The
following are market movers that could have a positive contribution to the
potential market for the Project in the near and long term run.
a) PETRONAS’ Investment in Upstream
offshore activities ; The number of OSVs is largely dependent on the capital
expenditure related to upstream activities in the South China Sea. PETRONAS has
announced a capital commitment of RM183 billion for upstream activities for the
next 5 years. This means potential for rig builders, ship builders (for
construction of OSVs) and ship repairs and maintenance works.
b) Enhance Oil Recovery Programmed ; Another
driver is the government initiatives under the Enhanced Oil Recovery programmed
that encourage exploration of marginal oil fields by private sectors. A number
of such oil fields have already been awarded and this will set the impetus for
investment in rigs and OSVs. This programmed is expected to get the interest of the private sector if the global
price of oil continues to remain high.
c) Shipbuilding and Ship Repair 2020 Plan ;
The government recently launched a master plan called Ship building and Ship Repair 2020 (“SBSR 2020 Plan”) with the
objectives of promoting the growth of domestic shipbuilding and ship repair
sector. Among the objectives set under the plan is to capture about 80% and 2%
of the local and global for building of new ships respectively. For repair
works the plan set a target of 3% of Selat Melaka repair market ships that passed through the Straits of
Malacca annually and 80% of the South China Sea repair works. In terms of size
of vessels/ships the plan target to cater for vessels/ships of less than 200
meter length.
This initiative set target revenues of USD 5.727 billion and
USD 13.363 billion to be generated respectively by the ship building and ship
repair sector by 2020. For repair works the plan sees 70% of the revenue generated
from services extended to foreign vessels. Given the high goal and the established providers based in
Singapore, it is expected that the government will introduce necessary support, incentive and protection so
long as it within the terms of any bilateral trade agreement.
According
to Malaysian Industry-Government Group for High Technology (“MIGHT”), a body
under the purview of the Prime Minister’s Department, though the ship building
and ship repair sector promise great potential there are challenges that need
to addressed in achieving the SBSR 2020 Plan. Some of these challenges are as
follows:
(i) Replacing foreign vessels currently
serving the local O & G sector;
(ii) Shipyards capability to satisfy
ship-owners’ quality, cost and delivery expectation;
(iii) Capability of local players to market
their services without going through third party;
(iv) Component and equipment manufacturers to
qualify their products into marine standard
and
meeting classification requirement;
(v) Foreign market penetration as a result
of FTAs entered by Malaysia; capturing repair
and conversion markets from vessels plying the Straits of Malacca;
(vi) Capability of local players to be responsive
and achieve the required turnaround time;
(vii) Availability of service providers in East
Coast to avoid OSV’s resort to facilities
in Batam;
and
(viii) Ability of Sabah/Sarawak shipyards to
expand their capabilities to offer repair services
apart from new building.
On
this challenges, MIGHT reported that with respect to ship repair, proposal will
be made to the government to incentivise investment in the sector with [RA] to
increase the capacity of local shipyards to secure international and domestic
market.
d) Development of Kuantan Mega Port ; The
government has already announced a plan to expand the existing Kuantan Port to play a bigger role and cater
for more and larger ships. The project is expected to start in 2014. It will be
developed as an extension to the existing Kuantan Port and will be located to
the eastern side of the said port.
e) East Coast Economic Corridor (“ECER”) ;
Another initiative that could contribute indirectly to the market for the Project
is the ECER whose objectives, among others, are to develop the economic growth of
the areas of the east coast states of Kelantan, Terengganu, Pahang and East coast
of Johor.
f) High Impact Activity ; Initiatives
taken by the government under the National Key Economic Area (NKEA) would also
promote the growth of the ship repair, marine engineering and fabrication
sector. NKEA is targeting five per cent annual growth for the oil, gas and energy sector from 2010 to 2020. To
meet this target, NKEA will focus on four key thrusts:
(i) Sustaining oil and gas production,
(ii) Enhancing downstream growth,
(iii) Making Malaysia the number one Asian hub
for oil field services and
(iv) Building a sustainable energy platform
for growth.
Over
the course of 2013, significant strides have been made in the sector, notably
the approval of the Petroleum Income Tax Act (PITA) Amendment Bill, which aims
to incentivize exploration of marginal oil and gas fields. Significant
investments have been made by major industry players such as Shell, ExxonMobil,
PETRONAS, Dialog Group and Royal Vopak in line with the four strategic thrusts
of the NKEA. Dedicated bodies such as the Malaysia Petroleum Resources
Corporation (MPRC) have been set up to streamline cooperation between the
government and private sectors.
The
five new incentives introduced under PITA are:
(i) An investment tax allowance of up to 60
to 100 per cent of capital expenditure to be deducted against statutory income
to encourage the development of capital intensive projects in the area of enhanced oil recovery, high
carbon dioxide gas fields, high pressure,
high temperature, deep water and infrastructure projects for petroleum operations;
(ii) The tax rate of 38 per cent currently
for marginal oil field development would be reduced
to 25 percent to improve commercial viability of the development;
(iii) Accelerated capital allowance of up to
five years from 10 years, where full utilization
of capital cost deducted could improve project viability;
(iv) Qualifying exploration expenditure
transfer between non-contiguous petroleum agreements
with the same partnerships or sole proprietor to enhance contractors’ risk-taking
attitude, which could encourage higher levels of exploration activity;
(v) Waiver of export duty on oil produced
and exported from marginal field development to improve project viability.
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