Foto - Petronas

Letter to Editor

23hb April 2022

Dear Editor,

MTEM: A Rebuttal to PETRONAS CEO on Clearing the Air

The recent The Edge interview published for the week of April 18th was indeed a revelation at how much arrogance and lack of self-awareness has permeated at the highest echelon of PETRONAS in recent years that culminated in that interview with the President and

The whole tone and message of the interview was in direct contradiction to the words penned by the Minister of Finance YM Tengku Zafrul, quote “One key target outcome is to ensure that GLICs/GLCs’ operations will be more robust, allowing them to contribute more
effectively and meaningfully to nation building, as well as assisting Malaysia in developing resilience in the face of future shocks or pandemics”.

Instead, the message of that interview was condescending attitude towards the very industry and public PETRONAS is serving. It was all about PETRONAS and how it must be the one that has the upper hand in all instances. That had confirmed our perception about PETRONAS. All policies and rules were put in place by PETRONAS executives based on KPIs that are solely for the benefit of PETRONAS, the MNC (Multinational Corporation). These KPIs were constructed by ignoring the real understanding of the macro-economic conditions of commerce and the business environment prevailing in Malaysia, including its technical and operational realities. No resolution to the troubles of the industry can be resolved until this attitude at the highest levels of PETRONAS is corrected and the right KPIs are cascaded.

The article mentions two of the largest associations of OGSE companies, MOGSC and MOSVA which represent entrepreneurs and more than 60,000 workers of the oil and gas industry, far exceeding those employed by PETRONAS. Their economic contribution is not just one of the most heavily private-invested sectors in the billions of Ringgits but also consistently employ the most skilled and professional local workers in Malaysia. The dismissive tone of the President/CEO of PETRONAS to their concerns reeks of supreme arrogance that is as astounding as it was confounding in its substance.

I believe several issues need to be made clear. Our public, the media and even our policymakers need to be made aware of the some of the most misleading facts about the Malaysian oil and gas industry to provide the true perspective of the sector.

Firstly, we must address a factual principle that has severely been overlooked and misunderstood by the public and the media:

1. PETRONAS has been so ubiquitous in the public eye as a “corporation” and its senior executives have presented itself as such that it has been conveniently forgotten, for various reasons, that it is in fact a statutory body incorporated as an act Parliament via
the Petroleum Development Act 1974 (PDA 1974). Its objective is ” to control the carrying on of downstream activities and development relating to petroleum and its products”. That means it include the OGSE (oil and gas services and equipment) overall economy.

2. It is effectively a civil service corporation and not a multinational corporation (MNC) it seemed to have fashioned itself to be. In fact, it shall be “subject to the control and direction of the Prime Minister”. Its policies and terms of engagements therefore must take into consideration the overall economic health and growth of the O&G sector as a whole and not PETRONAS as its prime reason for existence.

Unfortunately, over the years and including the pronouncements in that said interview by its CEO/President, he seemed to have forgotten or have not understood the real place in the socio-political and economic position of PETRONAS.

3. Unlike our OGSE industry in general, or our offshore vessel owner companies, where the capital comes from private resources and the financial markets with its associated costs, PETRONAS exists and builds its business on the back of taxpayer resources – primarily the lucrative oil and gas blocs that are given to PETRONAS free of charge. In fact, even the bulk of PETRONAS highly profitable upstream capital developments are financed by foreign MNCs via productions sharing contracts or agreements without the need for PETRONAS to fork out the needed cashflow to develop or operate those fields within the blocs. This is how PETRONAS accrue its major profits.

The smug smile would have been wiped off the face of the President/CEO had he been asked to raise personal funds and tender for such domestic oil and gas blocs like the entrepreneurs he condescendingly called on as not understanding his language. Before the President/CEO of PETRONAS starts pointing at the OGSE industry, it should look at itself for accountability:

1. PETRONAS is the authority that constructs the policies, procedures and terms that controls the OGSE industry. By the CEO’s own admission of the “failures”, it seems to us the failures he mentioned are due to these policies that had produced undesired results. That must be the “Hokkien” spoken by PETRONAS. Unfortunately, it is much easier talking from the height of the Twin Towers and condemn hardworking
O&G entrepreneurs as not understanding such “Hokkien w”hen we and the industry point out its problems and undesired outcomes. When he mentioned a 4,000-vendor ecosystem he should ask himself who created, licensed, and regulate this ecosystem? Do not blame others for your own failure to provide a practical framework for a manageable system.

2. MOSVA, MOGSC and other OGSE entrepreneurs did not at any time desire “help”. They may have used that word to be polite and to put PETRONAS on the pedestal they are used to. But the truth is, all they seek are only fair, just, and technically and economically sound policies and terms in doing business with PETRONAS. These are not welfare seeking organizations that are able to acquire free Oil & Gas Blocs from the Government at taxpayers’ expense.

Instead, what they get are condemnations of somehow being incapable of conducting business as professionals. These private entrepreneurs are in fact the experts in their businesses, having built them from scratch without government subsidies or grants, unlike PETRONAS. They had to follow PETRONAS policies and terms that has resulted in the fiascos that we see today. In fact, it is about time PETRONAS to engage and listen to these entrepreneurs on how best to develop the OGSE industry because they know it better.

PETRONAS keeps repeating their Capex and Opex spending as if it is beneficial to the OGSE industry – no it is not. It needs to seriously stop doing that, it is an insult to the hardworking citizens doing real business in our private sector. It is obligation of PETRONAS to generate wealth for the nation from the free capital and resources provided by the citizens through the Malaysian Government’s grant from its free domestic Oil & GAS Blocs. It is responsible to ensure contribution to the socio-economy of the citizens.

PETRONAS has never been transparent in its decisions. Almost all has been based on edicts from its so called in-house “experts” that has never built or ran a true business of their own. This also include being guided by foreign consultants such as Accenture and such who has
no feel to the vibes and pains of the industry. And then these rules are rolled out to the OGSE community as decree. The result is clear for all to see, irrespective of high or low oil prices, an unsustainable OGSE industry despite about 48 years since it was entrusted to carry out its duties by PDA 1974.

Despite its platitudes towards transparency, we truly are unable to ascertain which investments make or lose money and why such thing happens due to the consolidated nature of PETRONAS accounts. The recent divestment of EPOMS, its wholly owned subsidiary, for example was done on what basis? Was it tendered? No one knows. Before that, numerous deals were given out to certain companies for Risk Service Contracts on opaque basis. How did PETRONAS acquire Progress Energy Canada possibly at premium especially when risks involved seemed to be well-known with the native issues? We can go on and on and on, but truth be told, we, the taxpayers must demand that PETRONAS show
how it has spent and made or lost money at its various forays using the revenues generated from the freely gifted domestic Oil & Gas Blocs.

It is very easy to talk about asking entrepreneurs to scale up or consolidate when the economic environment created by your own policies is disastrous, to the point that even financial institutions does not think much of the contracts you dish out with its termination
for convenience, as an example. Two of the so-called mergers were mentioned, how did one of them turned out? Too big to fail. How are mergers going to happen when corporations in the industry you have created are littered with PN-17 entities, please learn your Economics 101. But then again, what can we expect from a rent seeker?

By the way, talking about “too big to fail”, we need only see how good PETRONAS senior executives are when they enter the private sector in the supposed attempt to turn-around a mega corporation that PETRONAS has continuously given billions of contracts; nothing but utter disappointment. In fact, it is usually the one getting Government “bail-out” and probably seeking more.

Taxpayers need to hold PETRONAS accountable on its responsibilities per PDA 1974 especially where its revenues from the free domestic blocs are then invested overseas or even at Pengerang. Up till today where are the profits from Sudan, Iran, Myanmar, Canada, and the likes, just to name a few? Did the wealth benefit the citizens as a whole? No. It must also be held accountable for the catastrophe of the OGSE industry it has been entrusted with. In fact, for it to lament that its cost of domestic operations is high when its capital is free boggles the mind. An offshore vessel owner/operator had to pay for every single one of their assets, PETRONAS gets its money-generating blocs of assets FREE! What kind of cost structure do PETRONAS carry that it must impose on domestic contractors to subsidise its operations?

So before trying to teach businesspeople how to push papers in “Hokkien”, maybe it would be better for the President/CEO to learn the Latin that true businesspeople had acquired and had been the one carrying out all the true work of building the O&G industry in
Malaysia. Before one attempt at humiliating one’s contractors who did not arrive at their positions through a government welfare GLC, maybe the CEO should take pause and recognise that these entrepreneurs hire hundreds of thousands of the voting public that paid his lucrative overblown salary whilst their workers suffer to prop PETRONAS up.

The OGSE industry and their employees have sacrificed beyond any that PETRONAS or its executives has ever undergone during at least the last 5 years of economic downturn including retrenchments, pay cuts and no bonuses. None of them are even paid a fraction of the civil servants in PETRONAS. I sincerely feel it is time that balance is restored between taxpayer aspirations via PDA 1974 and the unending blinkered view that PETRONAS is an unaccountable MNC to us – the taxpayers, in delivering its true duties.

For years, Malaysian companies and entrepreneurs have kept their council to speak their minds because of fear of being black-listed or discriminated should they talk openly. However, time is of the essence to correct before the industry implodes and forever gone. It is now or never.

My final word to the CEO/President is to not be arrogant when the luck on the oil price is on your side because when times are bad it is the contractors that you came to ask for favours. And it is still the contractors that you squeeze to ensure your continued profits,
bloated salaries, and bonuses. It is not your genius at PETRONAS that made its profits, it is the earlier scheme of your predecessor, Tan Sri Hassan Merican that ensured a business model which provide free lucrative O&G blocs to be bided to MNCs who paid for its
development and operating costs and you at PETRONAS take the slice of the profits. Any Ahmad, Ah Kow, Ajang and Arumugam can make money this way, maybe even more with this Beverly Hillbillies business model.

Please come down your towers with humility and listen to the real businesspeople who truly know what they are talking about. Learn some Latin.

Salam Ramadan

On behalf of MTEM,

Tengku Ngah Putra
Head of Oil & Gas Cluster, MTEM

Majlis Tindakan Ekonomi Melayu (MTEM)

Tentang Kami —
Majlis Tindakan Ekonomi Melayu Bersatu Berhad (MTEM) adalah sebuah pertubuhan naungan yang mewakili lebih dari 50 pertubuhan ekonomi Melayu bukan-kerajaan di peringkat kebangsaan. Platform kebangsaan MTEM adalah yang pertama diwujudkan di Malaysia dan mewakili lebih dari 500,000 perniagaan Melayu. MTEM diasaskan oleh DPMM pada tahun 2011


— BebasNews

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