All eyes on eastern corridor

All eyes on eastern corridor

By THE STAR

WITH the Iskandar Development Region (formerly the South Johor Economic Region) kicking off rather successfully, the spotlight is now on the Petroliam Nasional Bhd (Petronas)-led Eastern Corridor Economic Region.

The eastern corridor development blueprint, which is expected to be out this quarter at the earliest, is said to be focused on the socio-economic and industrial development of the region involving Kelantan, Terengganu and Pahang.

The development of the eastern corridor, together with the northern corridor spearheaded by Sime Darby Bhd and southern corridor (Khazanah Nasional Bhd) are part of the Ninth Malaysia Plan (9MP), which has the objective of spreading economic development throughout the country.

Aseambankers Malaysia Bhd said the eastern corridor offers big potential for certain industries, especially oil and gas (O&G) and tourism.

The research outfit believes the plan would be to focus on several industrial clusters such as tourism, infrastructure/transportation, education and agro-based sectors to be anchored by the O&G industry.

Billions are expected to be poured into the region – RM22.3bil from Government coffers under the 9MP (which is a big 56% jump from the 8MP) and about RM40bil from Petronas' investments in O&G projects there.

“We expect the modus operandi of the eastern corridor development to be similar to the Iskandar Development Region in terms of the setting up of special bodies and institutions akin to the Iskandar Regional Development Authority and South Johor Investment Corp.

“This is to ensure smooth implementation, active engagements and balanced representation among the private and public sectors, Petronas (as the lead agency in the project), the federal and State Governments,” Aseambankers said.

So, what's new that could emerge from the eastern corridor development? According to Aseambankers, a new fabrication facility could be established in Terengganu to support the upstream O&G activities there.

It said capacities at all the existing fabrication yards in the country were almost full and faced constraints in undertaking new projects.

“Setting up a shipyard in Terengganu’s backyard could also lead to greater economic activities, considering that there is a massive need for offshore marine vessels to support the O&G activities there.

“We also foresee further expansion at existing seaports and the centralised tankage facilities in Kertih,” Aseambankers said.

Kelantan offers ample opportunities in terms of new infrastructure requirements to support the increasing activities in the Malaysia-Thailand Joint Development Area and potential O&G discoveries offshore Kelantan.

“We favour the idea of setting up O&G infrastructure (supply base and petrochemical site) in Kelantan similar to that of Terengganu, as it is strategically located and could potentially become a regional base for Malaysia-Thailand-Vietnam O&G activities,” Aseambankers said.

It added that a new cracker plant could be built in the region as well.

Aseambankers views the proposal to develop the eastern corridor as encouraging, timely and justified from a socio-economic perspective.

Based on socio-economic indicators, the eastern corridor, especially Terengganu and Kelantan, lag behind the other states and regions.

The eastern corridor contributed only RM30.8bil, or 12%, of Malaysia’s real gross domestic product in 2005 versus 15.6% for Sabah and Sarawak, 20% for the Northern Corridor states and 54.5% for more developed states of Selangor, the Federal Territory, Penang and Johor.

Aseambankers expect the positive developments to augur well for O&G players such as Eastern Pacific Industrial Corp Bhd, Dialog Group Bhd and Petronas Gas Bhd. Nevertheless, challenges cited include politics (Kelantan is currently under the Opposition party), execution risks and the exhaustion of resources.

Ratings Agency Malaysia Bhd group chief economist Dr Yeah Kim Leng noted that Petronas and its foreign joint-venture partners had successfully established an integrated petroleum complex at the Gebeng-Kertih area – the Petronas Petroleum Industry Complex.

“The development of the eastern corridor as the country's petrochemical hub is now well underway.

“The challenge would be to spearhead its growth into a leading petrochemical and O&G hub in the region by catalysing an inflow of investments in related industrial, commercial and infrastructure development,” he said.

He believes further expansion and deepening of the petrochemical hub will be the eastern corridor's core economic foundation and strategy for growth and industrial development.

Yeah expects the potential size of the investments, together with Petronas' ongoing capital investment in O&G exploration, development and production activities to rival those in the other corridors.

“Given Petronas' strong profits in recent years, an assumed 10% to 20% re-investment rate of after tax profits would result in an internal financing capacity of RM5bil to RM10bil annually,” he said.