Petronas should do more for oil and gas services and equipment industry

 

From Tengku Ngah Putra

The Edge’s interview with Petronas president and CEO Tengku Muhammad Taufik Tengku Aziz published on Apr 18 was indeed a revelation of how things are at Petronas.

Taufik seemed condescending towards the very industry players and the public which Petronas should be serving as custodians of oil and gas resources in the country.

During the interview, it seemed as though Petronas sought to have the upper hand in all instances, with all policies and rules put in place by Petronas executives, based on key performance indicators (KPIs) that are solely for the benefit of Petronas, the custodian of oil and gas reserves in the country.

The Malay Economic Action Council, feels that these KPIs, lack an understanding of the macroeconomic conditions of commerce and the business environment prevailing in Malaysia, including technical and operational realities.

We submit that there can be no resolution to the troubles the industry is facing until and unless the attitude at the highest levels of Petronas is corrected and the right KPIs are imposed.

The article mentions the grouses of two of the largest associations involved in oil and gas services and equipment (OGSE), MOGSC and MOSVA, which represent entrepreneurs and employ more than 60,000 workers in the oil and gas industry — exceeding even the number of employees in Petronas.

Thus, the dismissive tone taken by the president and CEO of Petronas to the concerns of MOGSC and MOSVA has not gone down well with the industry players.

Several issues especially need to be made clear to the public, the media and even our policymakers, who have yet to be made aware of some of the misleading facts about the Malaysian oil and gas industry to provide a true perspective of the sector.

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

1. Petronas has been labelled a “corporation” when it is in fact a statutory body incorporated under an Act of Parliament via the Petroleum Development Act 1974 (PDA 1974), with an objective “to control the carrying on of downstream activities and development relating to petroleum and its products”. This includes the development and wellbeing of the OGSE companies.

2. Petronas is effectively not a multinational corporation (MNC) but part of the civil service, and its policies and terms of engagement therefore must take into consideration the overall economic health and growth of the O&G sector as a whole and not focus on it alone.

Unfortunately, over the years, Petronas seems to have forgotten or misunderstood its real place in the socio-political and economic position.

3. Unlike the OGSE industry, where the requisite capital comes from private resources and the financial markets with associated costs, Petronas builds its business on the back of taxpayer resources — primarily the lucrative oil and gas blocs that are given to it.

Even the bulk of its highly profitable upstream developments are financed by foreign MNCs via production sharing contracts or agreements without the need for Petronas to fork out the needed cash flow to develop or operate those fields within the blocs.

The entire tune of the interview would have been different had Taufik been through the rigours of raising personal funds, competing in an open tender for domestic oil and gas blocs, like the entrepreneurs do, and he might not have been so quick to point the finger at the local OGSE industry for perceived wrongdoings.

Similarly, Petronas should not point fingers and also be accountable for all that has happened in the OGSE sphere.

1. Petronas is the authority that draws up policies, procedures and terms that control the OGSE industry. On account of this, the failures of the industry are due to the policies that produced undesired results.

Unfortunately, it is much easier to view things from the height of the Twin Towers and condemn hardworking O&G entrepreneurs when they point out problems and undesired outcomes of Petronas’ procedures.

Food for thought: when Taufik mentioned the 4,000-vendor ecosystem, he should ask himself who created, licensed and regulated this ecosystem to be what it is? 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” but 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 is fair, just and technically and economically sound policies and terms in doing business with Petronas.

These are not welfare-seeking organisations that are able to acquire free oil and gas blocs from the government at taxpayers’ expense.

Instead, the picture painted is that they are somehow 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, which have resulted in the fiascos that we see today.

In fact, it is about time the Petronas leadership engaged and listened to these entrepreneurs on how best to develop the OGSE industry.

Some of the Petronas leadership also keep repeating its capex and opex spending as if it is beneficial to the OGSE industry – it isn’t.

It needs to seriously stop doing that. It is an insult to the hardworking citizens doing real business in our private sector. It is an 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 and gas blocs.

The Petronas leadership has also not been as transparent in its decisions as much as we like. Almost all decisions are made by “experts” who have never built or run a true business of their own. This includes the foreign consultants who do not feel the vibes and pains of the industry.

The result is clear for all to see. Irrespective of high or low oil prices, we have an unsustainable OGSE industry, despite the 48 years since Petronas was entrusted to carry out its duties by the PDA 1974.

Despite all the rhetoric on transparency, can we ascertain which investments of Petronas make or lose money, due to the consolidated nature of its accounts? The recent divestment of EPOMS, its wholly owned subsidiary, for example. Was it tendered? No one knows.

Before that, numerous deals were given out to certain companies for risk service contracts, Petronas acquired Progress Energy Canada possibly at a premium. These are among many other questionable decisions. In fact, 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 and gas blocs.

It is very easy to talk about entrepreneurs scaling up or consolidating when the economic environment is disastrous. Imagine, even financial institutions do not want to fund the industry.

As for consolidation, how are mergers going to happen when the industry is littered with PN-17 (companies in financial distress) entities?

Taxpayers need to hold Petronas accountable on its responsibilities per the PDA 1974, especially where its revenues from the free domestic blocs are then invested overseas or even at Pengerang oil complex. Up till today where are the profits from Sudan, Iran, Myanmar, Canada, and the like?

The OGSE industry and their employees have sacrificed during the last five years of economic downturn, facing retrenchments and pay cuts, which we believe are beyond anything Petronas or its executives have ever undergone.

For years, Malaysian companies and entrepreneurs have kept mum for fear of being black-listed or discriminated should they talk openly. However, time is of the essence to correct things before the issues in the industry implode. - FMT

Tengku Ngah Putra is head of the oil and gas cluster in the Majlis Tindakan Ekonomi Melayu (MTEM), an umbrella body for over 50 Malay economic NGOs .

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