Sunday, June 22, 2008

The Petronas Mythbuster

Hantu Laut

Cartoon: Oil Prices Cause Suffering

Received in my email the letter below from a friend.

The letter was authored by an employee of Petronas who took it on himself to clarify the actual position and the inner workings of the organisation to counter the myth about the company.

I leave it to my readers to decide the veracity or mendacity of the story.

Dear all,

After reading all the chain mails and blogs, I feel called to reply, because of the relentless attacks and allegations -- most of which are inaccurate or baseless -- against PETRONAS.

1) The salaries paid to PETRONAS' employees are not as high as people think. At best, they are just industry average. And these are not attractive enough for some who left PETRONAS to find work at other companies (mainly from the Middle East) which are willing to pay more. Why do they pay more? The oil and gas industry worldwide has been facing acute shortage of qualified or experienced personnel, so most companies are willing to pay lots of money to entice and pinch staff from their competitors.

Bonus? There has NEVER been a bonus amounting to 6 months or 12 months throughout the 33 years. On average, it is 2 months. But don't ever think we don't deserve it. We more than deserve it. A lot of us work really hard, some in the most extreme of conditions. Those who have been to and worked in northern Sudan, for example, would testify that it's like working in a huge blower oven. Southern Sudan, on the other hand, is almost all swamps and mud. Imagine having to go through that kind of heat, or waddling in muddy swamps, day in and day out.

2) Malaysia produces about 600,000 barrels of crude oil per day (and about 100,000 barrels condensate). Of this crude volume, 339,000 barrels are refined locally for local consumption. The rest is exported (and yes, because it has lower sulphur content it fetches higher prices).

Malaysia also imports about 230,000 barrels of crude oil per day, mainly from the Middle East, to be refined here. This crude oil contains higher sulphur and is less expensive (so the country gains more by exporting our crudes). In Malaysia, this crude is processed by PETRONAS at its second refinery in Melaka, and also by Shell at its Port Dickson refinery.

Different refineries are built and configurated to refine different types of crude. And each crude type yields different percentage of products (diesel, gasoline, kerosene, cooking gas etc) per barrel.

But most importantly, products that come out at the end of the refining process have the same good quality regardless of the crude types. That's why PETRONAS, Shell and Exxon Mobil share the same pipeline to transport the finished products from their refineries to a distribution centre in the Klang Valley. The three companies collect the products at this centre accordingly to be distributed to their respective distribution networks. What makes PETRONAS' petrol different from Shell's, for example, is the additive that each company adds.

3) A lot of people also do not understand the role and function of PETRONAS, which is essentially a company, a business entity, which operates on a commercial manner, to mainly generate income and value for its shareholder. In this case, PETRONAS' shareholder is the Government.

In 1974, when PETRONAS was set up, the Government gave PETRONAS RM10 million (peanuts, right?) as seed capital. From 1974 to 2007, PETRONAS made RM570 billion in accumulated profits, and returned to the Government a total of RM335.7 billion. That is about 65% of the profits. That means for every RM1 that PETRONAS makes, 65 sen goes back to the Government.

Last year, PETRONAS made a pre-tax profit of RM86.8 billion. The amount given back to the Government (in royalty, dividends, corporate income tax, petroleum products income tax and export duty) was RM52.3 billion. The rest of the profit was used to pay off minority interests and taxes in foreign countries (about RM7.8 billion - PETRONAS now operates in more than 30 countries), and the remaining RM26.7 billion was reinvested. The amount reinvested seems a lot, but the oil and gas industry is technology- and capital-intensive. Costs have gone up exponentially in the last couple of years. Previously, to drill a well, it cost about US$3 million; now it costs US$7 million. The use of rigs was US$200,000 a day a couple of years ago; now it costs US$600,000 a day.

A lot of people also do not realise that the amount returned by PETRONAS to the Government makes up 35% of the Government's total annual income, to be used by the Government for expenditures, development, operations, and yes, for the various subsidies. That means for every RM1 the Government makes, 35 sen is contributed by PETRONAS.

So, instead of asking what happens to PETRIONAS' money or profits, people should be questioning how the money paid by PETRONAS to the Government is allocated.

4) A lot of people also ask, why Malaysia exports its crude oil. Shouldn't we just stop exporting and sell at cheaper prices to local refiners? If Malaysia is an oil exporting country, why can't we sell petrol or diesel at cheaper prices like other oil producing countries in the Middle East?

I guess I don't have to answer the first couple of questions. It's simple economics, and crude oil is a global commodity.

Why can't we sell petrol and diesel at lower prices like in the Middle East? Well, comparing Saudi Arabia and other big producers to Malaysia is like comparing kurma to durian, because these Middle Eastern countries have much, much, much bigger oil and gas reserves.

Malaysia has only 5.4 billion barrels of oil reserves, and about 89 trillion cubic feet of gas. Compare that to Saudi Arabia's 260 billion barrels of oil and 240 trillion cubic feet of gas.

Malaysia only produces 600,000 barrels per day of oil. Saudi Arabia produces 9 million barrels per day. At this rate, Saudi Arabia's crude oil sales revenue could amount to US$1.2 billion per day! At this rate, it can practically afford almost everything -- free education, healthcare, etc, and subsidies -- for its people.

But if we look at these countries closely, they have in the past few years started to come up with policies and strategies designed to prolong their reserves and diversify their income bases. In this sense, Malaysia (and PETRONAS) has had a good head start, as we have been doing this a long time.

Fuel prices in Malaysia is controlled by the Government based on a formula under the Automatic Pricing Mechanism introduced more than a couple of decades ago. It is under this mechanism that the complex calculation of prices is made, based on the actual cost of petrol or diesel, the operating costs, margin for dealers, margin for retail oil companies (including PETRONAS Dagangan Bhd) and the balancing number of duty or subsidy. No retail oil companies or dealers actually make money from the hike of the fuel prices. Oil companies pay for the products at market prices, but have to sell low, so the Government reimburses the difference -- thus subsidy.

Subsidy as a concept is OK as long as it benefits the really deserving segment of the population. But there has to be a limit to how much and how long the Government should bear and sustain subsidy. An environment where prices are kept artificially low indefinitely will not do anyone any good. That's why countries like Indonesia are more pro-active in removing subsidies. Even Vietnam (which is a socialist country, by the way) is selling fuel at market prices.

5) I feel I also need to say something on the allegation that PETRONAS is not transparent in terms of its accounts, business transactions etc.

PETRONAS is first and foremost a company, operating under the rules and regulations of the authorities including the Registrar of Companies, and the Securities Commission and Bursa Malaysia for its listed four subsidiaries (PETRONAS Dagangan Bhd, PETRONAS Gas Bhd, MISC Bhd and KLCC Property Holdings Bhd.

PETRONAS the holding company produces annual reports which are made to whomever wants them, and are distributed to many parties and places; including to the library at the Parliament House for perusal and reading pleasure of all Yang Berhormat MPs (if they care to read). PETRONAS also makes the annual report available on its website, for those who bother to look. The accounts are duly audited.

The website also contains a lot of useful information, if people really care to find out. Although PETRONAS is not listed on Bursa Malaysia, for all intents and purposes, it could be considered a listed entity as its bonds and financial papers are traded overseas. This requires scrutiny from investors, and from rating agencies such as Standard & Poor and Moody's.

6) The last time I checked, this is still a democratic country, where people are free to spend their money wherever they like.

For those who like to see more of the money that they spend go back to the local economy and benefiting their fellow Malaysians, perhaps they should consider sticking to local products or companies.

For those who like to see that the money they spend go back to foreign shareholders of the foreign companies overseas, they should continue buying foreign products.

I'm sorry this is rather long, but I just have to convey it. I hope this would help some of you out there understand something. The oil and gas industry, apart from being very capital intensive, is also very complex and volatile. I'm learning new things almost every single day.

Appreciate if you could help to forward this response to as many contacts as possible to counter the subversive proposal out there.

Thank you.

Tan, Boon Hua
Peninsular Malaysia Gas Fields Development Project
PETRONAS Carigali Sdn Bhd
Level 17, Tower 2
PETRONAS Twin Towers,
KLCC 50088 Kuala Lumpur
Tel : +603 - 2331 9307
Fax : +603 - 2331 5633
E-mail :


no kids pliz said...

We don't need a musketer to tell us the "inside" story. This nation knows much more than the collaborators would like to make us buy.

Jimbet said...

No matter how long you post, you still didn't say about anything regarding how all the profits were misused

supa said...

The point of this is that: If you don't like the way money is spent, ask the manager, not the contributor. Remember that we are all contributors too (if we pay our taxes).

Hantu Laut said...


The government should make Petronas accounts accessible to the public.Petronas money belong to the people and they have the right to know how the money being spent.

Zawi said...

Hantu Laut,
I agree with Tan Boon Hua. It is not Petronas who should be telling us on how their profit is spent as the spender is the government. The way the government spend this money is all too evident as wasteful especially on the bailout of certain companies.
Petronas itself has developed many expert personnel in the oil and gas industry and these people are highly sought by other companies overseas. As long as Petronas can produce new skilled staff to replace those who sought beter pastures, Petronas is OK. But when they can't cope up, it will result in costly closures of plants that can result in millions of losses daily.
I expect some problems to be faced by Petronas when the Methanol plant in Brunei is comissioned. Even if Brunei were to pay their staff at par RM=B$ eg RM3,000 in Malaysia and $B3,000 in Brunei, the income is doubled. Normally they will be prepared to pay more especially for experienced technicians and engineer levels. Petronas need to take care of their staff if staff turnover is to be prevented. Paying the staff better pay is definitely better than contributing huge profit to the stakeholder ie the Government only to see it wasted away unnecessarily (bailout).
Not everyone will run off to Arabian countries even if the pay is trebled but if it is doubled in Brunei which is next door, it's too tempting for them.
I was a Shell Dealer once and Shell's greatest fear was Petronas being able to compete with them at retail levels. There were fearful of Projet once but when Projet fizzled out, Petronas is their main threat.
It is true that retailers dont profit from the hike in fuel price unless the retailers did manage to hold back purchased at the old price and sell them at the new price the next day. But that is only a one off and most dealers sold off their earlier stock the very night the new price was to be adjusted.
We are indeed barking at the wrong tree when we make demands to Petronas since it is not them that are raising the price of fuel and profit from it.

Anonymous said...

Indeed like father like son...

much more than we asked for!

if we dont target them, who else?

Hantu Laut said...


That's why I say the government should tell the people or make the accounts available for public inspection just like any other registered company.

It's typical Malaysian mentality,if you are Malaysians you are paid less than the expat, especially if the kulit is puteh.

Sad to say some still have the notion that the orang putehs are better.Just look at the Petronas Philharmonic Orchestra after so many years it still comprises 90% foreign musicians.The man who headed this outfit should be ashamed of himself.

Zawi said...

I agree with you Petronas should be more transparent and show more details in their account. All this while they have been lumping up certain expenditures to cover up details. I believe this is done on the express order from the goernment.
Our blogger friend Acciacatura is an accomplished violinist. Her husband is one too and he perform with Petronas Philharmonic Orchestra. I think it takes lots of committment from a musician to be one of them. The practice which often takes a long time, the travelling to and from the place of practice, not many Malaysians will be able to bear the rigours of it. I am not sure of how much they are paid but to some of them who are the truly accomplished musicians, they are mere pittance because they can command higher income from other parts of the world. These people simply love music and would perform for nothing especially those expatriates who are more often than not are professionals in other fields. They work in Malaysia so they cant be elsewhere to play their music.
We once had a cellist of world standard. He could command any price anywhere else but he stuck to Malaysia because of his occupation here. Dunno if he is still around.
We must produce our own musicians who are similarly ommitted to take over. How many are willing?
I will ask Acciacitura to come over to add points to this discussion. I think Petronas is performing some social obligation by keeping the Petronas Philharmonic Orchestra, albeit for the benefit of a select few who get to see the performance. Those who do not share their kind of music will not bother to sit through a performance even if they are offerred for free.

SM said...

En. Tan has come out very strongly in defence of the company he works for!
First off, is that there are more than enough Malaysians capable enough to work for Petronas. However, Petronas chooses not to pay good wages to them. Why? Who knows? Probably they do not agree that Malaysians should be paid "that well" (they are in denial I guess as even the other Oil Operators are paying very well)?
However, they DO pay Foreigners very well. You don't have to beleiev this, just go over to the Twin Towers & see for yourself how many Expats work there (including Indonesians, who are also paid very well). Do you think these Expats will work for pittace?!
Then look at the Petronas Orchastera...En. Tan really can't say much about that can he?
Yes, Petronas is not at fault as to where their Profits are spent. It's the BN Government that has been doing that...or should I say wasting that?!
By the way, En. Tan will probably be getting a nice promotion & pay rise after his very long & elaborate defense of his employer!
Transparency...ya rite!

SM said...


Yes, there are loads of Malaysians out there who still think the "Orang Puteh" is superior to us!
I have worked in the Oil & Gas Industry for over 2 Decades & believe me, there are many Malaysians who are as good (no actually a lot of them have been proven to be better) as the Foreigners. Thta's why many Malaysians in the Oil & Gas Industry can work Overseas with International Operators.
As for Malaysian Musicians, well, I think it's a great disservice to our Musicians to think that they do not have the committment to play for a World Class Orchastera.
Yes, I love Classical Music & the Opera too & I believe that we should have a good Orchastera BUT I don't agree that they should be made up of 90% Foreigners (no matter how good, committed or talented they are) & at a time when we are facing a possible Recession...I don't think we should be spending Millions to upkeep a very expansive Orchastera!

Hantu Laut said...

I have been listening to classical music since my younger days.I still keep many classical vinyl records of those famous composers conducted by famous conductors such as Herbert von Krajan,Bruno Walter,George Szell,Leonard Bernstein ,etc

Not many people can stand listening to classical music,it's something you grow up with, either you like it or you don't.

I believe many of those in the so called elite group in KL who attend the renditions are there more to be seen than actually have a liking for classical music.

I think the following for this type of music is still very low in our society.

That aside,I am for a top notch orchestra in this country and what Petronas did was a correct move. but not being able to Malaysianise the outfit for over a decade is unacceptable.

I am sure there are musicians ,with the right incentives and pay package, would want to join.

The Petronas Orchestra should not only be confined for the enjoyment of the elite, it should be exposed to the general public and the younger generation.

Hantu Laut said...


These are things we inherited from our former coloniser and sadly are still being practised out of sheer ignorance and if I may say, stupidity.

Take the foreign banks, they would pay their expat Manager much higher salary and better benefits.When they same position is Malaysianised the renumeration would be different from what the expat gets.

Petronas should change their policy before it starts losing its Malaysian employees.

I hope Mat Salo, who is in the oil industry can give us some inputs.

Anonymous said...

i pun ada story nak share ngan you all suma..lagi citer pasal pekerja PETRONAS nihh..mmg diaorg ni masyuk. Haa..mana tak masyuk BINI yang keje jadik cikgu sekolah kampung pun PAKAI HANDBAG TOD’S,HERMES etc..specially dari PANTAI TIMUR..Diaorg ni kalau datang meeting kat KLCC angkut anak bini shopping sakan..yang si suami shop kat BOSS yang isteri pulak HABIB ngn TIFFANY (padahal sapa la nak tgk kat paka/kertih tuh?. Lagi satu, kalau dtg KL mesti duduk kat 5 STAR HOTEL jer. TAK MAIN LAH HOTEL CIKAI..selalu yg menjadi tumpuan diaorg ni MARRIOT ngn ASCOTT (dekat ngn PAVILION/KLCC).Si suami datang bukan sebulan sekali tapi kadang2 seminggu sekali.YANG TAMBAH HERAN LAGI BOLEH PLAK CLAIM..GILER MAHAL TUH..CAM MANER??

Yang itu citer yang bawak anak bini..yang tak bawak pulak lain citer (kadang2 bawak tapi tinggalkan kat hotel coz dari pagi dah penat melayan shopping). Si suami berenjoy sakan kat KL..selalunya diaorg ni akan keluar berkumpulan mengunjungi CLUB2 KARAOKE DAN KELAB MALAM SEKITAR KL terutama di jalan BUKIT BINTANG, JALAN PINANG DAN IMBI. Memang you all takkan percaya kalau tengok diaorg nie..BANYAK YANG BERLAKON ALIM MASA KAT OfIS (kalau kat ofis tak tinggal solat) TAPI SEBENARNYER KAKI GRO DAN PEMABUK. MACAM KAMBING LEPAS KANDANG!! MACAM MANA I TAU?? COZ I PUN DULU ONE OF THEM

Anonymous said...

In my opinion, it is the big error.