This article first appeared in The Edge Financial Daily on May 15, 2017 - May 21, 2017

KOTA KINABALU: Emerging as the nation’s largest oil producing state has brought little cheer to Sabah as oil prices are at their lowest levels in more than a decade. Prices have more than halved since mid-2014 when the commodity traded above US$100 a barrel.

But Sabah is not standing still while waiting for crude oil prices to recover. Instead it is seeking to boost its revenue from other sectors such as palm oil, tourism and small and medium enterprises, said Deputy Chief Minister Datuk Seri Raymond Tan Shu Kiah.

Speaking to The Edge Financial Daily recently, Tan, who is also the state’s industrial development minister, said Sabah aims to be among the country’s high-income states in 2020.

“We have more areas that we can develop [crude] oil but are on a KIV (keep in view) basis because the price is not good now,” said Tan. “If the crude oil price can go back to US$60 or reaching US$80 per barrel, it will be much better and you will see oil activities come back.”

“We are the No 1 oil producer in Malaysia now, producing 320,000 barrels of oil per day, but unfortunately it is when the price is not good.

“The reason why our production is high is due to previous investments of more than five years ago,” added the deputy chief minister.

Tan said the state government wants to be directly involved in the oil and gas (O&G) industry and not merely receive oil royalty from Petroliam Nasional Bhd (Petronas).

“We should be involved in the activities — building the upstream industry and also activities in the downstream. Only through that way we will create more jobs and raise the income of the people. There’s no point having a higher percentage of oil royalty, when the income of the people is still low,” he said.

Tan said a second RM6 billion ammonia plant will be built at the Sipitang Oil & Gas Industrial Park (Sogip), as part of the O&G industry’s development in Sabah.

The Sogip, located within the Sabah, Brunei and Labuan economic triangle, will become a focal point of new O&G investment in that region.

Petronas is the major investor as it owns and operates the Sabah Ammonia Urea project, which produces ammonia and urea. The project forms an integral part of Petronas overall downstream plans to optimise the value of the O&G resource found offshore Sabah.

“Our GDP (gross domestic product) growth in recent years has been consistent, averaging at about 5% to 6%. Exports of oil and gas, CPO, chemicals are the major items. We are looking at a growth of more than 5% moving forward,” Tan said.

The state’s GDP per capita stood at RM19,734 in 2015, the third lowest in Malaysia and well below the national figure of RM37,104.

The minimum threshold as a benchmark for a high-income country is US$15,000 (RM65,100) per capita.

“We have a bigger challenge because of our larger population. US$15,000 is not easy for us, if all the jobs are in Selangor. It is not enough too even if we get higher oil royalty,” he said.

Turning to Sabah’s palm oil industry, Tan said it has a potential economic value of RM200 billion if downstream value adding — utilising CPO and oil palm biomass — is fully developed.

“We want to create another basket of export items. We are looking at biochemical and biomass. We have to go downstream,” he said, adding that Sabah does not want to continue to be a mere exporter of commodities.

Sabah’s oil palm industry remains at a low value adding processing stage. Products exported include palm olein, palm sterin, crude palm kernel oil, olein and stearin from palm kernel oil.

Palm oil industrial cluster (POIC) Lahad Datu, an initiative by the state government in 2005 to spearhead the development of palm oil downstream processing industry, has garnered more than RM2 billion worth of investments in various activities, including refineries and fertiliser-based activities.

“We wanted to take the development of biomass seriously as it can help address pollution too. There are 117 mills and the waste discharge is up to 30 million tonnes of wastes per year. These wastes include empty fruit bunch, affluent discharge and cut trees,” Tan said.

Sabah is the country’s top palm oil producing state with 117 mills producing close to five million tonnes of palm oil and palm oil kernel, accounting for 35% of the country’s supply.

Tan said about 1,500 acres (607ha) of POIC have been developed with various activities focusing on biomass, biochemical and biofuel.

“So far we are on track. In POIC Lahad Datu, the RM500 million terminal port is expected to be completed next year. The capacity is about 250,000 TEUs (twenty-foot equivalent units),” he added.

Another revenue generator for Sabah is tourism, with the state eyeing four million tourist arrivals this year after achieving record arrivals of 3.43 million last year, which brought in revenue totalling RM7.25 billion.

International visitors recorded a 15.4% increase and, unsurprisingly, China was the biggest contributor, with a 51.8% increase over the year before.

“We managed to achieve good numbers last year despite headwinds. We think the numbers will continue to grow higher moving forward,” Tan said.

Sabah’s tourism industry was previously affected by high-profile abductions on the state’s east coast and the disappearance of MH370 in 2014.