Budget 2022 was again keenly anticipated, with a total of a RM332 billion expenditures package (the largest ever) to support the economy’s early recovery momentum, while helping those badly impacted by the pandemic to get by the crisis.

Further to that, Indonesia’s plan to move its capital from the “sinking” megalopolis of Jakarta some 1,000km away to Borneo, a new Indonesian capital in Kalimantan which will bring about economic opportunities for Malaysia, specifically Sabah and Sarawak.

In this article, I would like to highlight some of the key points from the Budget 2022, and the relocation of Indonesia’s capital could potentially benefit Ranhill.

Budget 2022

• Sabah and Sarawak will receive an increase in development expenditure allocation worth RM5.2 billion and RM4.6 billion, respectively. These allocations are for, among others, implementation of water, electricity, and road infrastructure projects, as well as for education and health facilities.
• To improve infrastructure in rural areas, the government will allocate RM2.5bn, comprising rural roads (RM1.5bn), water (RM382m), electricity (RM485m), and street lightings (RM107m). Of the total allocation, RM1.5bn will go towards Sabah and Sarawak.
• As Ranhill already has geographical presence in East Malaysia, Ranhill might be one of the key beneficiaries of the allocation of development expenditure to improve in rural areas especially in relation to the betterment of water and electricity supplies.

Relocation of Indonesia’s Capital to East Kalimantan

• Indonesia, a growing powerhouse with the highest GDP in the ASEAN region is planning to relocate its new administrative capital to East Kalimantan at a cost of 466 trillion rupiah (RM137bil), with the expected completion by 2024.
• With possible business and economic opportunities, Sarawak may benefit by supplying and exporting its surplus electricity to the new Indonesian capital.
• The foreign direct investment (FDI) and domestic investment shall rise in Kalimantan. Consequently, it shall increase the growth for Sabah as well. The impact could be larger with a road link between the Malaysian and Indonesian parts of Borneo.
• When there is connectivity, the following sectors in Sabah and Sarawak could benefit directly from it — clean energy supply, niche tourism, and fast-moving consumer goods (FMCG)
• The clean energy supply will be one of the developments worth highlighting as the president of Indonesia, Mr. Joko Widodo plans to shift fossil fuel energy to clean energy.
• This is an opportunity for Malaysia, especially Sarawak (being located next to Kalimantan), to offer and introduce its clean energy expertise similar to what it has done with Bakun hydropower plant.

• Although impacts may not be drastic in the next five years, as long as the Indonesian capital relocation is in motion and East Kalimantan is developing, there will be a spill over effect to the Malaysian part of Borneo.
• All in all, the Indonesian capital relocation may improve the prospects of Ranhill, in terms of clean energy supply (such as power supply and EPCC) and water projects.
• Not to forget that Ranhill is currently undergoing a bid with a consortium formed with several strategic Indonesian partners for the development of a source-to-tap project for 5 regions in Indonesia involving a potential gross capacity of ~860mld, so this could be a meaningful boost to Ranhill in securing water-related projects in the new capital.

My personal opinion

• Both developments pose good growth opportunities for Ranhill to capitalize, be it the short term (Budget 2022) and the long term (Relocation of Indonesia Capital) prospects. Ranhill with the proven track record and experienced management, has a good chance of taking part in any of the abovementioned developments and potentially securing some of the projects.
• Notwithstanding the earnings catalyst, initiatives from 12MP, and the abovementioned developments, let’s see how’s the new acquisition (the Engineering Sector) will contribute to the books of Ranhill as the company’s results announcement should be around the corner.