Sunday, June 8, 2008

CEO: Petronas will close down in 10 years if it hands over all profits

From the Malaysian Insider

KUALA LUMPUR, June 6 — Tan Sri Hassan Marican shuns publicity. He hates press conferences and only meets the media when he wants to.

Yesterday, the president and chief executive officer of Petronas had little choice. With pressure on the ground against the Abdullah administration mounting over the 40 per cent fuel price hike and the possibility of street protests growing by the day, he was directed by top government officials to lift the veil of secrecy that shrouds the operations of Petronas.

He painted a dire scenario facing the national oil company, saying that it would cease to exist by 2018 if it was forced to hand over all the profits to the Government to continue subsidising fuel.

Speaking to editors and senior reporters at a special briefing on Petronas’ contribution to the country, Hassan said that at the close of its financial year in March last year, the national petroleum company had given the Government RM52.3 billion in taxes, royalties and dividends which worked out to be 32% of the Federal Government’s revenue.

“Since the formation of Petronas in 1974 to last year, the company gave the Government RM335.7 billion out of a total profit of RM570 billion,” he noted.

He argued that the oil company needed to reinvest its profits in new technologies and in search of new oil reserves. To date, Petronas has reinvested RM178.9 billion of its profits.

"There is one company, which I don't want to name, that gives back every dollar it made to the government concerned. Now it is suffering," he said.

"Any business if you don't reinvest, you cannot expand... so what do you do? The impact is on the shareholders, which in this case is the government. They will be getting less and less, and eventually zero," he added.

Hassan said continental shelf production and reserves have been coming down, being replaced by deep and ultra-deep water explorations.

"Going forward, it will be tougher. Resources will deplete for sure. Malaysia has been a producer of oil for more than 100 years," he said.

He also dismissed claims by critics of the government that because the price of crude oil was US$130 per barrel, Petronas was making more money than ever and well-placed to continue subsidising fuel prices in Malaysia.

“A lot of focus is placed on the high oil prices. There is very little talk about costs. The costs to explore and to drill for oil have increased by about 200% over the past three years.”

Hassan said Exxon Mobil made about US$40 billion (RM130.31 billion) last year, an increase of only US$1 billion from 2006, in an environment of higher crude oil prices.

“That is the world’s biggest, most efficient and most well-run oil company. Margins have eroded,” he said.

Hassan said Petronas was now “scraping the bottom of the barrel” as far as finding and extracting oil was concerned.

He challenged critics who said that Petronas was not transparent, saying that the corporation published a very detailed annual report which was deposited in the Parliament library.

“For all intents and purposes, Petronas is a public-listed company because we are rated by agencies like Standards and Poor, and Moody. We do not hide anything,” he added.

In the days ahead, the government may come under severe pressure to explain how it has spent the RM335 billion that it has received from Petronas since 1974. Such a disclosure is going to make many people in the government, past and present leaders, sweat.

Sarawak Headhunter's Comments:

In the first place nobody is asking PETRONAS to hand over all its profits to the Government to continue subsidising fuel. Is that what has been happening all these years? How does this "subsidy" work anyway? Why don't they explain the mechanism of this so-called "subsidy" or are they merely talking about opportunity cost here?

Please explain clearly to the rakyat so that they will understand.

At the same time, please explain to Sarawakians, Sabahans and Terengganuans why in spite of being oil-producing states they are burdened with higher prices as well. Does this not mean that they are "subsidising" all the other more developed states as well? Is this fair, especially when Sarawak, Sabah and Terengganu themselves still have high levels of poverty?

Please also explain why Terengganu has to literally beg for a share of its own oil revenues through the so-called "Wang Ehsan". Explain in detail how this "Wang Ehsan" was spent over the years and why RM4 billion of it (that we know of) is unaccounted for. Then we can talk about who's subsidising what and whom.

PETRONAS contributes 32% of the Federal Government’s revenue but has the Federal Government used this money for the full benefit of the rakyat?

Please explain why PETRONAS's contribution to the Federal Government is used to subsidise mismanagement, misgovernance, inefficiency, waste and corruption to the tune of RM335.7 billion between 1974 to last year.

We are not arguing about PETRONAS's need "to reinvest its profits in new technologies and in search of new oil reserves".

Hassan Merican is wrong. The impact is NOT on the shareholders, which he says are the government. The real impact is on the ordinary rakyat who are getting less and less, and eventually zero.

Who is Hassan trying to fool when he said continental shelf production and reserves have been coming down, being replaced by deep and ultra-deep water explorations and that resources will deplete for sure?

There is oil offshore of Kelantan for sure, otherwise there wouldn't be a joint concession area with the Thais at the international boundary which is producing oil, but why doesn't PETRONAS conduct any real exploration and production elsewhere there? The map from its website appears to show that there are exploration areas offshore Kelantan but are they really doing anything there? This map (shown above) actually dates back to August 2005 (Click on it for a larger version).

Why doesn't Kelantan get any royalties or even "Wang Ehsan" from the Malaysian-Thai Joint Development Area? The map also shows the presence of gasfields offshore Kelantan but in non-concession areas. Why haven't these been developed? Is PETRONAS practising directional drilling techniques to siphon off oil from Kelantan waters from oil rigs located in Trengganu waters to avoid paying Kelantan any royalty?

If the costs to explore and to drill for oil have really increased by about 200% over the past three years, ALL oil companies would be losing money unless oil prices have also increased by more than 200%, true or not? Does this idiot Hassan Merican think we are all fools?

Don't try to sidetrack us with the story that Exxon Mobil made about US$40 billion (RM130.31 billion) last year, an increase of only US$1 billion from 2006, in an environment of higher crude oil prices. That is a different story and probably has its own causes.

If PETRONAS was really now “scraping the bottom of the barrel” as far as finding and extracting oil was concerned, can Hassan please tell us how much of Malaysian territory, both onshore and offshore has really been explored, 5%, 50% or 90%?

How many people really have access to PETRONAS's annual reports which are deposited in the Parliament library? Sarawak Headhunter has recently found a link to PETRONAS's annual reports on its website, through the Investor Relations section: PETRONAS Annual Reports. As someone has pointed out, these are very basic and not detailed accounts.

Even if PETRONAS really does not hide anything, the truth of the matter is that it is not easy to get pertinent information from PETRONAS about anything, especially when its own CEO and other of its senior management mislead the press and the public.

We had not too long ago a Director and VP of PETRONAS telling us that PETRONAS "does not fund bridges". This is an outright lie. What about the bridges in Putrajaya, in fact what about the whole of Putrajaya itself? Are they telling us that PETRONAS's money did not fund the development of Putrajaya?

We really need better, clearer and more transparent explanations. It is not only PETRONAS which is answerable to the public but the whole government as well.

The rakyat deserves better explanations about how the nation's wealth is being spent. We would really like to know who is subsidising what and whom and how.

Or is the BN Government now really scraping the bottom of the barrel?


Anonymous said...

You have put up some very interesting questions. Until those questions are satisfactorily answered, Malaysians from all walk of life will always views BN practicing poor governance.

Anonymous said...

With Malaysia forced to end or at least reduce its petroleum subsidy, it is circumspect to learn from the experiences of other oil-producing countries.

There are enough lessons in the world today on how we should manage our precious God-given oil bounty. Prudently done, as in Alberta (Canada) and Norway, it would bring peace and prosperity. Anything less and it would be a curse; the new wealth would breed corruption and tear the socioeconomic fabric of society, as seen in today’s Iraq and Nigeria.

I would rather that Malaysia emulates and builds from the Albertan and Norwegian models.

Remove all subsidies on petroleum products.

This would encourage conservation. It would also prod Malaysians into the global economic reality instead of being insulated from it.

global warming malaysia motorcars cars smoke emissionIn order for this giant step to be accepted, the government must divert the savings into a separate trust fund for use by future generations when our oil would run out, with a small portion devoted for current use in subsidising cooking gas for the poor, and users of public transportation.

Norway, with a land mass slightly larger than Malaysia and a population only twice that of Perak, ‘sterilises’ its oil revenue by diverting it into a separate trust fund for use by future generations.

The wisdom of that initiative is that the new wealth did not disrupt the social and economic fabric of Norwegian society. There was no runaway inflation as in Nigeria, and the Norwegians did not become lazy profligate consumers dependent on their new oil wealth, as with the Arabs.

Seven ringgit

The Norwegians pay the same world price at the pump for their petroleum, currently at about seven ringgit per litre, nearly three times the new Malaysian price.

One consequence is that while they have one of the highest per-capita incomes, car ownership among Norwegians is one of the lowest in Europe. To them, a car is simply a means of transportation, not for ostentation.

Everybody knows that they are already wealthy; they do not need to flaunt it. Further, the cars on the streets of Oslo are mostly fuel efficient brands like Volkswagen rather than luxurious Mercedes.

In fact there is a stiff tax for gas-guzzlers.

Among the many positive consequences are that their roads are not congested and their air less polluted.

Today the Norwegian Petroleum Trust is the world’s second largest sovereign fund, and fast expanding. It may have already exceeded half a trillion (500 billion) US dollars.

When the oil wells run dry, as they inevitably will, the Norwegians could still enjoy their present lifestyles as the Trust Fund’s income could cover the country’s budget till perpetuity.

Like everyone else, the Norwegians do not like paying high prices for petrol, or anything else for that matter. However, they willingly do so because they see the direct and tangible benefits of such an enlightened policy.

The Albertans too pay world price for their energy, with their government diverting the extra bounty into a separate Heritage Fund. Unlike the Norwegians who invest in global stock markets, the Albertans invest in their schools, universities, and hospitals.

Consequently, as noted in the Economist and also from my firsthand knowledge, Alberta is the only place where the rich send their children to public schools! The University of Alberta (which happens to be my alma mater) is now regarded as one of the finest, thanks to generous funding from the Heritage Fund.

Malaysian Petroleum Trust Fund

Malaysia can improve on the Norwegian and Albertan models. We must commit to remove all subsidies on energy, and do so in a phased and predictable manner, perhaps over a couple of years. This must be coupled with a properly thought out plan to protect the poor.

For example, there must be subsidized cooking gas for the poor, and only for them. We can easily estimate the energy needs for the typical poor family, and limit the subsidy or even direct grants only for that amount, and nothing more. It should be fairly easy to devise such a poverty-ameliorating program with minimal leakage.

malaysia formula one race 170305 petronas team posingWe could model it after America’s 'food stamps' programme.

Likewise, we should subsidise and thus encourage public transportation. In British Columbia, season pass holders (rich and poor) for public transit get a rebate from the government. There is a public good in this; for by not using their cars for commuting, the air is less polluted and streets less congested, and thus require less maintenance.

The money saved from removing the subsidies should be diverted to a special Petroleum Heritage Fund.

The corpus (or principal) would be invested locally in a broadly diversified portfolio to include stocks, bonds, real estate, and venture capital. The fund should be passive investor, concerned only with profit making.

The Norwegians limit their holding in any company to no more than five percent, meaning, they are in it purely for the profit potential and not to seek control or management. It is for this reason that unlike other sovereign funds (Singapore’s Temasek and China’s many funds), the Norwegians are the most sought after investors.

Local use only

Like the Alberta Heritage Fund, the income from the Petroleum Fund should be used to improve our schools and universities, as well as providing affordable housing and better health care. Just as the corpus must be invested locally, the income too must be spent locally.

Thus no scholarships to send students abroad, instead the money should be spent to improve local universities so as to benefit the greatest number of students.

The country now has many such trust funds, from Tabong Haji to Employees Provident Fund. All too often they serve as nothing more than as sources of cheap funds for the politically well connected. They are also not well managed.

tunku abdul rahman tar college 290307 studentsTo sell this idea, the Petroleum Fund must be professionally managed and free of political interference. This is a very high but achievable order. Its governing board must have wide representations, including nominees of the opposition political parties and NGOs. Anything less and it would be hard to sell the policy.

Pakatan Rakyat’s leader Anwar Ibrahim rightly expressed the public fear and mistrust that the funds saved from reducing or abolishing the subsidy would be used to benefit Abdullah’s political cronies and family members. Anwar and Malaysians generally have good reasons for this suspicion.

I am not impressed with Abdullah’s proposal to provide tax rebates for car owners. If they can afford to buy a car, then they do not need any subsidy or rebate from the government.

Abdullah must also spend the petroleum dollars locally to benefit especially the residents of the oil-producing states. It is morally indefensible and politically foolish to see residents of the three states where oil is produced (Trengganu, Sabah, and Sarawak) among the poorest in Malaysia.

If Abdullah does not handle this petroleum subsidy issue wisely, it could prove to be the final straw to his downfall. On the other hand, if he could learn (a big if) from the Norwegians and the Albertans, he could not only salvage his political future but more importantly, leave a significant legacy.

Anonymous said...

My Answer to You:

Abdullah Ahmad Badawi has expressed hope that the public would acquire the right information on the global fuel price hike phenomenon in order to really understand what the country was facing.

In his speech at an investiture ceremony held in conjunction with the Yang diPertuan Agong's birthday at Istana Negara today, the prime minister said everyone has a role and responsibility to face these trying times.

“Let's together face this challenge with resilience for the greater good of the nation and our future generations," Bernama quoted him as saying.

On Wednesday, the premier announced that the government will lower its fuel subsidies resulting in a sharp increase in petrol and diesel prices.

The premier said the government had held out for as long as possible but the steep price of oil has risen rapidly in the world market.

Abdullah elaborated that in January 2007, the price of crude oil in the world market was only around US$50 (USD1=RM3.29) a barrel.

Now, 18 months later, it had risen to almost US$130 a barrel and analysts were predicting it would continue to rise up to US$200 a barrel, he said.

abdullah ahmad badawi pm mihas halal convention 080508 01“In this situation, the fact is government expenditure will not be able to meet the difference between controlled selling prices and of that in the world market despite higher revenues gained by Petronas,” stressed Abdullah, adding that this was a challenge that all Malaysians had to bear.

He also said the government was aware that the fuel price hikes had caused uneasiness and worry among the population.

“The government would do all it could to alleviate the burden experienced by the people, especially by those in the lower income group and among the steps to be taken was increasing direct aid to them apart from assuring prices of essential goods remained affordable,” he said.

The PM added that the government would also take steps to save on public sector expenditure, increase the range of goods under the price control scheme, improve public transportation and postpone projects that are not urgently needed.

However, Abullah noted there are many challenges needed to be tackled to ensure the nation continued to move forward.

This include the slowdown in world economic growth as a result of a stagnant United States economy, which had spill-over effects on Europe besides emerging and developing economies.

On right track

Despite of all these, Abdullah said the national economy experienced encouraging growth last year proving the nation was on the right track.

“Real Gross Domestic Product (GDP) growth last year was at 6.3 per cent despite a challenging world environment.

“All sectors recorded strong growth in particular the services, construction, mining and plantation sectors. Consumer demand growth also was healthy at 11.8 per cent,” he said.

He also pointed out that the government succeeded in reducing the national deficit to 3.2 per cent.

“We are achieving economic growth that was supported by a resilient domestic economy and having a more diversified economic structure.

“These achievements clearly show the government is always implementing policies and economic management strategies that are flexible and pragmatic,” he explained.

The prime minister also reiterated the government's commitment to improve the quality of living of the people.

“Average household income of Malaysians increased from RM3,249 in 2004 to RM3,686 in 2007, an average increase of more 4.3 per cent a year,” he said.

He also said the poverty rate has been reduced from 5.7 per cent in 2004 to 3.6 per cent in 2007, while hardcore poverty it dropped from 1.2 per cent to 0.7 per cent during the same period.

On efforts to combat corruption, Abdullah said reforms were being undertaken to make the Anti-Corruption Agency a full-fledged commission while a Parliamentary Select Committee on corruption prevention had also been set up.

From Pak Lah

Anonymous said...

The global demand for oil this year is expected to remain relatively unchanged at 87.5 million barrels per day with weaker growth in the Organisation for Economic Cooperation and Development countries to be offset by demand from Asia Pacific, the Middle East and Africa.

In stating this yesterday, Petroliam Nasional Bhd (Petronas) president and chief executive officer Tan Sri Mohd Hassan Merican said the emerging economies were expected to drive energy demand growth by about 2.2 per cent per year up to 2030.

“This demand growth has created a strain on supply, resulting in crude oil prices reaching a historical high this year,” he said at the 13th Annual Asia Oil and Gas Conference which was officiated by Prime Minister Datuk Seri Abdullah Ahmad Badawi.

These developments, according to Mohd Hassan, are part of a broader transition in the oil and gas industry to a new era whereby many of the concerns regarding the industry’s ability to meet the sustained growth in global energy relate to the above-ground risks such as access to reserves, infrastructure and human capital, rather than the below-ground endowment.

While we should not underestimate the magnitude of the below-ground challenges, from maturing producing fields to the difficult geology of frontier areas, the world is not running out of energy resources.

“The crucial question is how much of this endowment can actually be recovered, at what pace and at what cost.”

Mohd Hassan also said that technology would play a key role in ensuring supply availability amid concerns of seeming inadequate levels of investment to meet expected rising world demand for oil over the coming decades.

Notwithstanding the recent lack of discoveries of new major oil fields, he said innovation has proved adequate to meet the ever-rising demand for oil.

“The industry is at a critical juncture that calls for innovative and bold solutions and the world is looking to us for direction on the war forwards,” Mohd Hassan said.

“New models of cooperation and collaboration will be needed between producers and consumers alike as well as between international oil companies, national oil companies and service companies to achieve real progress,” he said.

He added that efforts should also be focused on supporting the formulation of sound energy policy, intensifying research and development efforts and addressing industry-wide capacity and capability shortages.

On the consumers’ side, Mohd Hassan said much needed to be done to ensure that greater energy efficiency is achieved.

“In Asia, I believe more can be done by policy makers towards reaching higher standards of energy efficiency across the board, from the burning of fossil fuels by the power generation and manufacturing sector, to solving the problem of traffic gridlocks through better public transportation,” he said.

Mohd Hassan said nations should also work towards a gradual removal of generous energy subsidies, which he added “caused unmitigated consumption and market distortions that are unmanageable in the long run”.

“Saving energy is no longer about achieving cost-savings — it is a matter of survival and providing for the future generation,” he said.

Anonymous said...

Bro u should asked the gov why and how the money from Petronas had been used and how they subsidized quota manage by the government.

Dont bark at the wrong tree.You should see how petronas had contribute to Miri and Bintulu.

If u want changing please change the gov.Change the PM.change the government now.we will see changing of the policy.

CEO also now had been Pressured by SIL people.If their takeover Petronas then we will see the doomsday of Ma;aysia