In Malaysia's elite business circles, the big boys don't understand the conventional wisdom of 'competition'.
It’s the smaller boys who fight it out for a smaller portion of the business.
Petronas, it appears, has departed from its current practice of handing out jobs to only licensed players in certain segments such as oil and gas equipment makers and offshore support vessel operators.
Licensed players are those who are registered with Petronas and have fulfilled certain strict requirements as demanded by the oil company.
According to a report, state-owned Petronas will now award contracts to unlicensed energy services companies to encourage greater competition in the oil and gas industry.
Trust me, this is a new practice.
So what is the purpose of the relaxed rules?
According to the report – intoned with its usual strictly business and professional disposition – “the measures will attract more foreign investment to develop Malaysia as a regional energy hub”.
Pre-empting any anticipated protests from pressure groups and other economic pressure groups, Petronas went on to quickly add that such moves would “expose local energy services companies such as Malaysia Marine and Heavy Engineering Holdings Bhd, Kencana Petroleum and Ramunia Holdings Bhd to competition”.
No wisdom
Conventional wisdom notes that “competition is good” for trade. But then we are talking about Petronas.
There is no such thing as conventional wisdom as far as Petronas is concerned when it comes to competition.
In so tender tones, Petronas further added in the report that the “change would not apply” to the Bumiputera vendor programme, where companies controlled by ethnic Malays are given preference under a policy aimed at redistributing national wealth.
See, there is no such thing as conventional wisdom.
The big boys such as Kencana and Sapura are not exposed to competition. They are given super preferential treatment.
Who did Petronas select to partner with Petrofac to develop the not easily defined marginal oil fields? They chose Kencana and Sapura.
Everyone in the industry knows that Kencana and Sapura are big at group levels only. They are not ground level people.
‘Banker’s dilemma’
Kencana and Sapura’s operations are mostly handled by their subsidiaries working with sub-contractors.
Almost all of these subsidiaries are running inefficiently and incurring delays and so forth.
That’s translated into additional costs to Petronas in terms of time, delayed costs and even additional direct costs.
How does Petronas handle those contractors operating through subsidiaries belonging to Kencana and Sapura?
They practise what in banking circle is known as banker’s dilemma. If one owes the banks small amount, they will come to you with brass knuckles.
If one owes them super large amounts, the defaults of which can cause banks to keel over, they will treat you as the guest relation officers (GROs) do the well-heeled customers.
They will treat you with extraordinary hospitality. Sit on your laps, let you fondle strategic places and so forth.
‘Good money chasing bad money’
So in order to prevent Kencana and Sapura from keeling over and dragging with them Petronas to the bottom of the sea, the national oil conglomerate awards Kencana and Sapura with more contracts.
It’s good money chasing after bad money.
Lend more so that the borrower can secure more business. So that these people make more money and remain solvent and can help finish the Petronas projects.
Petronas has even resorted to paying sub-contractors directly, bypassing Kencana and Sapura.
Our much heralded captains of the oil and gas industry, Mokhzani Mahathir and Shahril Shamsudin, are big figures at group levels.
And what will they gain when Sapura and Kencana team up and then develop the marginal oil fields?
Read this: Mokhzani stands to gain RM400 million while Shahril stands to gain RM440 million.
The writer is a former Umno state assemblyman and a FMT columnist. This is an excerpt from his blog sakmongkolak47.
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