Malaysia headed for significant financial shortfall in 2016 – Oilman

Due to its lower profit projection, Petronas’ payout to the Government in the form of dividends, taxes, royalty and export duties is expected to be down by almost 50% for this year compared with an estimated RM73 billion in 2014.

I quote from The Star:

“'The contribution is expected to be down by almost 50% to about RM35 billion for 2015, as Petronas goes through a period of adjustment to cut down its capital and operating expenditure. This is based on a payout ratio of 50%,” said a source.

“'The contribution to the Government will, however, increase from 2016 onwards, but will not be to the tune of previous years unless oil stays above US$80 per barrel.'”

In 2013, Petronas’ total contribution to the Government in the form of taxes, dividends, royalties and export duties stood at RM67.6 billion, while in 2012, it amounted toRM 80 billion.

Petronas, Malaysia’s only global Fortune 500 company, is the country’s biggest source of revenue, covering about a third of the Government’s annual income. But not unlike other oil majors, it has to face the new realities of bearish crude prices.1st October 2015:

"In the current fiscal year, Petronas contributed RM 26 billion to the budget, with another RM 26 billion taken from the Petroleum Development Tax, for a total of RM 52 billion from Petronas reserves.

"Officials are privately forecasting that because of the collapse of oil prices, the two funds will contribute only RM 10 billion each, leaving a shortfall of RM 30 billion," reports Asia sentinel..

And as reported in The Straits Times:

"'Petroleum prices have slumped and Petronas which gave a dividend of RM26 billion this year have said that they can only give RM9 billion next year. Where am I to go to make up the RM15 billion deficit,' Najib said.

My comment...  the PM is omitting significant information. While this year's dividend from Petronas is RM26 billion, this year's taxes, royalties and export duties from Petronas should be around an additional RM26 billion.

If Petronas is expecting to provide only RM 9 billion next year in dividends to the federal government, there should be a corresponding reduction in next year's taxes, royalties and export duties.

Which means the RM9 billion shortfall that the PM mentions, should be significantly more than a RM9 billion shortfall. More likely double that number, after including the reduction in taxes, duties and export taxes.

Or around an RM15 to RM18 billion shortfall. NOT RM 9billion shortfall.

Please refer to the earlier numbers quoted above from previous years, for total rough amounts of Petronas dividends, taxes, duties and export taxes.

2012 : RM80 billion
2013 : RM67 billion
2014 : RM73 billion
2015 : RM52 billion
2016 : (projected) RM9 billion in dividends, plus unknown RM billion for taxes, duties and export taxes. (Expected well below RM26 billion.)

Best case scenario for 2016...

RM9 billion from Petronas dividends Plus RM18 billion in taxes, duties and export taxes Equals R 27 billion

So, to extrapolate the 2016 numbers:

2012 : RM80 billion
2013 : RM67 billion
2014 : RM73 billion
2015 : RM52 billion
2016 : RM27 billion (projected)

Buckle up, 2016 is going to be far bumpier financially than the PM is admitting.

* Oilman reads The Malaysian Insider.