Petronas: ‘Insidious addiction’ to gas subsidies could cost RM28b

The bulk of the gas consumption goes towards electricity generation.

KUALA LUMPUR, Sept 7 ― Petronas said today that the country’s dependence on subsidised gas could cost it nearly RM30 billion this year or about twice its second quarter net profit.

The state oil company is struggling under a crushing gas subsidy burden and forgoing massive revenue due federally mandated prices for gas that are below market levels.

Petronas chief executive Tan Sri Shamsul Azhar Abbas said that the country has an “insidious addiction” to subsidies and, for the first half of this year, the cost to subsidise gas amounted to RM14 billion.

“If you extrapolate that, it will be RM28 billion for 2012,” he said in a media briefing. “That is revenue foregone and money required to grow the business.”

The amount for this year is likely to exceed the RM23.7 billion incurred last year and comes at a time when Petronas is facing uncertainty in the coming quarters due to volatile oil prices and production problems.

Petronas earned RM70.7 billion in revenue in the second quarter, down three per cent from the same period last year.

Net profit fell 30 per cent to RM15.2 billion while its gross profit margin shrank to 37.5 per cent from 42.4 per cent.

While the government has committed to reduce subsidies over the long term, gas prices have only been adjusted once in the last two years.

The government’s price controls and subsidy policies help Malaysia achieve a lower official inflation rate than its ASEAN neighbours.

Ratings agencies have warned that subsidies are one of the factors causing weaknesses in the government’s finances. But they also say that subsidy reforms are unlikely until after the next general election, due to the fear of a backlash at the polls if subsidies are removed and cause a surge in the cost of living.

Apart from gas, Malaysia, ranked as among the fattest of Asian countries, also subsidises sugar and flour.