PENANG, Malaysia - Petronas, Malaysia's
national petroleum corporation, like many other
multinational energy companies, is riding the
crest of soaring global fuel prices and raking in
record revenues and profits. However, those
globally pumped-up profits are causing a stir on
the Malaysian street, with protesters calling the
company's historically opaque finances into
question.
For the fiscal year ending in
March 2005, the state-run corporation recorded a
pre-tax profit of US$15 billion, up 55% from the
previous
year, contributing 30% of the Malaysian
government's total revenues. This year's profits
are tipped to climb even higher on the back of
spiraling global oil prices, potentially
representing the best financial results in
Petronas' 32-year corporate history.
But
those gains are not coming without controversy.
Last week the Malaysian government reduced fuel
subsidies and allowed the local price of gasoline,
diesel and liquefied petroleum gas to float,
leading to a rise of 18% to 23% depending on the
fuel source. The policy move was the latest in a
series of incremental and unpopular price hikes
over the past two years. More recently, rising
domestic prices have renewed national arguments
for more interventionist and less neo-liberal
economic policy prescriptions.
Malaysia
famously bucked conventional economic wisdom when
it applied capital controls in the wake of the
1997-98 Asian financial crisis - a move that in
effect insulated the Malaysian economy from the
ravages sharp currency depreciations wrought on
Thailand and Indonesia. Now, in the era of
spiraling global fuel prices, many in Malaysia
believe that, as a net fuel exporter, fuel
subsidies could provide the country's
export-dependent economy a competitive boost and
insulate the domestic economy from inflationary
pressures.
That argument is finding
popular expression through a string of street
demonstrations and protests that have put Prime
Minister Abdullah Badawi's government on the
defensive. The government says the price hikes are
necessary to curb over-consumption, to discourage
smuggling and to remove subsidy-generated market
distortions. The government also argues that
Malaysia's fuel prices are still among the lowest
in Southeast Asia, apart from oil-rich Brunei.
Public anger has perhaps predictably
focused on Petronas' big bottom line and, perhaps
more important, on how those massive profits are
used and potentially abused. The company's critics
have long complained that elected politicians,
rather than pumping petro-profits back into
sustainable economic activities, often dipped into
Petronas' reserves to finance economically
unsustainable ventures or to bail out politically
connected firms with funds that could have been
better used for national development. No Malaysian
minister or senior politician has ever been held
to account for misallocating or squandering
Petronas-generated revenues.
Shrouded
disclosure has often stoked suspicions, though.
For instance, controversy erupted in 1998 when
Petronas, through its shipping carrier Malaysian
International Shipping Corp Berhad (MISC),
inexplicably acquired a debt-laden shipping
concern, Konsortium Perkapalan Bhd (KPB). Some
analysts felt the suspect deal amounted to a
bailout of then-prime minister Mahathir Mohamad's
son, Mirzan Mahathir, whose KPB was then
floundering under debts estimated at about RM1.7
billion (US$457,000).
The 'dark holes'
of the future When Malaysia's oil wells
finally run dry, which could come sooner than many
of Malaysia's 24 million population anticipate,
concerns are growing that the resource-rich
country may have little to show for decades of
bumper petroleum profits, apart from a few fading
trophy projects and deep, dark holes in the ocean
floor.
To be sure, Petronas' record
profits have to be tempered against Malaysia's
limited oil reserves and the steadily increasing
cost of exploration. Total domestic crude and
oil-condensate reserves are officially estimated
at about 4.8 billion barrels, equivalent to a
reserve life of about 19 years. For natural gas,
which makes up some 75% of Malaysia's total
reserves, the reserve life is estimated at a
longer 33 years. At current rates of production,
however, some energy analysts predict that
Malaysia could swing from being a net exporter to
net importer by the end of the decade.
Petronas has recently aggressively
expanded its exploration and international
business operations, leveraging its technical
expertise into joint ventures in resource-rich and
often politically unstable countries such as
Sudan, Myanmar, Turkmenistan, Niger, Chad and, to
a lesser degree, Egypt and the Malaysia-Thailand
Joint Development Area. The company has also
ramped up exploration activities at home.
Petronas, Malaysia's only bona fide
multinational company, currently manages 59 energy
ventures in 26 different countries around the
world. Last year, it spent RM7.5 billion on new
international explorations, mainly in Sudan's
war-ravaged oilfields, as well as
liquefied-natural-gas work in Egypt. These
ventures have allowed the company to build up
international reserves of 5.92 billion barrels of
oil equivalent (boe), of which crude accounts for
2.15 billion boe, with the remainder in gas.
Apart from boosting profits, those
ventures have exposed Petronas to periodic
criticism that its overseas activities help to
prop up financially some of the world's more
loathsome, human-rights-abusing regimes. Still,
most energy-industry analysts believe that
Petronas, the only Malaysian company in the
Fortune 500, has managerially done well for itself
considering the heightened global competition for
new finds from China, India and the United States.
"It is easily the best, that is, the most
professionally run, corporation in Malaysia, with
a proven track record of competing not only
locally but internationally," said political
scientist Andrew Aeria, a Malaysia-based academic
who closely monitors political and economic
developments. "[It's just a] pity its coffers have
always been raided by the BN [Barisan Nasional,
Malaysia's ruling coalition] government to bail
out crony project failures."
At the same
time, some company insiders contend that Petronas'
recent rash of profits have also bred a measurable
degree of complacency.
"Petronas can
afford to take risks now as it is sitting on a
pile of reserves and making huge profits," said a
management staffer for a joint venture between
Petronas and a foreign firm. "When a firm is in
such an enviable situation, wastage, slow transfer
of technology and a lack of top management
oversight in certain areas are not usually
apparent, but these can happen."
Fading
trophies During the tenure of Mahathir
Mohamad, Petronas profits were often used to fund
massive, one-off prestige projects. The list of
Petronas-funded trophy projects is as long as it
is extravagant, including the posh new
administrative capital at Putrajaya, sponsorship
of a Formula One motor-racing team, and the
company's own twin-tower office buildings in
downtown Kuala Lumpur, which fleetingly stood as
the tallest skyscraper in the world.
Under
Abdullah, there appear to be fewer big-ticket
projects, though ailing public and private firms,
such as Malaysia Airlines, have asked for and
received financial assistance in times of need.
Because 30% of the government's revenues come from
Petronas, the company at least indirectly helps to
bail out government-favored businesses.
"Petronas has been very responsible. They
have made a huge contribution towards the
development of the country," Abdullah recently
said.
Petronas profits, critics contend,
could have been more prudently invested in
smaller, self-sustaining ventures that would act
to enhance the country's future competitiveness.
There is a growing sense that, with the limited
life of the oilfields, a golden national
opportunity was squandered. Other oil-rich
countries with diminishing oil and gas resources,
most notably Norway, have set aside funds for
economic development once the national wells run
dry.
"The fact is that all those years of
financial profligacy under Dr Mahathir are now
coming home to roost,'' said political scientist
Aeria.
Petronas, for its part, argues that
its involvement in Formula One racing has allowed
it to develop its automotive engineering
technology, enhance its lubricants and heighten
its brand recognition globally. In January,
Petronas signed a memorandum of intent with
national car maker Proton, whose market share has
been steadily declining in Malaysia and has not
been notably successful in the export market, to
explore the possibility of using the new-fangled
"Petronas E01" commercial engine technology,
engineered through its involvement in Formula One,
to develop environment-friendly fuel systems for
Proton.
During Mahathir's tenure, Petronas
was also roped in to provide generous subsidies
for new independent power producers (IPPs), which
built a string of gas-fueled electricity
generating plants in the 1990s. Since the 1997
crisis, Petronas has supplied heavily subsidized
processed gas to Tenaga Nasional Bhd, the national
power corporation, as well as the IPPs. So far
those subsidies have totaled RM25 billion,
according to Petronas. These subsidies helped
ensure that the IPPs' venture into the power
industry has been largely profitable.
Critics complain that the special
arrangement enriches a handful of well-connected,
wealthy tycoons. Last year, business news group
The Edge identified the IPP beneficiaries as
Genting Sanyen Power, YTL Power, Malakoff Bhd and
Tanjong Plc/Powertek Bhd, saying that "these
companies are controlled by the families of Tan
Sri Lim Goh Tong, Tan Sri Yeoh Tiong Lay, Tan Sri
Syed Mokhtar Al-Bukhary and Ananda Krishnan, four
of the richest families and individuals in the
country", according to its website.
It is
still unclear whether the subsidies on processed
gas supplied by Petronas to the IPPs will also be
affected by recent price hikes. If so, it could
mean higher electricity prices just around the
corner. Many Malaysians are unaware of the
subsidies to IPPs and the local media have been
largely silent on the issue. But the issue
threatens to become a political hot potato.
"Petronas' subsidies to the IPPs of RM14
billion since 1997 must be abolished," said Lim
Guan Eng, secretary general of the opposition
Democratic Action Party. "As the IPPs are private
companies enjoying special rates for generating
electrical power that Tenaga is forced to
purchase, there is no reason for IPPs to enjoy
such huge subsidies ... at Tenaga's and Malaysian
consumers' expense."
True or false,
Petronas now stands at a somewhat uncomfortable
crossroads. Many Malaysians are unclear about how
the savings on subsidies will be used, although
the government says the money will be used to
improve public transport and other undisclosed
development projects.
Despite decades
earning massive profits for state coffers, as the
government rolls back subsidies on domestic fuel
prices, the company's opaque finances are finally
being called into question. Hopes are rising that
the unexpected upshot in the national oil firm's
record profits, ironically, could also generate a
clearer account of exactly how Petronas
distributes and spends its massive profits.
Anil Netto is a freelance writer
based in Penang, Malaysia.
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2006 Asia Times Online Ltd. All rights reserved.
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