It has been more than a week since Petronas announced its record turnover and profit.
So far, there has not been much praise for the management and the company for a job well done — not that this is what they are craving for. But the fact remains that Petronas, for the last 15 years or so, has been the sole representative from Malaysia and Asean in the Fortune Global 500 list that ranks the world's largest corporations.
Revenu...
My Say: Should Petronas give more?
By Azam Aris
It has been more than a week since Petronas announced its record turnover and profit.
So far, there has not been much praise for the management and the company for a job well done — not that this is what they are craving for. But the fact remains that Petronas, for the last 15 years or so, has been the sole representative from Malaysia and Asean in the Fortune Global 500 list that ranks the world's largest corporations.
Revenue and net profit are expected to improve further next year, from the current RM137 billion and RM35.5 billion respectively, if crude oil prices remain high and Petronas continues with its expansion/globalisation plan, strengthens its manufacturing value-adding activities to maximise its oil and gas resources as well as improves its productivity and efficiency levels.
If this happens, again do not expect kudos for Petronas. Instead, there will be more calls from politicians (both from the ruling party and opposition), consumer groups and the rakyat for the national oil corporation to do more for the nation.
For one, there is the popular view that due to rising crude oil prices and the government's reluctance to continue increasing subsidies for petroleum products like diesel, petrol and cooking gas, Petronas should use part of its profit for this purpose.
The DAP was quoted on the Internet by Malaysiakini that it was "unethical" and "against the national interest" for Petronas to record huge profits while Malaysians consumers have to suffer from high fuel prices.
Such a policy, says the DAP, violates the basic principle that oil reserves belongs not to Petronas but to the people of Malaysia. If the government refuses to bear the burden (of increasing subsidies), then it should direct Petronas to do so because with the net profit of RM35.5 billion, it can afford the subsidies. There's no doubt that many Malaysians — especially those feeling the pressure of rising fuel prices, transportation costs and inflation — will agree with this argument.
But the role of managing the economy, including keeping inflation down and utilising the country's finances well, is the job of the government and not Petronas. Petronas is not a government department or agency per se but a registered company. It has to perform like any other company where managing the bottom line — a crucial factor in ensuring future expansion and growth — is important.
What Petronas can do is to continue to perform well as a company so that it can give back good returns to its shareholders — in this case the government and ultimately the rakyat. And so far, Petronas has been doing a good job.
For the financial year ended March 31, 2005, it has paid RM31.2 billion in royalties, dividends, taxes and export duty to the government. This is equivalent to 30% of the federal government's revenue. This figure also contributes to 53% of Petronas' operating profit of RM59 billion for the financial year.
In the last 30 years, Petronas has paid the government RM246 billion or 61% of its total profits. In the last five years alone, payment made to the government totalled RM104.5 billion. These figures, according to Petronas, are a huge amount and quantum by any company's standard.
Can Petronas give more to the government then? Perhaps it can, but should the government be so dependent on Petronas for its revenue? And should the rakyat expect Petronas as a company, after making huge payments to the government, to further use its profits to subsidise fuel prices?
Petronas needs sufficient cash reserves and cash flow to operate efficiently in the oil and gas industry, which is among the most capital-intensive industries in the world. It needs ample financial muscle to expand globally and seize investment opportunities that can contribute to tomorrow's revenue and profit for the company and country. Today, it has operations in 35 countries.
An investment it is considering — setting up a refinery for its share of crude oil production in Sudan, which is expected to reach one million barrels per day by 2007 — will exceed US$1 billion. In exploration works, for example, it will cost US$50 million to drill a single well in very deep seas where one cannot even guarantee striking oil.
The construction of a liquefied natural gas tanker, which it needs to deliver LNG to markets in the Far East and Europe, will cost about US$160 million, while investment in a petrochemical plant is likely to cost another US$1 billion.
Enough funds are also needed to finance acquisitions of attractive oil and gas assets that become available overseas. In the past, Petronas has acquired shipping company American Eagle Tankers, gas assets in Egypt, the UK, Australia and Papua New Guinea, and a refinery in South Africa. It is involved in exploration and production (E&P) works in Vietnam, Turkmenistan, Pakistan, Algeria, Angola, Benin, Chad, Iran, Morocco and Indonesia, among others. In FY2005 alone, Petronas spent RM7.5 billion in international E&P works. It spent a further RM6 billion at home.
At the same time, Petronas has instituted a prudent debt management policy and its current total debt-to-total asset ratio is 0.22 times — in line with the group's policy of keeping the ratio at below 0.3 times. The company also needs to manage its cash reserves prudently to take into account a possible low crude oil price environment in the future.
While prices are now at the US$55 to US$60 a barrel range, Malaysians should note that the price was as low as US$10 a barrel in 1998.
Besides contributing to the federal government's coffers, Petronas cannot give direct subsidies to keep petroleum product prices low because it is not the only player in the domestic market. The company currently holds only a 30% share in the petrol, diesel and liquefied petroleum gas market while the balance is held by foreign oil giants like Shell, Exxon-Mobil, Caltex, British Petroleum and Conoco.
Under the automatic pricing mechanism (APM), in which the government fixes the pump price and margin for oil companies and dealers, it would be unfair for Petronas, which holds only 30% of the market, to subsidise the prices of petrol and diesel. None of the foreign oil companies will want to part with profits and share the subsidy burden. Doing so would amount to Petronas and the nation subsidising the big foreign oil companies which are making much bigger profits than Petronas internationally.
It will also be unfair to require all foreign oil companies to subsidise the prices as this would eat into the already slim margin of profit these companies are making under the APM. Such a scenario, argues Petronas, would not be conducive for these companies to continue operating here. This may cripple Malaysia's petroleum product retail system and erode international investors' confidence in the country.
As an international business entity, imposing the additional burden of subsidising petrol and diesel prices on the national oil corporation — which will weaken its financial standings — may also result in downgrading Petronas' ratings by international rating agencies.
Petronas' contribution, however, does not stop at filling the government's coffers. Over the years, it has successfully developed and enhanced the capability of Malaysian companies in the fabrication, engineering and services sector of the petroleum industry. Some of these are already listed on the local stock exchange and many have followed Petronas overseas, getting contracts in Sudan, Myan-mar and Chad.
In the last 24 years, over RM131 billion worth of contracts were awarded in the upstream and downstream sectors of the industry. Some 41% or RM54 billion were to bumi-putera companies. Last year alone, RM15 billion worth of contracts were awarded, with RM12 billion going to bumiputera companies.
Besides business and job opportunities, the rakyat directly benefit from Petronas' natural gas subsidies to the power sector — where all the players are local companies — and this has helped Tenaga Nasional Bhd keep the electricity tariff from going up.
Since May 1997, processed gas has been supplied to Tenaga and the independent power producers (IPPs) at a regulated price of RM6.40 per mmbtu (British thermal unit) — a rate which should have more than doubled today as the price of gas is always linked to crude oil. It has subsidised the power sector to the tune of RM25 billion, of which RM14 billion or 55% went to the IPPs.
The rakyat have no doubt benefited from stable electricity tariffs. But if there is any justification for subsidies in the power industry, then just like petrol and diesel — where subsidies should be targeted mainly at the public transportation sector — the main beneficiary should be government-controlled Tenaga and not the IPPs. Unlike the IPPs, Tenaga — which has not had an increase in the electricity tariff since 1997 — also incurs huge capital expenditure estimated at RM5 billion annually.
Petronas says with the RM25 billion subsidy, the nation can build 510,000 units of low-cost houses costing RM50,000 each, construct 250,000 units of police quarters for RM100,000 each, build 25 universities at RM1 billion each, build 1,600 schools at RM16 million each, provide free healthcare for 26 million Malaysians for three years, build 10 more light rail transit systems at RM2.5 billion each, and give a Proton Savvy to 625,000 Malaysians.
Imagine the number of houses, schools, universities and transportation infrastructure that could further be constructed, the better salary benefits for the civil service and free medical services provided from the more than RM50 billion in subsidies and tax revenue foregone by the government from the sale of petrol and diesel since 2000.
Comparatively, the petrol and diesel subsidies will also benefit the rich and middle class who drive big oil-guzzling cars, while some of the beneficiaries of the power subsidies include Genting Sanyen Power, YTL Power, Malakoff Bhd and Tanjong plc/Powertek Bhd. As I mentioned in this column last year, 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.
I have no doubt that Petronas, which the Economist, in its April 30 issue, said was an example of a pretty well-run national oil corporation (compared with other government-controlled energy firms that are often corrupt and inefficient), will continue to deliver good financial numbers and provide its shareholder — the government — with favourable returns.
As for me, the higher petrol and electricity price environment will force me to be thrifty in my spending. And given a choice, I would gladly pay more for petrol and electricity if I could get the government to provide my family with free or inexpensive medical services.
macam perniagaan MLM jugak....
downline.......yang tak pas universiti nie......dapat minima income......(syukur ngan nikmat Allah....masih mampu hidup bersederhana)
yang kenyang jerung persisiran pantai selat melaka...... .. ...
tapi tak per...tempiasnya... walau sedikit...segar jugak laaa...poket....
" Berusahalah mengosongkan hatimu dari keprihatinan memikirkan dunia, semampunya. "....