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PETRONAS A Victim of Its Own Success

June 22, 2008

MUCH has been bandied recently in the press about PETRONAS and it would appear that in a rather unfair way PETRONAS has been a victim of its own success.

Having worked in PETRONAS in the 80s through the mid-90s, I think I am in a position to offer certain insights about PETRONAS.

First, if PETRONAS was not formed way back in 1974, petroleum resources in this country would have ended up in the same current state of affairs as timber i.e. in the control of the respective state governments.

Why has it not dawned upon any politician or NGO to question what has happened to or, more pertinently, who have been the beneficiaries of timber revenues? Why is there no similar call for transparency on the accounts of the state governments or their statutory agencies entrusted with regulating or managing the timber resources, which are also the assets of the rakyat?

Secondly, with the ownership and management of all petroleum resources consolidated under a company, not a statutory agency, the former Prime Minister Tun Razak created the opportunity for PETRONAS to be run as a business by professionals. And this was well before the privatisation era of Tun Dr Mahathir.

This opportunity was not fully exploited in the formative years of PETRONAS as its management and staff were on the learning curve in understanding the oil business and dealing with the multi-national oil companies. With the entry of Tan Sri Azizan in the mid-80s and subsequently Tan Sri Hassan Marican, that opportunity was exploited and, as we now know, with much ensuing success.

Having worked through those earlier formative years of PETRONAS, I wish to highlight that the public ought to realise that it has taken a lot of hard work for PETRONAS to be now accepted by the oil majors as a company they can and wish to do business with, in particular outside Malaysia.

By the same token, just like any professionally managed company, there are certain confidential information and trade secrets that PETRONAS cannot divulge without adverse impact on its own business.

Most importantly, I must on behalf of all right-thinking Malaysians salute Tun Razak for his wisdom and temerity to push through the resistance of certain states, in particular Sabah, to consolidate the ownership of petroleum resources in this country under Petronas.

Look at how difficult it is today to deal with the consolidation of management of inter-state water utilisation, water being another state-owned resource like timber.

Without PETRONAS, we could have ended up not quite differently from the timber situation and the petroleum resources would selectively produce some individual oil barons in oil-producing states, not unlike our timber tycoons.

K H LIM, Petaling Jaya.

Source: The Star, 20 June 2008

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“Makan batu lah..”

June 22, 2008
NOTE: This is in response to a widely circulated email calling for a boycott of PETRONAS; a move that the email writer claimed would reduce fuel price.
 

 

From: Rosti B Saruwono – Datuk Dr (VP_Edu/PETH)
Sent: Thursday, 12 June, 2008 15:40
To: hasan syed; Dr Mariyamni Bt Awang (ACADEMIC/UTP)
Cc: Johari Haji Surin; Ainan Marzuki Abdul Malek; Ambok Chening Meri; Dato’ Dr Sheikh Omar; Dr Amir Farid Isahak; Dr Hashim Mohd Tahir; Dr Hussin Z. A.; Dr Mohd Mahir; Fadzlullah Yahya; Ir Azman Omar; Masari Alision

 

Do what you like.

The price of gasoline at the petrol station is set by the Government, not PETRONAS.

PETRONAS  has done its patriotic duty by paying the dividends, royalties, corporate tax, petroleum tax etc to the Government for YOUR benefit (rakyat lah).

And bear in mind that 30% of its revenue comes from overseas operations, thus bringing in foreign exchange to the country.

OK. Assuming that you buy this idea proposed by whoever it was.

So PETRONAS will have reduced revenues. Bear in mind that the costs of operations are also increasing. So the profits are reduced. Then PETRONAS and other oil companies pay less taxes.

Then the Government will have less revenue. (Note: at least 40% of Government revenue for 2007 came from the oil industry). With less revenue, there will be less Government projects (you can then forget about bridges and highways, and rail tracks, and smart schools and not-so-smart universities, and hospitals, etc). So contractors and consultants, and con-sultans and con-cronies will cry and scream. Makan batu lah..

The Government has already announced freezing of recruitment. So, many new graduates will be unemployed. Makan batu lagi. Maggi mee pun tak mampu dah.

Later, all sorts of allowances for civil servants will have to be withdrawn. Treasury tak cukup duit.

On top of that the oil industry may have to scale back many of its new investments, totaling about 45 billion ringgit over the next few years. Contractors, service providers, steel fabricators, maritime service providers etc will join the ratapan tangisan – no jobs.

Don’t forget that PETRONAS is sponsoring thousands of students in universities and even high schools – at any one time there are more than 4,500 university students being sponsored by PETRONAS in Malaysian universities and overseas. Also more than 2,000 high school children receive minor scholarships – children of poor families.

Kalau PERTRONAS tak ada duit, kesian lah mereka di atas tu. Shall I ask them to see the proposer of this idea (to boycott PETRONAS) and seek help from them instead?

So, it is to YOUR benefit that you make sure PETRONAS keeps making enough money to support YOUR Government so that your children can continue to go to school without paying for fees and books, and to go to universities at peanuts rates.

CONCLUSION: Help yourself and your family and your country by making sure that PETRONAS keeps making profits. Go to the nearest PETRONAS station and fill up now!!

Don’t forget that if you go to non-Petronas station, the profits that these companies get will go their shareholders OVERSEAS.

So, be patriotic. Do your duty. Go to PETRONAS!!

(I hope you guys will help to send this response to as many contacts as possible to counter this subversive proposal).

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“The salaries paid to PETRONAS’ employees are not as high as people think”

June 22, 2008

From: M Subhinor B Hassim (CPDD/PRSS)
Sent: Tuesday, June 17, 2008 8:25 AM
To: Importance: High
 
Dear all,
 
After reading all the chain mails and blogs, I feel called to reply, because of the relentless attacks and allegations — most of which are inaccurate or baseless — against PETRONAS.
 
PETRONAS’ STAFF SALARY & BONUS
1) The salaries paid to PETRONAS’ employees are not as high as people think. At best, they are just industry average. And these are not attractive enough for some who left PETRONAS to find work at other companies (mainly from the Middle East) which are willing to pay more. Why do they pay more? The oil and gas industry worldwide has been facing acute shortage of qualified or experienced personnel, so most companies are willing to pay lots of money to entice and pinch staff from their competitors.
 
Bonus? There has NEVER been a bonus amounting to 6 months or 12 months throughout the 33 years. On average, it is 2 months. But don’t ever think we don’t deserve it. We more than deserve it. A lot of us work really hard, some in the most extreme of conditions. Those who have been to and worked in northern Sudan, for example, would testify that it’s like working in a huge blower oven. Southern Sudan, on the other hand, is almost all swamps and mud. Imagine having to go through that kind of heat, or waddling in muddy swamps, day in and day out.
 
QUALITY OF CRUDE & REFINED PRODUCTS
2) Malaysia produces about 600,000 barrels of crude oil per day (and about 100,000 barrels condensate). Of this crude volume, 339,000 barrels are refined locally for local consumption. The rest is exported (and yes, because it has lower sulphur content it fetches higher prices).
 
Malaysia also imports about 230,000 barrels of crude oil per day, mainly from the Middle East, to be refined here. This crude oil contains higher sulphur and is less expensive (so the country gains more by exporting our crudes). In Malaysia, this crude is processed by PETRONAS at its second refinery in Melaka, and also by Shell at its Port Dickson refinery.
 
Different refineries are built and configurated to refine different types of crude. And each crude type yields different percentage of products (diesel, gasoline, kerosene, cooking gas etc) per barrel.
 
But most importantly, products that come out at the end of the refining process have the same good quality regardless of the crude types. That’s why PETRONAS, Shell and Exxon Mobil share the same pipeline to transport the finished products from their refineries to a distribution centre in the Klang Valley. The three companies collect the products at this centre accordingly to be distributed to their respective distribution networks. What makes PETRONAS’ petrol different from Shell’s, for example, is the additive that each company adds.
 
PETRONAS’ ROLE, FUNCTION & CONTRIBUTION
3) A lot of people also do not understand the role and function of PETRONAS, which is essentially a company, a business entity, which operates on a commercial manner, to mainly generate income and value for its shareholder. In this case, PETRONAS’ shareholder is the Government.
 
In 1974, when PETRONAS was set up, the Government gave PETRONAS RM10 million (peanuts, right?) as seed capital. From 1974 to 2007, PETRONAS made RM570 billion in accumulated profits, and returned to the Government a total of RM335.7 billion. That is about 65% of the profits. That means for every RM1 that PETRONAS makes, 65 sen goes back to the Government.
 
Last year, PETRONAS made a pre-tax profit of RM86.8 billion. The amount given back to the Government (in royalty, dividends, corporate income tax, petroleum products income tax and export duty) was RM52.3 billion. The rest of the profit was used to pay off minority interests and taxes in foreign countries (about RM7.8 billion – PETRONAS now operates in more than 30 countries), and the remaining RM26.7 billion was reinvested. The amount reinvested seems a lot, but the oil and gas industry is technology- and capital-intensive. Costs have gone up exponentially in the last couple of years. Previously, to drill a well, it cost about US$3 million; now it costs US$7 million. The use of rigs was US$200,000 a day a couple of years ago; now it costs US$600,000 a day. 
 
A lot of people also do not realise that the amount returned by PETRONAS to the Government makes up 35% of the Government’s total annual income, to be used by the Government for expenditures, development, operations, and yes, for the various subsidies. That means for every RM1 the Government makes, 35 sen is contributed by PETRONAS.
 
So, instead of asking what happens to PETRIONAS’ money or profits, people should be questioning how the money paid by PETRONAS to the Government is allocated. 
   
CRUDE EXPORTS & FUEL PRICES
4) A lot of people also ask, why Malaysia exports its crude oil. Shouldn’t we just stop exporting and sell at cheaper prices to local refiners? If Malaysia is an oil exporting country, why can’t we sell petrol or diesel at cheaper prices like other oil producing countries in the Middle East?
 
I guess I don’t have to answer the first couple of questions. It’s simple economics, and crude oil is a global commodity.
 
Why can’t we sell petrol and diesel at lower prices like in the Middle East? Well, comparing Saudi Arabia and other big producers to Malaysia is like comparing kurma to durian, because these Middle Eastern countries have much, much, much bigger oil and gas reserves.
 
Malaysia has only 5.4 billion barrels of oil reserves, and about 89 trillion cubic feet of gas. Compare that to Saudi Arabia’s 260 billion barrels of oil and 240 trillion cubic feet of gas.
 
Malaysia only produces 600,000 barrels per day of oil. Saudi Arabia produces 9 million barrels per day. At this rate, Saudi Arabia’s crude oil sales revenue could amount to US$1.2 billion per day! At this rate, it can practically afford almost everything — free education, healthcare, etc, and subsidies — for its people.
 
But if we look at these countries closely, they have in the past few years started to come up with policies and strategies designed to prolong their reserves and diversify their income bases. In this sense, Malaysia (and PETRONAS) has had a good head start, as we have been doing this a long time.
 
Fuel prices in Malaysia is controlled by the Government based on a formula under the Automatic Pricing Mechanism introduced more than a couple of decades ago. It is under this mechanism that the complex calculation of prices is made, based on the actual cost of petrol or diesel, the operating costs, margin for dealers, margin for retail oil companies (including PETRONAS Dagangan Bhd) and the balancing number of duty or subsidy. No retail oil companies or dealers actually make money from the hike of the fuel prices. Oil companies pay for the products at market prices, but have to sell low, so the Government reimburses the difference — thus subsidy.
 
Subsidy as a concept is OK as long as it benefits the really deserving segment of the population. But there has to be a limit to how much and how long the Government should bear and sustain subsidy. An environment where prices are kept artificially low indefinitely will not do anyone any good. That’s why countries like Indonesia are more pro-active in removing subsidies. Even Vietnam (which is a socialist country, by the way) is selling fuel at market prices.
 
PETRONAS & TRANSPARENCY
5) I feel I also need to say something on the allegation that PETRONAS is not transparent in terms of its accounts, business transactions etc.
 
PETRONAS is first and foremost a company, operating under the rules and regulations of the authorities including the Registrar of Companies, and the Securities Commission and Bursa Malaysia for its listed four subsidiaries (PETRONAS Dagangan Bhd, PETRONAS Gas Bhd, MISC Bhd and KLCC Property Holdings Bhd.
 
PETRONAS the holding company produces annual reports which are made to whomever wants them, and are distributed to many parties and places; including to the library at the Parliament House for perusal and reading pleasure of all Yang Berhormat MPs (if they care to read). PETRONAS also makes the annual report available on its website, for those who bother to look. The accounts are duly audited.
 
The website also contains a lot of useful information, if people really care to find out. Although PETRONAS is not listed on Bursa Malaysia, for all intents and purposes, it could be considered a listed entity as its bonds and financial papers are traded overseas. This requires scrutiny from investors, and from rating agencies such as Standard & Poor and Moody’s. 
  
BOYCOTT PETRONAS?
6) The last time I checked, this is still a democratic country, where people are free to spend their money wherever they like.
 
For those who like to see more of the money that they spend go back to the local economy and benefiting their fellow Malaysians, perhaps they should consider sticking to local products or companies.
 
For those who like to see that the money they spend go back to foreign shareholders of the foreign companies overseas, they should continue buying foreign products. 
 
FINAL WORD (FOR TODAY)

I’m sorry this is rather long, but I just have to convey it. I hope this would help some of you out there understand something. The oil and gas industry, apart from being very capital intensive, is also very complex and volatile. I’m learning new things almost every single day.
 
 
Appreciate if you could help to forward this response to as many contacts as possible to counter the subversive proposal out there.
 
Thank you.
 

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Suara Orang Minyak Kepada Rakyat Malaysia

June 22, 2008

Suara Orang Minyak adalah seorang kakitangan PETRONAS. Laman ini tidak ada kena mengena dengan pengurusan PETRONAS dan hasil inisiatif saya sebagai rakyat Malaysia. Saya boleh dihubungi di emel samsudin.mohamad@gmail.com

Saya terpanggil untuk memulakan laman ini semata-mata untuk menyebarkan maklumat yang betul mengenai PETRONAS dan isu kenaikan harga minyak, memandangkan terlampau banyak salah faham dan manipulasi akhir-akhir ini. Ia lahir dari kekecewaan melihat isu ini dimanipulasi oleh pihak berkepentingan dan dengan tidak semena-mena PETRONAS pun diheret sama dalam polemik ini; sedangkan kami pekerja-pekerja PETRONAS saban hari bekerja demi kepentingan negara dan rakyat di ceruk semua benua di dunia ini. Lebih menyedihkan sehingga ada seruan dan kempen untuk memboikot PETRONAS, tanpa rakyat menyedari kesannya kepada negara.

Harapan saya dengan penjelasan dan jawapan tidak rasmi kakitangan PETRONAS di laman ini, mesej yang tepat akan lebih dipercayai rakyat agar kita tidak terburu-buru menuding jari dan menuntut tindakan yang implikasinya besar kepada rakyat dan negara.

Saya memohon jasa baik pembaca dan seluruh rakyat Malaysia untuk menyebarkan maklumat-maklumat yang ada dari laman ini seluas yang mungkin. Saya juga mengalu-alukan soalan yang ikhlas dari teman-teman di luar sana mengenai pelbagai kemusykilan mengenai isu ini (selagi ia tidak bertentangan dengan terma dan syarat khidmat kami dengan PETRONAS terutamanya yang bersabit maklumat sulit perniagaan), agar dapat dijawab tanpa ada pertimbangan politik atau partisan.

Kita sebagai warga PETRONAS faham aspirasi dan pengorbanan yang dibuat oleh kakitangan PETRONAS – dari Tan Sri Presiden sehinggalah kakitangan bukan eksekutif dan sokongan. Adalah menjadi tanggungjawab kita mempertahankan organisasi yang dibina sejak sekian lama oleh mereka yang mendahului kita, agar dapat kita wariskan kepada mereka selepas kita dalam keadaan yang lebih baik semasa kita menerima amanah tersebut pada awal kerjaya kita. Oleh itu, saya mohon kerjasama semua untuk sama-sama menjawab pelbagai tuduhan terhadap PETRONAS di sini – jika ada email atau blog yang mempersoalkan atau mengelirukan, harap dapat disiarkan di sini dengan jawapan balasnya sekali.

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Suara Orang Minyak is an employee of PETRONAS. This blog is in no way connected nor sanctioned by the management of PETRONAS and is purely my own initiatve as a citizen of Malaysia. I can be contacted at my email samsudin.mohamad@gmail.com

I felt compelled to start this blog purely with the intention to get the right information about PETRONAS and the fuel price hike across to the people, since there has been too many instances of misunderstanding and manipulation of the issues lately. This stems from my own disappointment that the fuel price hike issue has been manipulated by many interested parties which inadvertently (or with intent) caused PETRONAS to be unfairly criticised. While PETRONAS is on the firing line, we the employees continue to work extra hours and in harsh conditions all over the world. Worse, there has even been irresponsible calls by ill-informed and opportunistic parties to boycott PETRONAS, without the general public truly understanding the effect of such boycotts on the country.

My hope is with unofficial explanation and answers by PETRONAS’ employees on this blog, the right and credible information can clear the air and increase people’s understanding of the issue, so that we are not hasty in pointing fingers and demanding an array of actions that may have big implications to the people and country.

I ask for everyone’s kindness and co-operation to spread the information published on this blog to as many people as possible. I also welcome genuine and sincere questions from everyone out there on anything related to PETRONAS and fuel price hike (so long it is not against the terms and conditions of our employment especially on confidentiality of information), so that we can provide the answers based on pure facts and reality (without any political or partisan considerations).

We as the employees of PETRONAS understand the aspiration and sacrifices made by the people in PETRONAS – all the way from Tan Sri Presiden to the non-executive and support staffs. It is then our responsibility to defend this organisation which many before us had toiled to pass it in such a good condition to us, so that we too can pass it in an even better condition to the people after us. Therefore, I ask for your co-operation to collectively answer all wild and inaccurate allegations against PETRONAS here – if you come across emails or blogs which unfairly questioned PETRONAS or mislead the public, I would appreciate if the emails or articles can be forwarded together with our answers for publication here.

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