Protecting the goose that lays golden eggs

At a cumulative RM19.5 billion and amid a future of high-investment requirement, the gas subsidy amount incurred by Petronas may well weigh the oil company down

ABOUT 45 per cent of the government's revenue is derived from Petronas. Which makes it imperative that we read between the lines every time Petronas presents its annual financial results.

Strains are beginning to show as although Petronas reported an 18.4 per cent increase in revenue to RM264.2 billion for its year to March 2009, its net profit dropped 14 per cent to RM52.5 billion.

Nothing seems to be wrong with Petronas' operations as it generated more revenue last year than the year before. But the problem is in what lies between revenue and its bottom line numbers.

Although the long-term scenario remains bullish as energy use is expected to continue increasing, largely due to improved living standards and growing world population, that does not mean companies like Petronas can sit pretty and continue to expect astronomical profits.

Striking economically-viable oil reserves is becoming an increasingly challenging, apart from expensive, proposition. Oil reserves are generally located farther offshore and deeper underground. Higher amount of investments would be needed to drill for the mineral, and since Petronas is now an international player, it will have to compete with other oil companies.

However, Petronas' profit made available for reinvestment in its just-ended financial year was lower at 21.1 per cent compared with 34.8 per cent previously, while other oil majors reinvested more at 57.1 per cent against 51.7 per cent before. Profit of national oil companies available for reinvestments was as high as 72.9 per cent last year.

Can Petronas continue to be competitive by such relatively low reinvestment of its profits compared to those of its rivals'? Talking to Petronas chief Tan Sri Hassan Marican on Thursday, his body language indicated of his want to say something like, "that's all we have", although he did not elaborate on the subject

In total, Petronas pays a total of RM74 billion to state and federal governments in its 2009 financial year against RM61.6 billion previously. This should not be an issue since Petronas is a government-owned oil corporation. Perhaps, the item one should look into would be the RM19.5 billion gas subsidy it incurred during the year.

The largest recipients of gas subsidy in Petronas' last financial year were still the independent power producers (IPPs). IPPs got a total of RM7.3 billion in gas subsidy from Petronas, even higher than the amount received by national power company Tenaga Nasional Bhd (RM5.4 billion) and the entire non-power sector (RM6.8 billion). One may call it "a national service", but at a cumulative RM19.5 billion and amid a future of high-investment requirement, the subsidy amount incurred by Petronas may well weigh the oil company down.

Although Malaysia has been using energy subsidies, among others, to attract foreign direct investments into the country, at some point, a balance must be struck between providing such incentives and protecting our own revenue stream. As a 45 per cent contributor to the government's revenue, Petronas is, without a doubt, the goose that lays the golden eggs. Don't kill it.