It was reported that Petronas has to draw its reserves to pay dividend to the federal government, following a sharp decrease in its profit. Petronas has committed RM26 billion dividends to Federal Government of Malaysia despite a sharp 55% drop of crude oil price in 2015. When a company draws into its reserves to pay for dividends, it shows a worrying sign of financial health. We are worried that the Government is choking the goose that lays the golden eggs.
Former Petronas CEO Tan Sri Shamsul Azhar Abbas sounded the warning alarm December last year. Among the changes Shamsul has made that has irked the government is to cap the dividend paid to the federal government at 30% of Petronas’ net profit from 2013 onwards. This has also angered many in UMNO, who feel that Petronas should cough up more. But Shamsul argued: “We need money to grow. If we remain static and all our production is depleting … in 13 years’ time we might as well close shop”.
But those statements fell on deaf ears. The Government of Malaysia being the sole owner of Petronas decides how much dividend to pay to the Government. Deputy Finance Minister Datuk Chua Tee Yong said in response to Tan Sri Shamsul Azhar “Ultimately dividends paid (to) the government is also decided by the government, not fully by Petronas,”
Drawing the reserves of Petronas to pay dividends to the federal government is going to undermine the financial position of the national oil company and could deprive its strategic investments. CEO Datuk Wan Zulkiflee Wan Ariffin has said that he did not expect the cash flow from operation this year would meet Petronas’s capex and dividends commitments and expect to persevere with more strategic measures. With Malaysia becoming net importer of oil starting this year, it is vital that Petronas re-invest in exploring new oil fields overseas to ensure future sustainability. In other words, Petronas could potentially cut strategic investments in order to pay the dividends to Malaysian Government. To us, this is rather short sighted.
Petronas has been Malaysia’s cash cow and sovereign oil fund. We urge the Federal Government of Malaysia to take a long-term view in milking Petronas. Some even regard Petronas as the Government’s banker of last resort, providing ready funds in the event of a crisis. With the sharp dropping of Ringgit and stock market bleeding red, the economy is very uncertain. Petronas could be the life lines that save Malaysia.
We urge the Government to get its finance in order. The days of spending lavishly are over. Recent announcement of increasing BN MPs constituency funds from RM1 million to RM5 million and more next year has proven that BN Government is still partying when the music has stopped. They must now wake up to the challenging economic realities.
The global oil prices is expected to stay low throughout 2016. We expect Petronas to earn less profit in 2015 and 2016. It is natural that a company pays less dividend to its shareholders in challenging times. Therefore, we urge the Malaysian Government to factor this into the 2016 Budget.
We also urge Petronas to stand up to unreasonable demand from the Government to continue pay high dividends in trying time. It is only wise for Petronas to adhere to its business acumen and not succumb to political pressure. Petronas is the sovereign oil fund that must survive long enough to ensure the country’s wealth will benefit our future generations. All Malaysians, including the future generations, are the ultimate owners of Petronas. They should not succumb to short-term demand from Government when the current Government has proven to be irresponsible in managing the country and 1MDB scandal.
Sim Tze Tzin
MP Bayan Baru
18 August 2015