The national oil corporation, Petroliam Nasional Bhd (Petronas), celebrated its 50th anniversary on Aug 17. Come Aug 31, Malaysia will turn 67, after achieving independence from the British in 1957. And by December this year, InsyaAllah, I will enter my 40th year as a business journalist.

I have watched and chronicled many important events, and Malaysia, despite the grouses and toxic comments common on social media these days, has achieved a lot as a nation. A good journalist prioritises the bigger picture and does not compartmentalise issues into silos. Understanding the bigger picture can make your writing more objective.

I often tell friends that if Malaysia was a car, it is underperforming; perhaps running at between 65% and 70% of its engine capacity at most. Yet, one can see the progress achieved all over the country. Though development is not evenly distributed across the states, Malaysians know that the country is more developed than many others

Imagine, if we could set aside our differences, the unnecessary distractions posed by politics, race and religions, to be more united and tolerant of each other, and get this car’s engine running up to 80% to 90% of its full potential, then we can be on a par with Singapore, South Korea and some European countries. That is the bigger picture that I see.

Malaysia has achieved a lot. As a business journalist, if I had to name the country’s top three accomplishments within the corporate and economic sectors, it would be Petronas for becoming a Fortune Global 500 company (among the top 500 firms in the world) from as early as the 1990s; and Permodalan Nasional Bhd (PNB), which was set up in 1978, for having RM341 billion of assets under management, mostly pooled from the bumiputera community to be invested in companies, including those listed on Bursa Malaysia.

My third choice would be the Employees Provident Fund. Established before Merdeka in 1951, it has morphed into a RM1.2 trillion investment organisation, making it one of the Top 10 sovereign pension funds in the world.

A key to these successes is having a strong management that is a combination of civil servants and professionals who emphasise good governance from day one. All three have made many more right decisions than wrong ones, which have allowed them to grow. They have also avoided big financial scandals that could have crippled them. Another common characteristic is that there seems to be less interference from politicians.

I reckon Petronas is the best investment the government has ever made. Set up in 1974 to reclaim the management of the country’s hydrocarbon resources and obtain a much fairer income distribution from foreign concessionaires, it has grown into a giant oil and gas multinational company with a presence in more than 50 countries.

With an initial paid-up capital of RM10 million, and without asking the government for more money, the management has grown Petronas into a company with RM796.3 billion in assets by March 2024. This is a magnificent achievement by any standard.

Its net profit for the financial year ended December 2023 stood at RM80.7 billion against a revenue of RM343.6 billion. In 2022, its net profit was RM101.6 billion while revenue stood at RM375.3 billion.

What is even more impressive is that, from the RM10 million investment in 1974, Petronas has given back about RM1.47 trillion to the government by end-2023. The returns started to escalate beginning in the 1990s when Petronas’ businesses started to gain traction and mature according to its global expansion plan.

The breakdown estimates for returns on investment so far are RM621 billion in dividends, RM237 billion in cash payments (or royalty of 5% each) to the federal government and the major oil and gas producing states of Sarawak, Sabah and Terengganu, taxes (both corporate and petroleum income tax) of RM539 billion, and export duties of RM28 billion. From 2020 to 2023, Sarawak and Sabah received another RM28 billion in the form of state sales tax.   

On top of this, Petronas has contributed billions more to the National Trust Fund (KWAN), which was set up in 1988 to tap funds from resourced-based industries, including oil palm and timber, for investment and the use of future generations. But so far, only Petronas has contributed to KWAN, whose fund size currently stands at RM20 billion.

During the Covid-19 pandemic, the government withdrew at least RM5 billion from KWAN, mainly to buy vaccines. There are now plans to find new sources of contribution to grow the fund further, without relying on just Petronas.

But with financial success comes the challenge of managing the higher expectations of the stakeholders - the federal government, and the oil and gas producing states. The main questions are whether the RM1.47 trillion returns have been well-utilised by the stakeholders to develop the country, and whether the funds have been optimally managed?  

What is certain is that every stakeholder wants more money from Petronas. The federal government, which has a total debt and liabilities exposure of RM1.58 trillion would probably want to rely on Petronas for high dividends in the next few years as it puts structural measures in place to expand its revenue base.

In the last five years, dividends stood at RM54 billion in 2019, RM34 billion (2020), RM25 billion (2021), RM50 billion (2022), RM40 billion (2023) and RM32 billion (2024). The high dividend for 2019 included a RM30 billion special dividend used mostly to pay outstanding goods and services tax refunds. For 2022, a higher dividend was needed to partly finance increasing government expenditure that arose from higher subsidies and Covid-19 bills.

As for Terengganu, it claims that the amount of oil and gas money it gets from the production fields offshore Terengganu does not amount to 5%. If this is so, under the spirit of federalism, goodwill and revenue sharing of the Petroleum Development Act (1974), the present federal government should just pay the difference.

The contention of not paying up to 5% royalty did not arise before 1999, when Umno was toppled by PAS in the general election. As part of the Alternative Front comprising PKR and DAP, PAS captured the state government, which resulted in the Umno-controlled Barisan Nasional government changing the mode of payment to “wang ehsan” which meant that royalty from Petronas that was previously paid directly to the state’s government treasury was diverted back to the federal government for distribution to the state.  

Sarawak and Sabah have no issue with getting the 5% royalty, but they, too, want more money from Petronas. Both states, despite agreeing to the terms laid out during the negotiations for the formulation of the PDA, which vested the entire ownership, rights and privileges over the country’s oil and gas resources to Petronas, argued that they are entitled to more under their state laws, the Federal Constitution and the Malaysia Agreement (MA63).

By using state laws and MA63, they have imposed a sales tax on Petronas and other oil companies, and set up their own state companies to take over some of the roles of Petronas under the PDA. For example, Petroleum Sarawak Bhd (Petros) has taken over Petronas’ gas aggregator role. Will this be extended later to include sales of liquefied natural gas (LNG) to international buyers? In Sabah, expect SMJ Sdn Bhd to play a more important role in managing the state’s oil and gas resources.

The question that arises now is at what level do these state powers and laws, and federal and Petronas’ jurisdiction (under the PDA) meet, to the point of common interest? Could Petronas, and the federal and state governments find an amicable solution? Or will it end in the courts? If Sarawak and Sabah want more revenue, should it be given on a gradual basis? Will drastic changes to Petronas’ role as regulator discourage foreign oil companies, which have full confidence in Petronas, to continue investing in both states?

Whatever the outcome, Petronas’ revenue and profit are expected to be affected. Some estimates by research houses and industry experts indicate that in Sarawak alone, its profit could be impacted by a massive RM20 billion to RM30 billion.

Petronas has invested billions of ringgit in Sarawak and Sabah over the years, in offshore production assets, gas pipelines, LNG plants and infrastructure. Still, if its position as a regulator and manager of the hydrocarbon resources under the PDA is taken away entirely in Sarawak and Sabah and it ends up being just a production-sharing contractor like Shell and other foreign oil companies, it would then be difficult for Petronas to maintain its current profit and dividend payments.

If this happens, perhaps Petronas should behave more like an international oil company and increase its investments overseas instead. In a cyclical industry, many good assets are cheaply available during a down cycle.

Tan Sri Mohd Hassan Marican, now Petronas adviser, in an interview with The Edge when he was president and CEO, was asked if Petronas had done enough in contributing to the nation via the federal and state governments.

His reply then was: “What is (the definition of) enough? As trustees of the nation’s hydrocarbon resources, we have fulfilled our obligation. If we are not allowed to reinvest between 30% and 35% of our profit, then there is a risk of insufficient revenue stream in the future. We have to have enough to reinvest for the sake of future generations, as oil and gas are finite commodities, unlike palm oil or rubber, which can be replanted.”

Having enough money to reinvest was the reason Petronas could grow and become a Fortune Global 500 company. In the latest listing of the Fortune Global 500, which appeared in the magazine’s August/September issue - now on sale at newsstands - Petronas ranks 167 in terms of revenue, and 35 in terms of profit, still a commendable position.

However, in the 2014 listing, it was ranked much higher, as the 69th largest corporation in the world, and 22nd most profitable. It would not surprise me if, 10 years from now in 2034, its ranking slips further if stakeholders continue to demand more money from Petronas and do not allow it to have healthy reserves for future investments and acquisitions.

The stakeholders, notably the federal and state governments, must ensure that the PDA spirit of goodwill, its philosophy of having a win-win situation, serving the national interest and understanding the concept of federalism, including the sharing of revenue with states that do not have oil and gas assets, continue to be healthy.

For Petronas and Malaysia, excessive and unrealistic demands by stakeholders could end up crippling the goose that lays the golden egg in the long term. I believe none of the stakeholders want this to happen.

Azam Aris is  an editor emeritus at The Edge 

https://www.theedgemarkets.com/node/724191