After protracted delays, mining giant Rio Tinto and its Malaysian partner are inching towards an agreement on the price they will pay for electricity to power their $US2 billion ($1.9bn) aluminium smelter in East Malaysia.
According to sources, negotiations have been held up because the Malaysian government was selling its interest in the huge Bakun hydroelectric plant to the regional Sarawak government.
With the Bakun sale process complete, Rio and its partner can start working towards their own agreement with the Sarawak government on the price of electricity to be supplied from Bakun.
Sarawak Aluminium Company, a 60-40 joint venture between Rio and Cahya Mata Sarawak, was given a manufacturing licence by the Malaysian Industrial Development Authority in March 2008.
"They naturally want cheap power, and they are still talking to our people on price," Malaysia's International Trade and Industry Minister, Mustapa Mohamed, said of the proposal's progress.
The prospect of cheap electricity, the main cost of running smelters, has attracted other heavy power users to Sarawak.
Australian manganese producer OMH, Japanese chemical maker Tokuyama and China's top aluminium group, Chinalco, are also now more likely to move forward with their Sarawak investments.
But it is likely Malaysian authorities will subject the Rio smelter and other projects to harsh cost-benefit analysis before agreeing to a final electricity price.
Malaysia has new ground rules for industrial development.
Until 2004, Malaysia was virtually open slather for all foreign investors, offering a range of incentives without attempting to balance the costs and benefits to the country.
But the political climate has changed and environmental awareness has increased.
Cheap power for industrial users would be an incentive to lure foreign investment to Malaysia but would go against its policy of winding back costly subsidies, including electricity and food. Foreign investors are now being assessed under Malaysia's new economic policy and are caught up, in some cases, in the unwinding political reform.
Perth rare-earths producer Lynas is facing delays and holding costs on its processing plant at Kuantan, on the east coast of the Malaysian peninsula, because of a campaign by environmentalists.
Lynas plans a $700 million plant at Gebang Industrial Estate in Kuantan and on receiving conditional investment approval, it began constructing its plant,
which is due to be completed this month, but needs further licensing approval to start operations and begin imports of raw material from Western Australia. The project is in the home state of Malaysian Prime Minister Najib Razak.
Opposition parties, backed by non-governmental organisations and concerned citizens, are attempting to block the project by whipping up fear of radioactive fallout from the plant.
The Malaysian government has deferred to the Vienna-based International Atomic Energy Agency and an international panel for their assessment of risk, and for recommendations to address the concerns.
The IAEA report and the international review mission report were released in July and June, respectively.
According to one source, Lynas has met its obligations and the recommendations were intended for Malaysian regulators.
Other sources said the Malaysian government, including Mr Mustapa, had taken the view that they should let the process run its course.
"They do not want to leave themselves open to charges of political interference," the source said.
The Bakun hydroelectric project in Malaysia has attracted criticism
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