By P. Gunasegaram
Tiger is a territorial animal and protects its area zealously – remember, only one Tiger on a hill. And so should Petronas’ if someone tells it to conduct its business detrimentally. Petronas owns all the oil and gas resources of the country and is duty bound to maximise the value of these resources to the country, no matter the pressures it faces.
Is one of the founding objectives of national oil company Petronas to aid the bumiputera community and improve its participation in business?
To get the answer to the question, Tiger scrutinised the Petroleum Development Act 1974 (PDA) closely but the legislation under which Petronas was formed revealed no such thing; no, nothing at all.
It reminds Tiger of that other piece of agreement, the elusive social contract under which this nation was formed which no one has seen but presumably exists somewhere, perhaps in the minds of those who imagined it. But that’s a topic for another time.
Dr Mahathir Mohamad
So where did our former prime minister and current Petronas adviser Dr Mahathir Mohamad get the idea that Petronas is “caught” between championing its founding objective of uplifting the bumiputera business community and opening up its business for foreign participation in line with its business globalisation plan?
All the PDA provides for is the vesting of the country’s oil and gas resources under Petronas and that it will take instruction from the prime minister.
Just to be clear, let’s quote verbatim, the relevant sections. Section 2. (1) says: The entire ownership in, and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia shall be vested in a Corporation to be incorporated under the Companies Act 1965 or under the law relating to incorporation of companies.
And Section 3 (2): The Corporation shall be subject to the control and direction of the Prime Minister who may from time to time issue such direction as he may deem fit.
These two taken together and the fact that the PDA does not mention bumiputera participation or upliftment clearly indicates that uplifting bumiputera standards was imposed through prime ministerial intervention and was never a part of the founding objectives.
However, Tiger hails the PDA as a foresighted piece of legislation which puts all our oil and gas resources under a government corporation instead of divvying it up among a long list of cronies and others to the detriment of the country. Everyone benefits from our oil wealth through Petronas’ contributions to the government.
And Tiger hails too the attempts to keep Petronas independent of political pressure and corruption-free by putting in people of calibre and high integrity when it was set up and continuing a long tradition of upholding the people’s wealth without fear or favour to any party.
But as with all profitable government entities, those with power and patronage eyed with mouths watering the wealth of Petronas and if they could not lay their hands on it they wanted a part of it via contracts and such.
And there has been a constant harping by that pressure group, the Malay Economic Action Council (MTEM) for Petronas to do even more for Malays and it has even called for the removal of its CEO.
Personally, Tiger feels that Petronas has already done too much and it has even handed over marginal fields to consortia with connected local partners in the guise of risk-sharing contracts or RSCs which neither have risk nor sharing with Petronas but is a virtual licence to print money.
In time to come these RSCs may come to be viewed as being similar to the early independent power producers which produced overnight billionaires through unfavourable contracts with the power purchaser, Tenaga Nasional, which is majority state-owned.
Petronas has had its vendor development programme (VDP) through which bumiputra oil field service providers have developed over the years and includes the likes of Sapura-Kencana which has a market value in excess of RM20 billion.
But the VDP is for bumiputera companies and Petronas has been under pressure to drop standards and award more and more contracts to bumiputeras.
MTEM wants it to allocate half of its yearly expenditure or RM100 billion to bumiputeras. That’s terribly unreasonable because Petronas can save a great deal of money by buying directly overseas instead of going through middlemen. And it has substantial overseas operations.
Already, Petronas bears heavier costs for oil field services because its own production sharing contractors must use bumiputera contractors even if they are more expensive, and Petronas eventually pays the bill. There is no need to worsen this by handing over purchases to mere middlemen.
The VDP must not be carried out at the expense of standards and Petronas must do everything possible to resist any drop in standards as well as resist the political pressure put on it to lower them. Otherwise the floodgates will be opened for incompetent contracts and the costs can be severe.
The high seas and harsh operating conditions are not the place for incompetence in terms of construction and service contracts and only those who are capable should be given a chance, not those who have built structures whose roofs keep collapsing for instance.
Under current laws, Petronas only takes instruction from the prime minister and it should not play into MTEM’s hands by directly engaging with them which will amount to playing politics. Unfortunately it has an adviser, Mahathir, who despite his so-called retirement from politics, still plays politics to the brink and to the hilt.
But Mahathir or no Mahathir, politics or no politics, Petronas’ duty is as clear as light: To maximise oil and gas resources for the benefit of the country. And that certainly means not awarding contracts to incompetents – bumiputera or otherwise.
GRRRRR!
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