A tiny idyllic east coast town, once infested by pirates, wakes up to world fame

By Sebastian Lee

Until recently, few Malaysians had heard of Lahad Datu – a tiny idyllic east coast town tucked away in the beastly jaws of the former British North Borneo. Sabahans somewhat derided their agricultural settlement as a “cowboy town”. Money from timber, tobacco and cocoa exports had supported the local economy right up to about 20 years ago. Coffee shop, bar and nightclub business roared with loggers’ and planters’ penchant for wine, women and song. Their other nocturnal pastime was gambling; and they holed themselves up in illegal casinos where millions of ringgit changed hands on most nights in the stillness of Lahad Datu town. A little distance away from it is the tiny Tunku village, once the home of notorious Filipino Illanun pirates who sought shelter from the typhoons of the Sulu and Celebes seas.

All that has changed. And the reason is palm oil. Since the 1990s, vast tracts of oil palms have been planted on land left by loggers in the Lahad Datu district. Sabah now accounts for about a third of Malaysia’s four million hectares of oil palm plantations and exports slightly more than a third of the country’s 15 million tonnes of palm oil worth more than 60 billion ringgit. Malaysia is the world’s biggest producer and exporter of palm oil, supplying almost half of the world’s demands.

Optimism in palm oil has been buoyed by its wide range of commercial uses from cooking oil to lipsticks but largely by its use as a feedstock to produce biodiesel, a renewable green fuel that can slow down global warming. Palm oil is Malaysia’s fourth largest primary export.But volatile crude palm oil prices aggravated by a slump in demand caused by a global recession mean Malaysia can no longer depend on it for its primary export earnings.

An ambitious plan to spin industries from palm oil is benefiting Lahad Datu which sits snugly in a belt of 1.2m hectares of oil palms and 100 mills churning out five million tonnes of palm and palm kernel oil every year. If things go according to plans, Lahad Datu will soon be transformed into a major port city in the world at par with Rotterdam, Europe’s largest port. It has already been hailed by state officials as the “Rotterdam of the East”. In 25 years time, it could be Sabah’s biggest city with one million people – five times its present population of 200,000. Thirty years ago, there were hardly 40,000 people with more than half of them living in the villages.

The impetus for its multi-billion ringgit development is a Sabah government project known as the Palm Oil Industrial Cluster (POIC) which aims to bring local and foreign investors together to set up downstream industries from palm oil.

It does not take much to stretch the imagination of the project’s movers. Lahad Datu has all the logistical advantages because of its strategic geographic position. A naturally sheltered deep-sea harbour notwithstanding, it will have almost all of the palm oil to make it the world’s biggest biodiesel producing centre. Malaysia and Indonesia produce 80% of the world’s palm oil and most of the Indonesian mills are found in Indonesia’s Kalimantan province that borders the south of Sabah. The nearby Southern Philippines is a good source of coconut oil which is just as good a feedstock for biodiesel. POIC has a 15-year master plan to develop 2,083 hectares of industrial land in Lahad Datu by 2021. In time to come, this site will be teeming with factories producing products from palm oil. Large container ships and oil tankers loaded with cargoes will be plying in and out of Lahad Datu to South-East Asian ports, Japan, Europe and America. Jetties that can handle 20,000-dwt vessels have been built and two more with four berths that can take ships of 100,000-dwt have been planned.

So far, POIC has chalked up investments of more than 1.7 billion ringgit and officials are predicting that Lahad Datu can be as important as Oman’s Sohar which has received more than 43 billion ringgit in investment since it was set up in 2002. POIC officials say Lahad Datu can generate 100 billion ringgit of business deals. The Port of Rotterdam which manages Sohar will manage Lahad Datu touted for its natural deep-sea harbour that goes to a depth of more than 20 metres.

Sales of industrial land during the initial phase has been encouraging although it falls short of expectations. Only about 24 companies have bought slightly more than a quarter of the 480 hectares developed by POIC. These are mainly local firms and a handful from Australia, Britain, Hong Kong, South Korea and Singapore which deal in logistics, manufacture biodiesel and fertilisers and generate electricity.

Yet, it has not dampened the optimism of POIC which aims to make Lahad Datu the world’s hub for palm oil industries.  “POIC is going to be the largest biodiesel centre in the world and we want refineries to come so that we can get the oil,” says Pang Teck Wai, its chief executive officer, in a website posting. An anomaly that POIC is correcting is building palm oleo (margarine) chemical plants. Until recently, Sabah had none although it produces 35% of the country’s palm oil.  There are 17 of them, each costing about 300m ringgit, in other states.

Meanwhile, Lahad Datu gets a facelift. Shopping and office complexes are springing up. These include the 170m-ringgit Darvel Bay Plaza shopping mall which is due to open next year. It will house 250 to 500 retail stores built on a two-hectare site overlooking Darvel Bay. Next comes the 300m-ringgit Palm City Centre on 23.5 hectares with 350 shops. 

This may just be a prelude to greater things to come for this nondescript cowboy town of old. -- Insight Sabah

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