A Proposed Solution for Downstream Industries in Malaysia

By Arveent Kathirtchelvan

Now that the Lynas Advanced Materials Plant (LAMP) saga seems to be settling down, Malaysia should start focusing on how to take advantage of it to maximise the potential of rare-earth related industries to thrust the economy. This can be done in multiple ways, from the government buying a stake in the LAMP to simply enticing companies from overseas to set-up their businesses in Malaysia. Liberasi would like to suggest another model, whereby a joint venture is set up between Lynas and the government (either directly or through one of our GLCs or GLICs) to control local distribution of Lynas products. This entity can be utilized to partner with manufacturers to produce rare-earth products. For the sake of argument, let’s call this company Rare-Earth Co. (RECo).

This seems like a complicated arrangement, however its advantages, we believe, justify exploration. Firstly, the rare-earth industry, with respect to the downstream, does not exist in Malaysia in much significance. This may lead to companies entering Malaysia as pioneers and demanding unfairly excessive incentives which may take much of the advantages of the industry in question away from Malaysians. Having the state involved can help drive decisions that may not be the most advantageous for a purely profit-oriented entity.

For example, a big selling point for Malaysia in attracting these investments is usually cheap labour, which then leads to depressed wages and an inability of the workforce to afford a higher-quality standard of living. State-control can help increase wages as a policy directive, which may affect the profits of an enterprise but is better overall for Malaysians. In fact, a huge stumbling block for increasing the national minimum wage has been the fear that companies will leave to other countries within Asean to take advantage of lower wages there. Insulating industries from these shocks can help keep them here and concurrently scale up of wages as well.

State control of rare earths may also help drive varied research and development activities that may not be explored extensively for a purely profit-driven enterprise. Products that may be in competition with those currently offered may be produced and expanded whereas private hands may suppress it to ensure current profits are unaffected. Moreover, these IPs can be used to generate state income through exports and sales to the private sector, whether local or foreign, which will not be the case when bringing in foreign Multi-National Corporations (MNCs). Increased economic strength of the state can help drive improvements in terms of social development and welfare schemes to benefit the rakyat.

However, a question to ask is how would this model be competitive against a purely market-driven, private-private partnership, either through joint ventures or customer-vendor relationships? For this, we may look to China. Through programs 863 and 973, the Chinese government focused on advancing the country forward strategically, economically and technologically through state-funded research and development of knowledge to propel the rare-earth industry. Alongside this, the government also encouraged local companies to partner with overseas firms, from which new technologies were developed through a state-driven approach. This aggressive approach is how China builds new capacity for their technologies quickly.

What we can take away from this approach is the state can provide the right environment for the rapid development of the rare-earth industry. Firstly, putting forth advantageous financing options can increase the interest of foreign corporations to partner with RECo to develop their products. The best financier has always been the state, especially in ventures with strategic value to it. With this in mind, investment in building factories, buying equipment and establishing research centres can be offered by the state as perks of foreign companies partnering with RECo. In addition to this, cheaper land, revised tariff rates, stamp duty exemption, lower interest rates, granting pioneer status, easier regulatory checks and greater marketing potential can be explored as well.

Whatever company arising from RECo joint ventures then will be under the control of the state, opening income streams and opportunities to develop local innovations. Geopolitically speaking, rare-earth industries are currently highly dependent on China, which holds a near-monopoly at 84% market share. This means, if China decides on shifting policies to exert geopolitical control onto the global economy, most countries would have to abide by China’s terms, at least for the short term.

In response to this, other countries are looking to develop their own rare-earth supply chain. However, there are specific vulnerabilities in the market that might make this challenging. For example, the Chinese influence in the market, especially with undercutting of prices, makes other suppliers less viable to customers, effectively killing them off. To overcome this, there needs to a policy-driven approach confined to a geographical region to accelerate the growth of the local industries to be competitive with China.

All of this, however, will take time to establish and run well, with costs needing to be artificially brought down by price-control mechanisms or shouldered entirely by end-users, but either of these can cause associated problems. Costs of products using rare-earths, from wind turbines to several electronic equipment, would skyrocket, more so with the higher labour costs in developed nations. Moreover, the neoliberal status quo of most countries alongside lobbying against the rare-earth industry would potentially dampen growth as well.

Malaysia is special amongst countries outside of China in the area of rare-earth elements due to the presence of the LAMP. The infrastructure for the midstream is already operational and the upstream supply to this is secure with the Mt. Weld deposit rich enough for more than 25 years of production. Not only this, the products are already competitive in the open market even with the presence of China due to the richness of the Mt Weld deposit and have established customers as well. The addition of a state-backed investment into the downstream for Malaysia is, thus, shielded from many of the challenges faced elsewhere.

With this in mind, vertical integration of the supply chain is another step in the development of the rare-earth industry the state can be involved in. This means the upstream, midstream and downstream industries are interconnected with each other in one cohesive stream. No industry related to rare-earths, then, have to compete for either suppliers or customers. At the moment, the midstream can be taken care of through the LAMP and the upstream can be relied on Mt. Weld. After the downstream has been established, local up and midstream can be focused on. However, further reliance on overseas investors for the downstream will only make Malaysia a placeholder nation where capital is generated just to be siphoned to large corporations.

Liberasi finds the role of the state imperative to ensure proper development of the rare-earth industry with respect to the downstream. From this, future developments can expand on local rare earth upstream mining and establishment of local midstream processing plant, as envisioned in our Proactive Reindustrialisation series, Part 2, which we will continue to develop.

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4 thoughts on “State-Oriented Rare Earth Expansion

  1. A bit off-topic here but this may interest you with regards solar-electric energy.

    This article critical of the feed-in tariff by TNB for solar electricity sold back to TNB is on the website of a Malaysia-based company – Advanced Solar Voltaic Sdn Bhd, which supplies solar systems, including solar panels, equipment, etc. It also has a presence in the U.K., Australia and Nigeria

    Unfortunately, the link at http://www.solarvoltaic.com/ does not take you directly to the article, though you will find it under “BIPV or FIT” on the homepage.

    Admittedly, there are some elements of advertising in what could be called a “white paper” by the author who argues for wholly stand-alone, fully off-grid, DC-based solar systems

    Here are some excerpts:-

    “BIPV, Grid connected, Photovoltaic, Solar Power systems – Do you need it ??? or are you being cheated by FIT ( Feed in Tariff)”

    “Electricity from BIPV (building-integrated photovoltaics), Grid Connected, systems, may NOT cover the cost of electricity that you use and you still have a monthly bill to pay, to the power company. You would need at least 15 Kilowatt peak, of Crystalline Solar panels, to fully power an average double storey bungalow, or 10Kwp of Modern, Thin film, Solar panels. Maximum allowed for BIPV Grid connected, in Malaysia, is 12Kwp. This seems to be omitted from all of the advertising. Only DC (Direct Current), Stand-Alone, systems, cover the whole cost of Electricity used.”

    And

    “We used to get a subsidy to buy Solar panels to power residential homes. When used in stand alone systems, this subsidy will allow you to power your house without using TNB Mains power or greatly reducing mains electricity costs. This resulted in Power companies losing customers to Solar power. A stand alone solar power system can replace Mains grid power. Stand alone systems are still available but no subsidy is given and all assistance is now moved from people without mains electricity, to give to people who MUST have mains TNB connection, to qualify. This defeats the whole purpose of Solar power but ensures all Solar power users must be connected to TNB in future..”

    “Instead FIT (Feed in tariff) is now available from TNB to replace the subsidy we had previously. It is important to note that 100% of your solar power produced under the FIT scheme MUST be fed back into the mains grid and none of it may be used inside your home. The grid system has already 45% more power than it needs to meet maximum demand. One wonders why we should waste the Solar power produced by dumping it into the grid system, which has no need for it and can not use it. This is just wasting energy. To add insult to injury, TNB will pay 5 times the selling price of electricity, for the Solar electricity dumped into the grid. I will correct that last statement, TNB does not pay 5 times the cost, the consumer pays this cost. The FIT fund is raised by increasing consumer electricity tariffs to pay for it, see the deduction at the bottom of your electricity bill.”

    “FIT is FIXED at the same rate for the next 21 years. So in 21 years time you will still be getting the same amount. Interest and inflation will mean this amount is worthless after the first 8 years.”

    I remember seeing some item about FIT at the bottom of my earlier electricity bills but I cannot find it on this month’s electricity bill.

    BTW. Bukit Gasing ADUN YB Rajiv Rishyakaran has organised a dialogue session – Save and Earn from Solar tonight (10 Sept) starting at 8.00pm at the Petaling Jaya Library, Jalan Selangor, Petaling Jaya.

    “With all the buzz about solar energy in the last one year, ever wonder how you can save on your electric bill via solar? Yes, solar now is cheaper than TNB if you know how to do it right.”

    “Of if you are looking to earn money from solar? As customer demand is on the rise there are plenty of business opportunities.”

    “Come to this session to find out more and get clarifications…”

    Rajiv also is an Authority Member of the Sustainable Enegy Development Authority (SEDA), whch comes under YB Yeo Bee Yin’s MESTECC.

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  2. This article in The Mole, a pro-UMNO website may also interest you:-
    “No moves left, a frenzied Wong Tack uses “struggle”!
    by Zaidi Azmi”

    “IN his latest bid to rekindle the nearly-extinguished fire on Lynas, DAP’s Wong Tack has once again accused the government of delivering a sales pitch on behalf of the Australian rare-earth refiner.”
    “This time around, the alleged salesman of Lynas were officers from the Prime Minister’s Office (PMO), who Wong insisted have published an infographic debunking controversial claims the former had levelled against the company.”
    “In addition to that, Wong also believed that these PMO officers have gone rogue and were acting without the knowledge of Prime Minister Tun Dr Mahathir Mohamad. Therefore, he urged the Malaysian Anti-Corruption Commission (MACC) to probe the outfit.”
    “Gosh! What a claim.”
    More at:-
    http://mole.my/no-moves-left-a-frenzied-wong-tack-uses-struggle/

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  3. Pro-UMNO blogger Annie’s rant against your YB Wong Tack may interest you too.
    ” Haze getting worse yet crazy “environmentalist” attacked PMO over Lynas pulak
    The haze was very bad today.”
    “It has been like this in KL for quite a while.”
    “As everyone knows, it was caused by people setting forests in Indonesia on fire so that they can set up farms and plantations.”
    “It has been a problem since the 90s and I can’t see any chance there will be a solution any time soon.”
    http://lifeofaannie.blogspot.com/2019/09/haze-getting-worse-yet-crazy-people.html
    BTW. This regular haze problem since – well the late 1980s is not due to emmissions from coal. natural gas or oil-fired power stations in Malaysia and Malaysian governments whether BN or Pakatan have not beien able to get Indonesia to act decisively to deal with it.

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  4. Enjoy the annual round of unhealthy haze coming over from Borneo whilst you can, and it is not coming from coal-fired power stations in Peninsular Malaysia, Sabah or Sarawak.
    Haze worsens in 24 areas including PJ, Shah Alam
    Bernama – September 13, 2019 12:28 PM
    KUALA LUMPUR: Several states in the peninsula including Kedah, Penang, Perak, Melaka, Johor and Negeri Sembilan recorded higher air pollutant index (API) readings today, from moderate to unhealthy levels exceeding 101.
    As of 10am, 24 stations recorded unhealthy levels while Johan Setia in Klang, Selangor remained the only area with a very unhealthy API of 209.
    The five areas in Selangor which reported unhealthy API readings were Kuala Selangor (104), Petaling Jaya (139), Shah Alam (135), Klang (128) and Banting (123).
    Also recording unhealthy API levels were Nilai (126), Seremban (105) and Port Dickson (102) in Negeri Sembilan; Bukit Rambai (102) and Melaka City (105) in Melaka; Batu Muda (152) and Cheras (144) in Kuala Lumpur; Segamat (104) and Tangkak (113) in Johor; Putrajaya (140) and Rompin, Pahang (161).
    Other areas with unhealthy air quality include Minden (113), Balik Pulau (111) and Seberang Jaya (105) in Penang; Tasek (117) and Pegoh (101) in Ipoh and Seri Manjung (124) in Perak as well as Sungai Petani (109) and Kulim Hi-Tech (108), Kedah.
    Meanwhile, 43 areas in the Peninsular Malaysia, Sabah and Sarawak recorded moderate API readings.
    An API reading of 0-50 shows good air quality; 51-100, moderate; 101-200, unhealthy; 201-300, very unhealthy and over 300, hazardous.
    https://www.freemalaysiatoday.com/category/nation/2019/09/13/haze-worsens-in-24-areas-including-pj-shah-alam/
    I hear thunder in the distance, so hopefully the rain will wash some of the haze away.
    I expect that the wind direction will change after the Autumnal Equinox on 23 September 2019 and the haze will be carried somewhere else, until it returns around this time in 2020.
    Meanwhile, Indonesia farted in Y.B. Yeo Bee Yin’s face, over her request that Indonesia deal with the source of the haze.
    Poor Yeo Bee Yin, Wong Tack and Fuziah Salleh. The big Taikor overuled them over Lynas.
    Will they reverse his decision to allow Lynas to continue, once the big Taikor either steps down, is incapacitated by ill-heath or passes away in office, and is replaced either by Anwar or Azmin, or will Malaysia’s economy be in such dire straits that they will have to continue prostituting Malaysia to Australia, just as Zuraida proposed that Malaysia engage in property prostitution of properties costing over RM1 million to buyers from China and the Hong Kong SAR of China?
    Meanwhile, whilst the big Taikor is still alive and kicking, you may want to convince him directly that Malaysia could earn much needed foreign exchange from providing nuclear waste processing and storage services to customers worldwide. – as #Liberasi proposed in its memo to YB Yeo Bee Yin urging that Malaysia should adopt nuclear power.

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