Petronas-Petros collaboration must be in Malaysia’s interest

Mazli Noor

The market has been abuzz with the most recent developments in Malaysia’s energy sector.

This refers specifically to the ongoing dispute (and eventual resolution) between Petronas and Petroleum Sarawak Bhd (Petros), the move by Petronas to restructure (or “rightsize”) its workforce, and the most recent statement by the economy ministry regarding Malaysia’s Natural Gas Roadmap, which will involve breaking up the monopoly held by Petronas and Gas Malaysia Berhad.

Natural gas is a crucial component of Malaysia’s energy mix, estimated to constitute 56% of the country’s energy generation by 2050.

It is also an important component of Petronas’ portfolio, with 30% (RM101 billion) of its revenue in 2023 coming from the natural gas sector while accounting for 22% of its capital expenditure.

It is clear that the resolution of the Petronas-Petros dispute will have a substantial impact on Petronas’ bottom line, as a large portion of its gas business relies on extraction from Sarawakian oilfields – a key reason why the state government pursued the matter so resolutely.

However, I believe the impact on Petronas will not be as significant as some may fear.

As a multinational company, with a diverse business portfolio that spans over a hundred countries, Petronas’ capabilities and revenue streams are not heavily dependent on Sarawak.

Its global nature and diversification provide a broad range of strategies to mitigate any potential impact of its situation in Sarawak. If it does not, then now is the best time for Petronas to prove its capability as one of Malaysia’s true giants, especially as it remains the country’s mainstay in the Fortune Global 500.

As a multinational corporation, Petronas’ international portfolio should serve as the truest reflection of its strength, regardless of developments in the domestic market.

Regulator and operator

For this reason, Petronas should not be unduly concerned about the minister’s announcement to end its monopoly with the upcoming implementation of Malaysia’s Natural Gas Roadmap.

In one sense, Petronas has never truly held a monopoly, as it has always functioned as both regulator and operator.

As a regulator, Petronas has had complete authority under the PDA Act 1974. As an operator, its business units – including Petronas Carigali Sdn Bhd, Petronas Gas Berhad, Petronas Dagangan Berhad, and MISC Berhad – already compete in the open market, both in Malaysia and abroad.

Petronas Carigali, for example, participates in open tenders through the Malaysian Bid Round, vying for production blocks alongside other operators.

So, what monopoly is the minister referring to?

For the reasons stated above, I believe Petronas’ decision to “rightsize” more than 50,000 of its staff is inappropriate. A much more harmonious approach would be to make the restructuring global, allowing workers affected by the dispute to be absorbed into other business units, whether in Malaysia or abroad.

Until now, Petronas has not announced the exact number of affected employees but has indicated that the restructuring will involve the “enablers” group, which will likely include thousands of workers.

It is difficult to comprehend how such a disruptive action could be justified, given that the Petronas-Petros saga should not have such a substantial impact on Petronas as a whole.

Moreover, as a company that has been in operation for over 50 years, Petronas should be resilient enough to mitigate the effects of this dispute (with Petros) without imposing an unduly harsh impact on its workforce.

You can understand my concern about whether the actual impact on Petronas – and the entire industry, for that matter – might differ from what has been reported in the media so far.

Could the dispute truly have a substantially negative effect on Petronas? If so, should the transfer of gas management rights to Petros proceed at all?

Political considerations

We know that not all business resolutions are based solely on commercial considerations. Political considerations often override economic ones, more so in Malaysia’s current political landscape.

Given the composition of the federal government, its priority is to preserve its position in power.

And to remain in that power, every measure of support is crucial, especially from Sarawak. To be realistic, Petronas’ fate, or that of its employees, may not be the federal government’s primary concern at this moment.

However, I sincerely hope that the best solution will be reached for all stakeholders, especially in the interest of Malaysia’s economic development.

For the record, at the time this article was written, the proposed Petronas-Petros collaboration had yet to be finalised and remains under discussion. The resolution will undoubtedly be complex, but we all hope it will ultimately serve Malaysia’s best interests. - FMT

Mazli Noor is a fellow of the Institute of Corporate Directors Malaysia (ICDM) and serves on the boards of several public and private companies.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.