Pragmatic economic management of Norway’s oil wealth has ensured that future generations will benefit from the wisdom and incorruptibility of their ancestors, writes Benedict Lopez.
On 28 July, Information Minister Zainuddin Maidin issued a stern warning to mainstream newspapers that appear to him inclined to raise issues that are ‘unnecessarily contentious’ – in particular issues of religion and ethnicity – which he felt could undermine political stability in the country. It seems that the warning has already taken effect.
The working class would be the most affected group due to the recent unprecedented 30-sen oil hike. On the one hand, the Government has given a free hand to capitalists to exploit and squeeze the workers. Now, by reducing the oil subsidy, the government has abandoned the little responsibility it had for the working class, says S Arutchelvan.
Let us not allow future generations to blame us for frittering away the nation’s rich oil resources, says Anil Netto. In the wake of the recent oil price hikes, Petronas has come under increasing public scrutiny. Many uncomfortable questions have been asked as to where all the nation’s oil money has gone.
Petronas, wholly owned by the government, is supposed to manage Malaysia’s oil wealth in trust for all Malaysians. Some analysts believe Petronas, the only Malaysian firm in Fortune magazine’s ranking of the world’s 500 largest companies, is among the best-managed corporations in Malaysia. This may be true when one considers profits and financial figures.
Soaring profits for Petronas
Globally, oil firms are raking in profits as oil prices soar. Petronas is no different. For the financial year ended 31 March 2005, its net profit soared by 50.3 per cent to reach RM35.6 billion. Shareholders’ funds (share capital plus accumulated profits) stood at RM129 billion.
Petronas is tipped to make even higher profits for the current financial year ended 31 March 2006, the results of which will probably be announced at the end of June 2006. Last November, it was reported that Petronas posted a net profit of RM20.7 billion for the first half (ended 30 September 2005) of the current financial year, up 22.5 per cent from the RM16.9 billion in the corresponding period a year earlier.
The profits were boosted by higher oil prices (though production showed a slight decline). Indeed, prices peaked at US$71 per barrel on 29 August 2005, when Hurricane Katrina slammed into the Central Gulf Coast of the United States. Although current oil prices (US$60-63 per barrel at the time of writing in March 2006) are double what they were two years ago, they are now lower than the peak in August 2005. So, why the domestic price hike in February 2006?
Lack of transparency
Petronas may be making huge profits but its lack of transparency is worrying. How do we explain the fact that Petronas finished bottom of a list of 15 oil corporations rated for their sustainability and ethical practices, according to a study by the Madrid ethics rating firm Management & Excellence (M&E). When a company is making record profits, it tends to mask wastage, lack of management oversight and slow technology transfer. It is also disturbing that Petronas does business with a host of countries with deplorable human rights records such as Sudan, Chad and Burma.
What irks many Malaysians is that the accounts for Petronas are not transparent. Few Malaysians have access to its detailed accounts. Thus, Members of Parliament are unable to scrutinise them. Neither is there any meaningful debate on Petronas’ performance and how our oil wealth is being spent.
This lack of transparency and ethics is breathtaking when one considers that Petronas actually funds the operating expenses of Transparency International Malaysia, an organisation set up to promote transparency in this country.
Public fumes at wastage
The 30-sen hike in local fuel prices has focused public attention on the wastage of Petronas funds in the past. So much money has been wasted on trophy projects with questionable economic benefit for he people. Under former premier Dr Mahathir Mohamad, Petronas profits were often used to fund mega projects. These include the extravagant new administrative capital at Putrajaya, sponsorship of a Formula One motor-racing team for eleven years, and the building of the Twin Towers, which for a few years were the tallest buildings in the world. To what end?
Under Mahathir, Petronas was also used to bail out politically connected or government-owned firms. Bank Bumiputra was repeatedly bailed out in the 1980s following financial scandals and bad loans. Controversy erupted in 1998 when Petronas, through its shipping carrier Malaysian International Shipping Corp Berhad (MISC), acquired a debt-laden shipping concern, Konsortium Perkapalan Bhd (KPB). Some analysts felt the deal amounted to a bailout of Mahathir’s son, Mirzan, whose KPB was then floundering under debts estimated at about RM1.7 billion.
Cheap gas for the boys
While the subsidy on petrol has been removed, there has been little news about the subsidised processed gas that Petronas supplies to the country’s independent power producers (IPPs). It was during Mahathir’s time that Petronas was required to provide generous subsidies for new independent power producers (IPPs) to ensure that their venture into building gas-fuelled electricity generating plants in the 1990s was successful. Petronas has supplied heavily subsidised processed gas to these IPPs and to the national electricity corporation, Tenaga Nasional Bhd. Since 1997, these subsidies have added up to RM25 billion (of which the IPPs accounted for RM14 billion) and for the year ended 31 March 2005 alone, the subsidy amounted to RM6.2 billion.
This generous arrangements enriched a small coterie of well connected tycoons and their firms. Last year, business media group The Edge identified the IPP beneficiaries as Genting Sanyen Power, YTL Power, Malakoff Bhd and Tanjong Plc/Powertek Bhd. “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,” The Edge pointed out.
It is still unclear whether the subsidies on processed gas supplied by Petronas to the IPPs will be affected by recent price hikes. The IPPs are private firms selling electricity at favourable rates to Tenaga, which is forced to buy from them. So there is no reason for Petronas to sell processed gas to the IPPs at subsidised prices at the Malaysian consumers’ expense. And it isat the consumers’ expense as all indications are that Malaysian consumers will have to pay more for petrol, gas, health care, and water – not to mention the inflationary effect these tariff hikes would have on other basic essentials.
Learn from Venezuela
How Petronas profits are managed from now on will be crucial – for after all, Petronas contributes 30 per cent of the federal government’s revenues via taxes, dividends and royalties.
Now the oil is running out. Total domestic crude and oil-condensate reserves are officially estimated at about 4.8 billion barrels – a reserve life of 19 years. For natural gas, which makes up some 75 per cent of Malaysia’s total reserves, the reserve life is about 33 years. At current rates of production, though, Malaysia will swing from being a net exporter to a net importer of oil by the end of the decade.
The nation’s oil wealth has not been evenly distributed either. Strangely enough, the states with the most offshore oil reserves in Malaysia such as Terengganu are among the poorest in Malaysia.
We could learn a lot by taking a look at how the Venezuela government is spending its oil profits on the people. There, the Chavez administration is using petrodollars to finance far-reaching social programmes known as Misiones (or Missions). These comprehensive programmes cover health care, education, food, housing, land reform, job training, and micro-credit.
An amazing social transformation has been taking place in that country – and, what’s more, it has boosted electoral support for Chavez. BN strategists, take note.
A time of reckoning
We can do the same in Malaysia too. After all, Prime Minister Abdullah Badawi says we have to invest more in our human capital. Can we not use our oil money to boost government spending on our public health care system, on water utilities and catchment areas, on low-cost housing and schools?
So much has already been wasted. Let us use our remaining oil wealth and channel it into socially beneficial projects that are economically and environmentally sustainable. It is great that the government is setting aside the savings in subsidies to a special fund to improve public transport. More can be done to use Petronas’ profits for the people’s benefit. In its People’s Proposal, the Coalition Against Health Care Privatisation recommended that the government set aside RM5 billion annually from Petronas’ profits to improve our hospitals and clinics and to pay our overworked specialists, doctors and nurses more – instead of asking Malaysians to pay more for health care. Petronas money can also be used to provide low-income financing to improve the infrastructure of state-run water utilities – instead of privatising them.
Such massive spending on projects that would benefit the public would have the added advantage of spurring the economy at a time when foreign direct investment has declined. Let us not allow future generations of Malaysians to blame us for frittering away the rich oil resources that we were once blessed with.