Leave Petronas goose alone, ask who ate golden eggs

By Syed Mohamed via M'kini

Petronas has been posting on the Internet since 2002 not only its profit and loss, balance sheet and cash flow accounts, but also financial highlights and other details of how it performed in the oil and gas business. For the last couple of years, in view of rising oil prices and hence its profits, Petronas has also detailed out how its profits were distributed.

I have been in the oil and gas business since the early 80's, and I find its website a goldmine of information, beyond what is expected to be revealed even by public-listed companies. However, it may be difficult for those who have no prior working knowledge of the complexity and challenges of the oil and gas industry, to decipher from the information given as to how well Petronas is being run.

This in comparison to not only the other government-owned oil companies, but also the other oil majors of the world, and how much it has contributed (and will continue to do) to the national economy, provided its immense contributions are efficiently and prudently utilised by the government.

The revelations on the website show that so far, Petronas has given back to the nation more than any other GLC has ever done, leaving itself with just sufficient funds to continue to invest large sums every year to search for oil and gas globally (to add to the nation's oil and gas reserves), as well as to add value to its existing highly-integrated businesses in 33 countries.

So far, Petronas has managed to replenish more than it extracts in terms of its oil and gas reserves, both domestically and overseas, increasing its overseas reserves (in Africa, Central Asia, the Middle-east and South East Asia) to one-third of its total global reserves.

This means that it can continue to produce oil and gas for many years ahead, although it is expected that, by about 2014 or earlier, Malaysia itself, as a country, will be able to export less oil than it imports, due to increased domestic demands.

It is certainly not true that our oil wells will be dry by then, as some reports have erroneously suggested, as the current Malaysian oil reserves are equivalent to 22 years of the current extraction rate of 670,000 barrels per day.

For the 2007 financial year, Petronas declared dividends to the government totalling a staggering RM32 billion (half to be actually paid in the following financial year). For the two previous years, it paid RM13.1 billion and RM9.1 billion respectively.

I say its staggering because throughout the 70s, 80s, 90s and early 2000's, its dividends to the government had reportedly been only about RM2 billion every year.

On top of that, for the same 2007 financial year, Petronas also paid to the government another total of RM32.3 billion in the form of taxes (RM21.8 b), royalties (RM8.5 b) and export duty (RM 2 b).

So what is the real issue? The real issue is, therefore, whether the BN government has been prudent and efficient in spending the many billions contributed by Petronas.

Please, people. Petronas cannot be faulted if its contribution is spent elsewhere instead of on petrol and diesel subsidies. Boycotting Petronas products would be like trying to kill Malaysia's one and only golden goose. Let's quarrel about the ‘golden eggs’ which are in the BN government hands, but leave the ‘goose’ to continue to lay more for years and years to come.

There may come a time - like during the 1997-1998 Southeast Asian financial meltdown - when Petronas financial muscle may once again be needed to come to our rescue.

The ball is in the BN government's court - to stop the alleged major leakages and wastage and then use the savings to subsidise fuel prices. This is what Anwar Ibrahim might be thinking of when he promised to reduce the petrol price if Pakatan Rakyat ever manages to take over the federal government.

Is Petronas efficiently run? You bet. Petronas is listed in Fortune 500 as amongst the world's 500 biggest companies. In terms of profitability, using the ‘profit before tax margin’ ratio, Petronas (at 41.4%) is at No1 position, by a long way, compared to all the oil majors and other government-owned oil companies of the world.

It is also in the No 1 position if the Return on Average Capital Employed (Roace) ratio is used. The figure achieved is an astounding 40.9%. Even when the Return on Total Assets ratio is used, at 25.9% it ranks at the top half amongst the government-owned oil companies and the oil majors of the world.

These three criteria show that Petronas is one of the most, if not the most (in certain aspects), efficiently managed of the large oil and gas companies of the world. Do we really want to know how many expensive banquets Petronas held in comparison with Esso, Shell, BP, Chevron, Caltex, Conoco, Gulf, Aramco, Statoil, Petrobras, Pertamina, etc?

Can Petronas reduce Malaysian petrol prices on its own? The answer is negative. Petronas' current total refining capacity is only 314,000 barrels of crude per day. From this amount, only about 150,000 barrels per day of petrol and diesel can be produced, the rest being LPG, petrochemical naphtha, kerosene/jet fuel and waxy residues.

The 150,000 barrels per day account for only 40% of the amount of petrol and diesel sold in Malaysia. The other 60% is supplied by foreign oil companies like Esso, Shell and Caltex. Esso and Shell have refineries in Port Dickson, whilst Caltex may be importing the products from its Singapore refinery and/or purchasing them from the Conoco share of the Melaka refinery outputs.

From the above, one can begin to understand why the petrol price control has to be through the subsidy route rather than through Petronas having to take an 'opportunity loss'. Unless Shell, Esso and Caltex are also willing to take 'opportunity losses', and by how much.