Sunday, October 25, 2009

Stop Bleeding Petronas Dry

This statement was released before the budget was announced on Friday by Datuk Seri Najib Abdul Razak. Unfortunately, there's no measures mentioned in the budget to prudently manage our oil wealth.

The Government must not bleed Petronas dry or kill the goose that lays the golden eggs

The Government has over the past decade funded the drastic increase in budget expenditure and its corresponding deficit with the phenomenal increase in oil and gas revenues from Petronas, as a result of the sharp increase in global petroleum prices which increased from a low of US$16 per barrel and hit the peak of US$150 in July 2008.

The contribution by Petronas to Federal Government has hence increased from RM19 billion in 2004 to RM43.9 billion in 2006 to an expected RM67.8 billion in 2009. In percentage terms, oil and gas revenue constituted 20.1% of Federal Government revenue in 2004, and this reliance increased to an estimated 43.5% in 2008. This contribution comprises of dividends, taxes, royalties and export duties payable to the Federal Government.

In fact, for 2009 in dividends alone, Petronas increased its dividends by 25% or RM6 billion to RM30 billion from 2008 despite a 14 per cent decline in net profit to RM52.5 billion due to lower crude oil prices and higher operating costs.

On top of this, royalties are also paid to the state governments, with the exception of Kelantan, which amounted to RM2.3 billion in 2004 and increased annually to RM6.2 billion in 2009.

The resulting impact is that there is a drastic reduction in retained profits by Petronas for its reinvestments. Reinvestments by Petronas is imperative as the Malaysian oil reserves are expected to only last for another 20 years or so. Without the necessary reinvestments, whether to discover new oil fields in Malaysia or to secure oil production rights in other oil producing countries, Petronas which is currently ranked 80th largest corporation in the world by Fortune 500, will be with inevitable decline.

However, due to the increasing contributions to the increasing appetite of the Federal Government, the amount of retained profits for reinvestment has declined significantly over the past few years. The percentage of retained profits for future investments has declined from 42.5% in 2005 to 31.2% in 2007 to on 21.1% in 2009 (see Table 1). This trend is extremely alarming as most of the oil majors in the world such as ExxonMobil, Royal Dutch Shell, Texaco and ConocoPhillips retain more than 50% of their annual earnings for future investments.

Table 1: Petronas Profit Utilisation 2005-2009 (in billions)
(Click for table a larger image)

The reckless increase in the Government's operating expenditure from RM80 billion in 2004 to RM161 billion in 2009, and the resulting need to sustain and maintain our big government has resulted in the inevitable temptation to dip into the Petronas coffers. What is worse is when the monies are abused and used for wasteful expenditures as highlighted in the annual Auditor-General's reprot. The outcome in the longer term be killing Malaysia's goose that lays the golden eggs.

We call upon the Prime Minister to announce in the 2010 budget measures and legislation to ensure that our golden goose gets the necessary protection and will not be recklessly abused.

1.We should set a medium term goal of Petronas retaining at least 50% of its profits for future reinvestments.

2.In addition, even the revenue contribution to the Federal Government must be managed and controlled to ensure that the windfall revenue are invested in economically productive and necessary sectors such as human capital, renewable energy and green technology.

3.In better economic times when the growth rate is above 3% per annum, at least 20% of these contributions should be “saved” in a National Stimulus Fund for use during economically challenging times.


amoker said...

Good analysis. Yes, even with 50% retention of cash ... the big companies (except Esso) are dipping into financial institution to fund their investment. It is just not cheap to expand the oil fields.

Samuel Goh Kim Eng said...


There will be no endless supply of oil
So be prudent in what you use as fuel to boil
Ensure there's always plenty of productive soil
Keep looking for suitable alternatives to energy coil

(C) Samuel Goh Kim Eng - 261009
Mon. 26th Oct. 2009.

Khun Pana aka johanssm said...

Spending oil money on viable developments will be acceptable.
But they are withholding money flowing into Pakatan states and especially to Kelantan.
I am not an economist so i wont dwells into it.
Jibby said that 50 ringgit per credit card is no big deal.
If it is no big deal why Jibby dont absorb our indah water bills.
Indah water involves all households and business premises in urban areas.
It is no big deal for the govt. to absorb the cost

Citizen said...

Corruption is one of major drain of our national coffer, and it must be stopped!If you want to manage PETRONAS, the only way is have a new government in GE13!

Lee Wee Tak said...

the simple solution is to make Petronas Account open to Auditor General and Parlimen's scrutiny

i fail to see the reason for such secrecy of Petronas accounts since the oil of Malaysia belongs to all Malaysians, not selected power brokers

the only reason for such secrecy is to conceal actions that are subejct to justifiable criticism

I never feel the benefit of Petronas money. KLCC and Putrajaya are a good looking buildings but I rather the money been used on dialysis centres, improving healthcare and education

it sicken me to the core when I see KL OKUs getting nothing or RM70 - RM300 per month from Jabatan Kebajikan subject to various conditions including, NOT ASTRO, while the gift of GOD to Malaysians are just chucked away on such criminally unnecessary luxury

Grace C said...

Dear Lee Wee Tak,

referring to your comment of
"i fail to see the reason for such secrecy of Petronas accounts since the oil of Malaysia belongs to all Malaysians, not selected power brokers"

1) Petronas only gets less than 20% revenue from Malaysia, overall. Therefore, your reasoning is flawed. The company would actually do better in the international arena if it pulled out of the country altogether. Scary thought, but true.

2) It is secretive, correct- the company reports directly to the PM. So- just be careful who we vote for next time. And pray for our leaders to be better and wiser.

However, the question remains- can Petronas survive beyond 2020? Diversify? With what money?

Good entry, Mr. Pua.

Grace C said...

Apologies, forgot to mention. :)

"I never feel the benefit of Petronas money. KLCC and Putrajaya are a good looking buildings but I rather the money been used on dialysis centres, improving healthcare and education"

Yes, Mr. Lee. Petronas money *is* being used on all those things and more. Including clean water and food. Never thought that our up-and-rising, beautiful nation would have starving people without access to clean water, did we?