Is Malaysia’s Ruling Party Trying To Take Over Petronas?

Is Malaysia’s Ruling Party Trying To Take Over Petronas?
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Petronas, Malaysia’s state-owned oil company, may be the target of take over by Barisan Nasional. While politicians have long interfered with the state-owned oil company’s operations, it appears that current CEO Tan Sri Shamsul Abbas is apparently coming under pressure to step down and elements of Malaysia’s ruling party are trying to remove him.

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Tan Sri Shamsul Abbas has been widely praised for trying to secure and protect Petronas’s independence and interests. One of the most important steps Tan Sri Abbas has taken has been to institute an open bidding process and to favor proven experience over political connections when awarding contracts. This has apparently drawn a lot of push back from politicians looking to use national oil wealth to reward their supporters and line their own pockets.

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CEO blasts political pressures

Tan Sri Abbas is showing an unwillingness to bend to political pressures and looks to be readying a counter-offensive against the political forces trying to pressure him. Abbas targeted many different groups of people, citing his unwillingness to cut back room deals and to send contracts to connected people. Instead, he has focused on building up an open bidding process that will bring costs down for the national oil company.

Mr. Abbas also blasted the government itself, noting that a considerable amount of the outside interference is coming from the bureaucracy itself. While Petronas is a part of the government, it has traditionally enjoyed a considerable amount of independence and has emerged as perhaps the best performing Malaysian government-linked-company as a result.

Tan Sri Abbas also pointed out that he is under pressure to elevate Petronas and its performance to be on par with international oil companies like Royal Dutch Shell plc (NYSE:RDS.A) and Exxon Mobil Corporation (NYSE:XOM). At the same time, however, these companies don’t have to contend with undue interference from their governments.

As Mr. Abbas emphasizes, politicians tend to say one thing and do another. And they appear to be telling him to run the company like a modern international oil company, but don’t appear willing to accept the changes that will need to be made in order to do so. It appears that they want to have their cake and eat it too.

Tightening of belt enraging politicians

Perhaps Mr. Abbas’s most controversial move was to cap payouts to the Malaysian government at 30 percent of net profits. Petronas has typically supplied as much as half of the government’s revenues, and with Malaysia’s government struggling with fiscal constraints, its revenues are more important now than perhaps at any time before.

Many politicians would like Petronas to open up its coffers and to send more money towards the government. Mr. Abbas has emphasized, however, that the company needs the money in order to reinvest. With Malaysia running out of easy-to-tap oil and gas, Petronas now has to look deeper and farther to find resources.

Malaysia running out of oil?

Mr. Abbas also pointed out that without expanding its capacities, Petronas will practically be forced to shut down in about 13 years. Rumors have long circulated that Malaysia will run out of oil in about 13 years and Mr. Abbas’s statement would appear to support that. Oil states across the world have been trying to plan for that day when national reserves run out, but few are in as perilous a place as Malaysia.

With oil revenues all but funding government intervention and national infrastructure, an oil-less Malaysia may not have enough revenue to support government spending. The country relies on massive social welfare programs and government support of the economy. The resources necessary to support such programs, however, may not be there when the country runs out of oil.

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