpening stone… … to diamond sharpening tool

Sharpening Tool

2

Productivity: + 40%

From manual collection… … to buffalo assisted collection

FFB Collection

3

Productivity: + 50%

accelerate Local

Employment

Higher Productivity

Improved Working

Conditions +

From manual harvesting pole … to CANTAS

Harvesting

1

Productivity: + 86%

EPP 3 – Improving workers’ productivity

60

No Plantation State Date of visit Status

1 FELDA Technoplant Pasoh 2 Negeri Sembilan

16 Dec 10 Completed

2 FELDA Technoplant Pasoh 3 Negeri Sembilan

16 Dec 10 Completed

3 FELDA Technoplant Jengka 20 Pahang 17 Dec 10 Completed

4 FELDA Plantation Sahabat, Lahad Datu

Sabah 17 Jan 11 Completed

5 KLK Ladang Tuan Mee, Sg. Buloh Selangor 20 Dec 10 Completed

6 Sime Darby Ladang Pekan, Bandar Tenggara

Johor 22 Dec 10 Completed

7 Tradewinds Miri Sarawak To be determined

W.I.P

11 pilot plantations for trial


61

Areas of improvement Results Productivity increased 1.8 MT/man day to 3.2 MT/man day

Labor dependence reduced 50% – 61%

Workers’ income increased RM 800/month to RM 1600/month

Land to labor ratio increased

18 ha to 36 ha

Tool to land ratio increased 36 ha to 106 ha

* Sg Labis and Pekan Estate, both plantations owned by Sime Darby Plantations

Pilot plantation results*


62

This EPP aims at increasing national average Oil Extraction Rate (OER) from 20.49% to 23%

The objective is to increase the National OER from 20.49% to 23% by 2020

New higher yielding planting materials

Availability of funds

Increasing supply of FFB

RM 13.7 b

Palm Oil Millers

FFB Suppliers

KPPK /MPOB

Key issues Inconsistent quality of FFB are

delivered to Palm Oil Mills

Inefficient plants with relatively high oil losses on FFB at 1.8%

Old mills have not upgraded their machineries

Improve the quality of FFB at mill gate with the help of MPOB enforcement officers.

Enforce proper grading on incoming FFB, based on guidelines produced by MPOB.

Millers and dealers of FFB must employ competent graders, certified by MPOB

FFB price must be paid according to the quality of FFB received

Improve supply of steam to maintain a stable temperature throughout the processing activities, i.e. sterilisation and oil recovery

Installation of Empty Fruit Bunch (EFB) Screw Press

KPPK to arrange for fund allocation from Commercial/ Development Banks to upgrade/ modernise POM.

GNI Impact in 2020



Objective

Key challenges

Key stakeholders


* Includes cash and tax incentives

EPP 4 : Improve oil extraction rate (OER)

63

This EPP aims at building biogas facilities at mills across Malaysia

To build Biogas (methane) capturing facility for utilisation in palm oil mill for own use and supply electricity to the National Grid.

Tedious approval process

Limited technology provider

Lack of technology know-how in dealing with POM biogas by PO millers

Financial Constraints due to high CAPEX for installation.

RM 2.9 b

Palm Oil Millers

KPPK, Ministry of Natural Resources & Environment, Commercial/Dev Banks

Key issues Companies are not reaping the

benefits from carbon credit incentive offered under United Nation Framework for Climate Change Convention (UNFCCC).

Opportunity loss from unutilised methane gas released during milling process

Mandatory CoP To gradually build biogas facilities

across 400 mills by 2020. To supply electricity to national

grid from 200 mills by 2020.

To utilize captured biogas in POM boiler and free up Oil Palm Shell for sales, in 267 POM by 2020.

To increase electricity tariff for Renewable Energy Power Purchasing Agreement (REPPA) from the current RM0.21/kWh to proposed RM0.35/kWh

GNI Impact in 2020



Objective

Key challenges

Key stakeholders



EPP 5 : Develop biogas facility at mills

64

28 mills with biogas plants (as of Dec 2010)

2

7

3

2

5

1

2

1

1 3

1

#

# 8 additional mills with biogas plants by 2011

3

1

2

1

1

Total mills : 417

EPP 5 – Develop biogas facility at all mills : Development plans

65

…suffers from low margins…

CAGR (’02-’07): 5.1% CAGR (’09-’14): 4.6%

Basic oleo-chemical market is saturating and stagnating….

Basic Surfactant Bio polyol

Bio lub. Agro chem.

…and 98% of Malaysia’s production is focused on basic oleos

Shift focus of production from basic oleo-chemicals to higher value oleo derivatives from a current 1% share to a forecasted 40% by 2020

Focus development of 5 key products – i) Agro chemicals ii) Surfactants iii) Bio lubricants iv) Bio Polyols v) Glycerol derivatives

New products & markets - Risks of shifting to a new product category & expansion to new markets

Research & marketing – Need for specific R&D and marketing focus

Time - Uncertain timeline for full-scale commercialisation Price pressure - Boom and bust cycle of oleos to put

pressure on margins for new players Scale – Challenging to find investors for scaling up

production

RM 5.8 b

MPOB, MPOC Private sector – Sime Darby, IOI, KLK, Felda MIDA

Key issues

Support local oleo-derivative industry/players to expand domestic production – Pre-commercialization investment and

technology acquisition funds – Focused R&D efforts on identified high

value products

– Global market knowledge and research support

Incentivise local players to setup plants through JVs abroad – Tax incentives for foreign acquisitions

– Enhanced collaborations with investors and technology providers

Major oleochemical players to lead investments – Increase derivatives revenue share by

2020

Exploit synergies with petrochemical players – Share raw materials and spread

investments across two industries

Encourage foreign investors to setup factories/JVs in Malaysia – Promote five proposed oleo hubs

GNI Impact in 2020

Public Investment 2010-2020 (*) RM 0.59 b


Objective

Key challenges

Key stakeholders


The sixth EPP recommends shifting Malaysia’s focus towards high value oleo derivatives (2011 Budget : RM 127m)


EPP 6 : Focus on high value oleo derivatives

66

commercialisation – Timeline for full-scale commercialisation of the BTL technology is still unclear

Higher capital investment – Required higher investment than other biomass technologies, and hence finding investors will be a challenge

Technology transfer – Imparting technology to smaller players to ensure future ramp-up

RM 3.3 b

Private sector – Premium Renewable Energy, Genting Bio Oil

Plantation companies MPOB

Key issues Empty fruit bunches, fibre and shells

accounts for ~ 74% of volume of fresh fruit bunches

Biomass-to-gas (BTG) technology is available, but is low value generating and is still costlier than fossil fuel gasification

Biomass-to-solid (BTS) technology is also available, and is higher value generating; however it has limited applications and is cumbersome to transport

Biomass-to-chemical (BTC) is the highest value generating, but is still only in R&D phase, and will take a much longer time to commercialise (> 2020)

Push by private sector Premium Renewable Energy &

Genting Bio Oil to form JVs with plantation companies and establish Bio Oil plants

They will further commercialise the technology for conversion of Bio Oil to transportation fuels

Feedstock availability

Bio Oil players will have to negotiate with mills to ensure feedstock availability and sustainability

Support and optimize infrastructure and logistics The Bio Oil players will need to

develop their own infrastructure for transportation and storage

Promotion of Green Technology Financing Scheme GreenTech Malaysia (Formerly PTM)

to aggressively promote the GTFS to all potential Bio Oil players

GNI Impact in 2020



Objective

Key challenges

Key stakeholders


Next EPP emphasizes on an early commercialisation of 2nd Generation Bio-fuels

Fast-track the commercialisation of 2nd generation biofuels to leverage the biomass generated in the industry

As the technology becomes available in the next few years, Bio Oil can be converted into transportation fuels like diesel


EPP 7 : Commercialise 2nd generation bio fuels

67

To position Malaysia as a significant world player in the Food & Health-based downstream segment

To expand Malaysia’s global market share in the Food & Health-based (incl. Halal) downstream segment – Targeted total incremental market

share in selected countries/region (i.e. Malaysia, EU, US, Eastern Europe, China, India, Indonesia, MENA* and Pakistan) of at least 1.0% by 2020

RM 4.9 b

Key issues

1) Acquire foreign food players The fastest way to achieve end in

mind but has low probability of success

Able to localize acquired expertise

2) Anchor Company Model

Anchor Co. will: i. Consolidates/buys all products

produced by SMEs ii. Brand, promote and sell

products to the market iii. Advise SMEs on technology,

QC and market requirements SMEs will:

i. Optimize productivity ii. Maintain/enhance quality of

products and produce based on Anchor Co.’s requirements

3) MPOB Inc. MPOB Inc. will provide advisory

services to SMEs interested in commercializing MPOB products

advisory services include: i. Technical know-how ii. Sourcing of funds and financial

evaluation iii. Market intelligence iv. Branding and promotion

GNI Impact in 2020

Public Investment 2010-2020 (*) RM 4.4b


Objective

Key challenges

Key stakeholders


Reluctance of major companies to invest in downstream activities

To encourage SMEs to commercialise new palm-based products

To encourage top players to acquire foreign companies

Oil palm industry players

SMEs involved in producing palm-based products

Existing local Food & Health-based downstream players

Slow growth in Food & Health-based downstream segment: 1) Plantation companies

Have muscle to vertically integrate BUT prefer sure gains in upstream investments

2) Food & Health-based companies Are mostly SMEs and have

ingredient formulation expertise BUT no financial muscle and economies of scale to compete and expand effectively


The eighth EPP is to expedite growth in food & health based downstream segment (2011 Budget : RM 23.3m)

EPP 8 : Food & Health Based Segment

68

8 key initiatives will focus on the ‘lowest lying fruits’, whilst planning for longer term benefits

UPSTREAM PRODUCTIVITY & SUSTAINABILITY

i

DOWNSTREAM EXPANSION &

SUSTAINABILITY

ii

Accelerate Replanting 1

Improve FFB Yield 2

Improve Workers’ Productivity 3

Increase Oil Extraction Rate 4

Develop Biogas Facilities at Mills 5

Expedite Oleo Derivatives Growth 6

Commercialise 2nd Generation Biofuels 7

Expedite Growth of Food and Health Based Segment

8

KEY INITIATIVES

(RM 4.6 b)

1 2

(RM 10.2 b)

Ease

of I

mpl

emen

tatio

n

High

Low

GNI Contribution High ( > RM 3 Billion)

3

(RM 1.7 b)

4

(RM 13.7 b) 5

(RM 2.9 b)

6

(RM 5.8 b)

7

(RM 3.3 b)

8

(RM 4.9 b)

Identify ways to increase value add

Remove barriers for implementation

HIGH PRIORITY

LOW PRIORITY

Low ( < RM 3 Billion)

EPPs already delivering results...

We have 3 versions for the rakyat

Avid reader Lazy people Laziest people

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Execu*ve Summary

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economic transformation programme - palm oil · % reduction of hardcore poor jan%2010% jan%%2011%...

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