Borneo Post Online (02/11/2020) - KUCHING: With the highly anticipated Budget 2021 to be announced on Friday, the Sarawak Oil Palm Plantation Owners Association (Soppoa) has compiled a wishlist which it believes would greatly assist in assuring the sustainable development of the industry in Sarawak.

In a statement Saturday, it called for the exemption of the seven-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 crude palm oil (CPO) yields in Sarawak are comparatively lower compared to companies operating in the 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 unfavourable CPO prices over the last few years, extending the accumulated business losses and unutilised 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 the palm oil sector has a longer gestation period than other industries such as manufacturing,” it said.

Soppoa also called for the provision of government green tax incentives to plantations such as the introduction of new mill technologies to meet the stringent requirements of licensing conditions of MPOB and the Department of Environment.

It said the 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 was also expensive and can cost between RM8 million and RM10 million 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 the 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.”

It stressed that incentives for gas capture have to be provided for mills to comply with the directives, adding the expensive capital outlay is additional to the mill’s original design and will only result in higher CPO production costs for the palm oil industry in Sarawak and an extended period to cost break-even.

“We also request soft loans be considered to cover up to 75 per cent of these capex (capital expenditures) 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 two per cent or lower interest rate (at) 10 to 15-year term with repayment from Year 6 onwards,” it said.

Soppoa suggested that the federal government also 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 resort to the use of machineries for mechanisation or automation wherever possible to reduce operational costs and increase work productivity, it pointed out.

The association added that it was 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 is still imposing import duty/tax as high as 35 per cent for machineries for use in plantations. This will not encourage companies to venture into mechanisation or automation due to the initial high cost of machineries.

“This will in turn reduce the national productivity index as plantation companies will continue as a high labour-intensive sector having to rely on foreign labour.

“It is imperative to reduce our labour dependency which at present averages at one worker to seven-to-eight hectares. The plantation companies are endeavouring to increase this ratio to one worker to nine-to-10 hectares.”

Soppoa also proposed tax incentives for foreign and local investments, for downstream investments in palm oil-related industries in Sarawak.

With total planted area in Sarawak currently at 1.6 million hectares and in view of the large tracks of immature and young plantings in Sarawak, it is expected that 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 utilise the sizable volume of CPO, PK and PKO due to its economy of scale as we have the land area, port facilities and cheaper hydro power electricity supply,” said Soppoa.

Another item on its wishlist is the 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 the state.

Soppoa said that the POIC should also be set up preferably in Bintulu to facilitate export of more finished high-value products as 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 creation for the locals.”

With the completion of the Pan Borneo Highway expected within the next five years, Soppoa said the government also needs to consider the accessibility of feeder roads linked to the highway as 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, it stressed, was essential for movement of palm produce, fertilisers, chemicals, machinery and building materials 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,” Soppoa said.

Soppoa also called on the federal government to consider setting up an oil palm plantation academy in Sarawak that is customised for the needs of the plantation sector in order to maintain a constant and sustainable supply of plantation professionals and technicians to meet the demand of the expanding industry.

It pointed out that outsourcing from outside the state poses difficulties as there were fewer professionals willing to work in Sarawak in view that terms and conditions offered in neighbouring countries were far more lucrative. It added that logistic constraints were also an issue for expatriate families.

As such, it said the proposed academy could be linked to one of the local universities in the state.

Soppoa also called on MPOB to set up a Research and Development (R&D) 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 and ISCC, and the need to conform to the EU (European Union) 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 unit with its new facilities will complement the current existing research and development activities in the peninsula and Sabah,” it said.

Soppoa also called on the federal government to allocate adequate infrastructural funding to improve Information Technology (IT) connectivity in the rural areas where the plantations and mills are mostly located.

“We may have 4IR (Fourth Industrial Revolution) technology to improve work efficiencies but without the connectivity, this cannot be implemented effectively.”

Lastly, Soppoa called for Covid-19 relief provision allocations to be made available to change or transform to the ‘new norm’ of work culture in plantations, with strict SOPs, quarantine centres, Covid-19 testing, personal protective equipment, social distancing that involves building, equipment and transportation capex, and additional medical personnel and services and monitoring, to stay Covid-19 free and make business more sustainable.