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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

6 comments

  1. PETRONAS is late in announcing its financial results this year. It would usually make such an announcement in June each year, and it’s already the last day of the month, today.

    Perhaps Malaysia’s best performing company is afraid of the people’s wrath if it announces an increase in its profits. Thanks to the kind of lies and mischief making that liar-and-mischief maker Lim Guan Eng and friends have been spreading without remorse about Malaysia’s proudest corporate achievement, PETRONAS has to be cautious about revealing something it has worked so hard to accomplish for the rakyat.

    Perhaps Malaysia’s best performing company is trying to figure out how best to defend itself against the lies and accusations that Guan Eng and his cohorts may spread further. And this involves playing a waiting game.

    Unfortunately for PETRONAS, in order for it to maintain its credit ratings with international ratings agencies, it’s going to have to make its announcement soon. Lest it would risk devaluing its worth, resulting in the rise of its cost of borrowing as well as a drop in its FORTUNE Global 500 ranking.

    In other words, for PETRONAS, it’s damned if you reveal and damned if you don’t.

    Ironically, the rakyat should be rejoicing as a result of PETRONAS’ increased profits, because this means Malaysia’s oil corporation has paid the Federal Government, and hence the rakyat, even more money for use in these difficult times. But instead, people are bracing for a backlash.

    The truth is, opportunistic politicians like Guan Eng and friends would continue to criticise wildly despite all the good that PETRONAS does or has done. This is evidenced by the fact that Guan Eng, in particular, has yet to apologise to the rakyat for misleading many of us into thinking that PETRONAS does not make public its financial accounts and, worse, does not share its profits with the people.

    So, we the rakyat must think for ourselves. If PETRONAS ain’t broken, why are politicians trying to fix it?

    Thus far, PETRONAS has been above board in its affairs. About 70% per cent of PETRONAS’ revenues come from overseas operations. And PETRONAS alone contributes about 36% of yearly Government revenues.

    If Guan Eng and friends succeed in convincing Malaysians into forcing PETRONAS to pay more to the Government, over and above the NGV subsidies and gas-for-power subsidies that PETRONAS is dishing out, PETRONAS’ overseas revenues would fall year-on-year and PETRONAS’ contribution to the Government would also fall year-on-year.

    Why? Because PETRONAS would not be allowed to reinvest its profits to continue to compete successfully on the world stage – no small money going out, no big money coming in.

    If that happens, the rakyat will be the losers.

    So, enough is enough! Let us applaud PETRONAS for its continued sterling performance. And let us thumb our noses and heckle all those lying and mischief making politicians who have nothing better to do but criticise what is good and proper.


  2. My comment above was based on my article at my blog site. I have more to share. Will do so in the next few days.


  3. The Age (Melbourne, Australia)

    July 2, 2008 Wednesday
    First Edition

    Fuel is cheap in Asia, but society pays a very high price;
    BYLINE: Michael Backman

    SECTION: BUSINESS; Opinion & Analysis; Pg. 14

    The Malaysian Government made a rare good decision last month when it cut petrol subsidies.

    ABDULLAH Badawi, Malaysia’s Prime Minister, hasn’t done much right of late. But one thing he got absolutely right was to raise the price of petrol by 40% at the start of June. I received many emails from Malaysian readers complaining about the decision and asking if I would write a column attacking it.

    “Many Malaysians follow what you say,” wrote one correspondent. Good. On this occasion, popular sentiment in Malaysia is dead wrong and the Malaysian Government is 100% correct. In fact the Government’s decision is probably the single most important micro-economic reform undertaken in Malaysia for years.

    The Malaysian Government’s decision is especially courageous given that it did so badly in the March general elections in which the ruling party was left with fewer than half the seats in Parliament and the ruling coalition lost power in five of the 13 states. All the ruling party needs is for a handful of its coalition partners to join the opposition and it will fall from office.

    Many decried the fact that the price increase was not phased in but was effective immediately. But again, the Government was 100% correct. Delaying unpopular reform simply gives pressure groups and political opportunists time to try to stop such decisions.

    It is similar to the overnight 25% across-the-board tariff cut announced by then prime minister Gough Whitlam in 1973, which occurred with no consultation and without even a submission to cabinet, thus ensuring the decision was not diluted.

    For all its pretensions that it is “uniquely Asia”, Malaysia is beginning to look more like a piece of middle America. It is now home to sprawling suburbs populated by people who travel by car to and from air-conditioned shopping centres stocked with goods from China and the West. Traffic jams are legendary, air quality is falling and the people are growing fatter.

    Cheap, subsidised petrol is a factor. Embryonic public transport doesn’t help, but then it is little wonder that public transport is relatively poor. Malaysians don’t want to pay for that either. Bus fares in Malaysia are incredibly cheap and each time there is an increase in fares, there is a public outcry.

    Of course, one thing the Malaysian Government should now do with the billions it will save on a reduced subsidy is to improve public transport infrastructure.

    Without the increase in the fuel price, the total cost of the Government’s fuel subsidies this year would have been in excess of $US17 billion ($A17.8billion). That’s more than four times what the Government spends annually on education, health care and defence. This ridiculous state of affairs has meant that, essentially, Malaysian children have to be poorly educated so that their parents can drive around in big cars.

    Opposition politician Anwar Ibrahim has led public protests against the fuel price rise and has even said that, should he get into power, he would immediately lower prices. Yet again, Anwar has shown himself to be an opportunist who will say anything to get into power. His opportunism is compounded by the fact that he is a former finance minister and should know better. (In any event, much of his time will now be spent on other matters, given that last weekend one of his aides complained to police that Anwar had sodomised him.)

    Rising demand for oil in Asia is the main reason world oil prices have gone through the roof. And much of this derives from the fact that, like the Malaysian Government, many Asian governments keep energy prices artificially low. Asian consumers and businesses have decided what sort of cars and plant and equipment to acquire based on these false prices.

    In recent months, India has had to raise prices by about 10%, China by 16%, Indonesia by about 29% and Nepal by 25%. Even with these new prices, Malaysia’s retail petrol price is still too cheap – for example, the new price of around US70 a litre compares with the new price of $US1.26 in Nepal (one of the world’s poorest countries).

    The Indonesian Government has also wrestled with energy pricing. Its draft budget for this year assumed an oil price of $US60 a barrel. That had to be adjusted to $US95 in March but, by then, the oil price was already higher than $US100. Sensibly, it raised the retail price of petrol and related fuels, otherwise the annual subsidy threatened to blow out by $US18 billion to $US26 billion this year.

    In some instances, artificially low prices have starved oil companies of the cash necessary to invest in new oilfields and refining. Sinopec and PetroChina are among the world’s top 50 companies by market capitalisation and yet, in the middle of the greatest oil price boom in history, both companies are experiencing massive losses from refining because the Government limits their ability to pass on rising costs.

    Price controls also distort incentives. Malaysia and Indonesia have big reserves of natural gas. As many vehicles as possible in both these countries should be converted to LNG, but the incentive is much reduced when petrol prices are kept artificially low.

    Smuggling is another problem. Both countries face big problems with subsidised petrol being illegally sent out of the country to be sold for profit elsewhere. Organised criminals, elements within the Indonesian navy, and perhaps even terrorist groups, have been prominent among the smugglers.

    No one wants to pay higher prices for things, and of course higher prices hurt the most vulnerable in any economy. But trying to hide an economy from rising prices is no solution. If there is one good outcome from the high oil price, it is that Asia’s wasteful oil subsidies will be banished for good.

    http://www.michaelbackman.com


  4. Nor Mohamed: Not all of PETRONAS’s profits used on subsidies
    Date: 07/07/2008

    The government does not use all profits earned by Petronas on subsidies, Second Finance Minister Tan Sri Nor Mohamed Yakcop said.

    He said this was to ensure that Petronas continued to generate income, including to invest abroad as more than 40 percent of the revenue contributed by Petronas was from its foreign operations.

    “Through these investments, Petronas can continue to contribute revenue to the government in the long-term, even though the country’s oil stock has run dry,” he said.

    Nor Mohamed said Petronas had projected that the country would run out of its oil reserves by 2014 and as such, the goverment would have to manage its oil revenue efficiently, especially with the oil price hike.

    “The special thing about the increase in oil price is that it gives Petronas more income, which has to be managed well.

    “If we were to spend all the money, there would be nothing left now,” he added.

    According to Nor Mohamed, the government would have received only RM160 billion between 1974 and last year if Petronas did not have investments abroad.

    Instead, because of Petronas’ investments in oil and gas abroad, the government obtained RM362 billion from the company during that period, he added.

    He said it was a wise decision by Petronas to invest in the oil and gas industry overseas.

    “It will be a waste if Petronas, with all its experience, did not invest overseas or spent all its profits on subsidies,” he added.

    Source : NST 06 Jul 2008


  5. Lower Fuel Prices? Get Real!

    Lying, mischief making politicians – these are among the people clamouring for the lowering of fuel prices. They’d rather see the country go bankrupt because of fuel subsidies rather than provide real alternative solutions for countering the ever increasing price of oil.

    Without the increase in the fuel price, the total cost of the Government’s fuel subsidies this year would have been in excess of $US17 billion, now that the price of oil has gone beyond US$140 per barrel. That’s more than four times what the Government spends annually on education, health care and defence.

    As Australian journalist Michael Backman of The Age observed, “This ridiculous state of affairs has meant that, essentially, Malaysian children have to be poorly educated so that their parents can drive around in big cars.”

    It would also mean that Malaysians who clamour for the reduction of fuel prices to previous levels are asking for the national health service to be put aside, so that those who can afford to own and drive cars can continue to do so at the expense of the poor who need Government health care services.

    “Don’t worry, PETRONAS can afford it,” they say. Well, they’re wrong.

    They who know squat about running a FORTUNE Global 500 fully-integrated oil and gas multinational should not even begin to suggest how PETRONAS should go about its business. Yet, these are the people who make up the politicians who are screaming the loudest.

    For every RM1 ringgit that PETRONAS makes, it’s already giving back 65 sen to the Government. Now, politicians are telling the people that we must ask PETRONAS to give more? Why are these politicians demanding that PETRONAS risk going bust?

    At best, this is nothing but sheer ignorance and irresponsibility. At worst, if they continue to press this agenda, we must ask, “What do these politicians want to gain by jeopardising the nation’s future and the well-being of the people?”

    And why should we, the rakyat, continue to trust them or be their pawns?


  6. PETRONAS continues to do its part. What about others?

    PETRONAS, Asia’s most profitable corporation (FORTUNE Global 500 ranking), has generated RM62.8 billion for the Federal Government’s coffers for 2008. Out of this sum, RM6.0 billion forms special dividends.

    PETRONAS also paid royalties to the state Governments of Sabah, Sarawak and Terengganu amounting to RM4.8 billion.

    Hence, PETRONAS’ contribution for this year to Malaysia out of its profits amounts to a whopping RM67.6 billion. No other company in our country even comes close to what PETRONAS is doing for the nation.

    Congratulations for PETRONAS are, therefore, in order.

    However, should Malaysians fall into a state of stupor because we have PETRONAS to fall back on in these trying times? Absolutely not.

    As PETRONAS’ President and CEO Tan Sri Hassan Marican points out, PETRONAS’ contribution of RM62.8 billion to the Federal Government makes up 44 per cent of the Federal Government’s revenue. “If you take into account taxes paid by the other oil and gas companies in the country, then the total sectoral contribution is over 50%,” he says.

    And this is worrying. What’s happened to the rest of Malaysia’s economic sectors? Why have they continued to under-perform?

    Relative to oil and gas, Malaysia’s other economic sectors do not appear to have progressed much. From IT and telecommunications to manufacturing, right down to agriculture, Malaysia’s other engines of growth need to be rejuvenated.

    “It is just like when we gained independence, when we were dependent on rubber and tin. At least then, rubber was an infinite resource because it could be cultivated, but petroleum is just like tin as it can run out,” Hassan argues. “What has happened to the manufacturing sector? What has been its economic contribution to the nation? There are real structural issues.”

    This is truly a wake-up call for leaders of commerce, industry and agriculture. It’s time for the rest of you to do your part beginning with a mind-set change from being merely a big local player or “jaguh kampung” to being a big international player or what PETRONAS calls “global champion”.



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