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Saturday, December 12, 2009




We welcome the release of PETRONAS’ half year results for the financial year ending 31 March 2010. While we congratulate PETRONAS on its efforts to grow the international revenue which has grown to 48.6% of the overall revenue, We are alarmed by drastic decrease of the revenue and profitability.

PETRONAS’ revenue for the first half of the financial year drops by RM59 billion which amounts to an even bigger drop of 57% in taxes paid. In the past 5 years, PETRONAS has contributed as high as 44.9% of the national revenue for the calendar year of 2008. This dependency on PETRONAS’ revenue and income from oil & gas sector has skewed the overall picture of our economy, as the government continues to draw more from PETRONAS to cover for its inability to resuscitate the economy since the 1997/98 Asian financial crisis.

As a result, over the last 5 years the government’s drawing from PETRONAS resources has been growing at an annual compound growth rate of 21%. In 2005, PETRONAS contributed RM32.1 billion to the national budget and by 2008 this has become RM74 billion – a whopping increase of 130% within 5 years.Unfortunately, even a corporation like PETRONAS cannot cope with the government’s excessive spending and wastages.

BN government tabled a budget of RM208 billion for 2009 in October 2008 and additionally another mini budget of RM60 billion to spent in 2009 and 2010 was tabled in March 2009 – when the projection of income for 2009 was made based on the bull crude oil price leading up to September 2008.

In the past, we has insisted that the government revisit the 2009 budget in light of the severe changes in the international crude oil market when the crude oil price plunged in the last quarter of 2008. This sensible and responsible call was ignored, reflective of the arrogance of the Barisan Nasional government.

One year later, we are faced with a situation where it is very clear that the government will not have enough money to pay for all the expenses committed and announced so far – as PETRONAS’ results so far indicated nearly a 50% drop of profits. By extension, the government income to pay for 2009 and stimulus packages announced so far will also be halved.

This has a big repercussion to our economy. Our estimate shows that the government’s growth rate target for 2010 is too optimistic, given that there is not enough money to be pumped into the national economy as promised and announced previously. Likewise, the reduction of budget deficit target for actual spending of 2009 and budget of 2010 will have to be revised to take into account the indicative government’s income for next year.

In light of this, we calls for Barisan Nasional government to be more transparent and come clean with the people of Malaysia on the overall impact of the drop in PETRONAS’ profitability to the country. The YAB Finance Minister himself should come to Dewan Rakyat to explain in details what is the revised projection of government revenue for 2010 and correspondingly, how the reduction in government revenue will impact the annual spending for 2010.

There is also the bigger question of the direction of the national economy that the government must come clean with the country.

The high dependence of domestic oil & gas sector and PETRONAS’ revenue is not sustainable and unhealthy in the long run. Our estimate shows that the crude oil and natural gas reserves in Malaysia can only last for another 23 years and 43 years respectively if PETRONAS and other operators do not make new discovery, at the rate we are producing. Similarly, PETRONAS’ equity reserves of its international operations can only last another 23 years and 37 years for the crude oil and natural gas reserves respectively.

We believe it is high time that the whole structure of the national economy is re-looked in light of the anticipated much lower revenue coming from PETRONAS in the future. In particular, the following areas require urgent attention and action:

1. Putting in place a clear, actionable and result-oriented national plan to shift to services and higher value manufacturing sectors to drive the growth of the economy, instead of continuing the dependency on oil & gas industry as main income contributor to the government

2. The institutionalisation of a transparent policy that the Government of the day extracts revenue from PETRONAS and the manner the revenue has been spent, to avoid another round of joyride spending similar to the one carried out by Barisan Nasional government in period 2005 to 2009

3. The restructuring of the gas subsidy system and royalty payments to avoid wastages and to obtain the best economic returns for the country. Currently, the gas subsidy has benefited a few quarters due to the lopsidedness of the IPP agreements and the administering of royalty payments camouflaged as “wang ehsan” takes away accountability and diluted economic planning, causing a widespread wastage and corruption

4. The role and effectiveness of Malaysian Government as enabler and facilitator for PETRONAS to obtain new overseas/foreign oil & gas acreages as PETRONAS relies more and more on international reserves to supplement the dwindling domestic reserves

We will continue to highlight this issue and engage the relevant party to effect a shift in the national economic make-up, because the joyride spending behaviour of the current government in extracting vast amount of PETRONAS’ financial resources was not only irresponsible, but catastrophic to the national economy presently and in the future.