Introduction
With much hype on the Economic
Transformation Plan (ETP), announced by the Malaysian Government under the
leadership of Prime Minister Datuk Seri Najib, as well as the importance to
have effective delivery system through the GLCs, one may question whether the
stakeholders are putting the Bumiputera Economic Agenda in their planning, or
even make it among their priorities.
We shall take a look at what’s
what and who’s who in the current economic discussions and heated debates as
well as accusations on many sides of the equations of the Bumiputera Economic
Agenda, focusing on the Oil & Gas industry.
After elucidating all the facts
and figures as well as from the writer’s own personal involvement in the Oil
& Gas industry in Malaysia, we will make an attempt to make a clear position
on whether the ETP National Key Economic Areas (NKEA) for the Oil & Gas
Industry is not supporting the Bumiputera Economic Agenda, or otherwise.
The ETP, NKEA OGE and the EPPs Explained
The Economic Transformation
Program (ETP) is an initiative by the Malaysian government under the New
Economic Model (NEM) to turn Malaysia into a high income economy by the year of
2020. It is managed by an agency under the Prime Minister Department of
Malaysia.
Launched on 21st
September 2010, the ETP is a comprehensive economic transformation plan to
propel Malaysia's economy into high income economy. The program will lift
Malaysia's Gross National Income (GNI) to US$523 billion by 2020, and raise per
capita income from US$6,700 to at least US$15,000, meeting the World Bank's
threshold for high income nation.
Various sectors for development
have been identified and are called National Key Economic Areas (NKEA). There
are 12 identified NKEAs will be the key driver to the success of this program
as such activities have the potential to contribute significantly to the growth
of the economy of Malaysia.
One of the NKEA is the Oil, Gas
and Energy (OGE) sector. As of 2010 the energy sector has been an important
part of Malaysia’s economic growth and constitutes about 20 percent of Gross
Domestic Product (GDP).
The Malaysian government plans to
increase diversification of the energy industry, increase exploration for new
oil and gas resources as well as enhancing production from known reserves. The government
is working to meet these goals of what it calls "entry point
projects" or EPPs. The government wants the energy sectors contribution to
GNI to rise from RM110 billion in 2009 to RM241 billion in 2020. Achieving
these goals will require RM218 billion in funding, of which PETRONAS will be
contributing to the most of it through the EPPs.
The Roles of PETRONAS in the Oil & Gas Sector
PETRONAS (Petroliam Nasional
Berhad) was founded on 17th August 1974. Wholly owned by the Government
of Malaysia, the corporation is the custodian of the entire oil and gas
resources in Malaysia and is entrusted with the responsibility of developing
and adding value to these resources. PETRONAS is ranked among Fortune Global
500's largest corporations in the world. Fortune ranks PETRONAS as the 68th
largest company in the world in 2012. It also ranks PETRONAS as the 12th
most profitable company in the world and the most profitable in Asia.
Since its incorporation, PETRONAS
has grown to be an integrated international oil and gas company with business
interests in 35 countries. As of the end of March 2005, the PETRONAS Group
comprised 103 wholly owned subsidiaries, 19 partly owned outfits and 57
associated companies. Together, these companies make the PETRONAS Group, which
is involved in various oil and gas based activities. The Financial Times has
identified PETRONAS as one of the "new seven sisters" the most
influential and mainly state-owned national oil and gas companies.
The PETRONAS group is engaged in
a wide spectrum of petroleum activities, including upstream exploration and
production of oil and gas to downstream oil refining and others.
PETRONAS is such a very important
entity that provides a substantial source of income for the Malaysian Government,
with estimated of about 45% of the government's budget dependent on PETRONAS'
dividend.
For the ETP NKEA for OGE,
PETRONAS will invest substantially to carry out the EPPs projects and increasing
exploration activities for new oil and gas resources as well as enhancing
production from known reserves.
The GLCs, GLICs and PETRONAS
The Government Linked Companies
or GLCs are defined as companies that have a primary commercial objective and
in which the Malaysian Government has a direct controlling stake. Controlling
stake refers to the Government’s ability (not just percentage ownership) to
appoint Board of Directors (BOD) members, senior management, make major
decisions such as contract awards, strategy, restructuring and financing, acquisitions
and divestments etc. for GLCs either directly or through the Government-Linked
Investment Companies or GLICs.
Whereas, the GLICs are defined as
the Federal Government linked investment companies that allocate some or all of
their funds to GLC investments. The Federal Government will have influence in
the appointing and approving BOD members and senior management, and having
these individuals report directly to the Government, as well as providing funds
for operations and guaranteeing capital
placed by unit holders.
The transformation of GLCs into
high-performing entities is critical for the future prosperity of Malaysia as
the GLCs constitute a significant part of the economic structure of the nation.
GLCs employ an estimated 5% of the national workforce and account for
approximately 36% and 54% respectively of the market capitalisation of Bursa
Malaysia and the benchmark Kuala Lumpur Composite Index. Even with active
divestment and privatisation, GLCs remain the main service providers to the
nation in key strategic utilities and services including electricity,
telecommunications, postal services, airlines, airports, public transport,
water and sewerage, banking and financial services.
While PETRONAS is not under the
same category of the GLCs or GLICs mentioned above, it is by virtue the single
most important GLC in Malaysia, with annual revenue of more than RM300 billion,
which more than the total of the annual revenues of other GLCs and GLICs combined.
MTEM Laments at PETRONAS
MTEM stands for Majlis Tindakan
Ekonomi Melayu (Malay Economic Action Council), is the national umbrella
organisation for the Malay economic-based NGOs. There are also about 120 of
similar state level NGO organisations under MTEM, which represents more than
500,000 of ethnic Malay businesses. MTEM also acts a pressure group to ensure
practical and amicable actions to be taken by the Government with regard to
raise the level of socio-economics of the Bumiputera.
Upon the recent announcement of
PETRONAS to award a RM10 billion worth of offshore hook-up, commissioning and
maintenance services contract to six local service providers, MTEM cynically
offered a congratulatory message to PETRONAS who has been ‘generous’ enough to
make big announcement as well as media release in their corporate website,
which is not the normal practice.
In their media release on 19th
November 2013, according to MTEM, they are not really interested in questioning
either in the legality or the ‘Malayness’ statuses of the so-called local
service providers.
MTEM seems to be very interested
in comparing the massive RM200 billion of capital expenditure in PETRONAS as
the RM10 billion give away will be around 5% only. They argued that the message
by the Prime Minister urging PETRONAS to disperse around RM100 billion for the
Vendor Develop Program (VDP) for 22 work scopes through the Bumiputera economic
enhancing program, was not taken to heed. Thus the RM10 billion will be too
diminutive to be used as a comparison.
An initial reaction by PETRONAS
to this accusation by MTEM was to have their own media release on the next day
i.e. on 20th November 2013 by making announcement that PETRONAS has
appointed 3 new Bumiputera vendors under its Vendor Development Program (VDP).
PETRONAS go on stating that the
VDP has the primary objective of creating resilient and competitive Bumiputera
entrepreneurs in oil and gas-related manufacturing and technical services of
medium and high technology with an import-substitution end-goal.
PETRONAS however, seemed to again
failed to provide justification on the reason why since the first VDP vendor in
PETRONAS was appointed in 1994 (as of to date, some 79 VDP companies), and
collectively they have over the years been awarded contracts worth more than
RM7.5 billion, which again a very small figure comparatively.
MTEM went on to argue and echoing
the Prime Minister urge that the success of the VDP program in any GLC
companies, including PETRONAS will be used as the Key Performance Indicator
(KPI) for its President and CEO. It seems that since Tan Sri Shamsul took over
the PETRONAS leadership, he has seen to be less effective in the implementing
this very important KPI.
The accusation by MTEM is
equipped with facts and figures. As an example the Exploration & Production
(E&P) work scopes as well as all the upstream activities such as Drilling
& Completion, Seismic Monitoring and others are still being monopolised by
foreign companies. Whereas the Development works such as Engineering, Design
& Construction including the Hook Up Commissioning and Topside Major
Maintenance, where previously were given to Bumiputera companies, now only for
selected local companies only. To make it worst, PETRONAS has made it mandatory
for the local companies to make joint venture exercise with foreign companies.
According to MTEM, of the 79 VDP
companies mentioned by PETRONAS, what was left is only 11 companies. The 3 new
additional VDP companies announced just one day after MTEM media release will
not do any justice.
MTEM believes that there are a
lot more space for the Bumiputera contractors and suppliers to play their roles
in PETRONAS. The VDP program for example should be strengthened and not
systematically marginalised, and its implementation should be extended from 5
years to at least 10 years. This will provide chance for companies to implement
effective and holistic business modules through sound investment, development
and trainings.
MTEM is also urging PETRONAS to
be more sincere and to have faith in the capability of the Bumiputera oil and
gas entrepreneurs to carry out the complex and highly technical work scopes.
The capability of Bumiputera entrepreneurs has been proven through many
accolades received in the international arena where some of the Bumiputera
companies successfully completed upstream projects with foreign oil and gas
companies. These Bumiputera companies are well respected for their efficiency
and competitive pricing offers. It is therefore very unfortunate that the very
same companies are being sidelined by Malaysia own GLC i.e. PETRONAS.
PETRONAS’ Roles in Supporting the Bumiputera Agenda
In a slightly different tone, and
not really taking cue of the MTEM claims, PETRONAS CEO and President Tan Sri
Shamsul Azhar Abbas claimed that PETRONAS will continue in helping Bumiputera
companies, but put a standard well known statement i.e. it will not award
contracts to those with no track record in the oil and gas sector.
PETRONAS’ practice is not to sideline
Bumiputera companies but awards projects to them based on merit, transparency
and competency. Based on 2012 figures, according to PETRONAS they gave out
RM52.48 billion in contracts to companies which were majority-owned by the Bumiputera. It was almost double the
RM29.35 billion awarded in 2011. In 2010, the total was RM25.97 billion.
Tan Sri Shamsul also said that
while PETRONAS welcomed the participation from Bumiputera companies, it would
not directly award projects to companies without oil and gas expertise and
experience, as the operations and project delivery will be at risk in the hands
of incompetent and inexperienced partners (read Bumiputera companies).
In a different twist to the issue
brought by MTEM, PETRONAS said that they are currently working closely with
those who wanted to improve and enhance their capabilities, such as the
Malaysian Oil and Gas Services Council (MOGSC), an association of 430 members,
of which 90% are Bumiputera companies.
This has been concurred by MOGSC
president Sofiyan Yahya who in the opinion over the years more and more
Bumiputera companies have changed their business strategy from just being
agents to actually doing the job themselves. Sofiyan also said that its members
found PETRONAS’ services exportable as they followed international standards.
He also dismissed claims that
companies that could not secure jobs are caught in a chicken and egg situation,
meaning that they cannot build a track record which is necessary to win
contracts.
Sofiyan offered that those who
held such views did not understand the nature and needs of the industry, where
when a big contract is handed to an industry player, a whole range of services
needed to be provided, for example, foreign oil majors in the country need to
hire locals for support services and are rarely ever standalones.
Sofiyan argument is seen to be
more from the actual implementing companies and from sub-contractors point of
view, which could make a lot sense and more practical, compared to the macro
view by MTEM.
In a similar fashion, the
PETRONAS Chief Operating Officer (COO) Datuk Wan Zulkiflee Wan Ariffin said in
2012, about 75% of its contracts worth RM70 billion were awarded to majority
owned Bumiputera companies. The numbers seems to be contradicted by the one
given by Tan Sri Shamsul by about RM20 billion. In an even contradicting
report, the New Straits Times (NST) has quoted that PETRONAS has always put in
practice the equal opportunity by giving RM70 billion in contracts awarded to
Malay-majority firms in 2012.
According to Datuk Wan Zulkiflee,
PETRONAS has close to 4,500 licensed and registered vendors, 94% of which are
Bumiputera companies.
He went on to say that to ensure
that they will not be accused of cronyism practises, PETRONAS employed a Chief
Integrity Officer (CIO) seconded from the Malaysia Anti-Corruption Commission
and a few of its officers sit in our tender committee on key tenders.
What both CEO and COO failed to
mention was it is their KPI as the leaders in a GLC company to ensure the
success of the VDP program in PETRONAS.
Tun Mahathir’s Point of View
Whenever there are issues in the
nation, it is very interesting to hear what Tun Dr Mahathir Mohamad our most
respected senior statesman has to say. According to Dr Mahathir as a GLC,
PETRONAS must toe the line and support government policies, in particular the
New Economic Policy (NEP) which offers special rights to the Bumiputera
community.
Dr Mahathir, who is also PETRONAS
former adviser, insisted that the present government under Datuk Seri Najib Razak has
yet to dismantle the NEP, a pro-Bumiputera affirmative action policy that was
mooted in 1971 but implemented mostly during Dr Mahathir’s administration.
“The current government policy as
far as I know, includes implementing the NEP. The government has not rejected
the NEP. This means PETRONAS is also involved (in implementing the NEP),” the
former prime minister told the press. But adding a disclaimer, Dr Mahathir said
although Bumiputera firms should be accorded special treatment from PETRONAS,
this must be based on merit.
“To protect (Bumiputera firms),
it must be because of merits too. Those without any merit cannot be protected,”
Dr Mahathir said.
Dr Mahathir was responding to the
newspaper’s report recently on complaints from MTEM that several PETRONAS has
begun sidelining Bumiputera-owned firms. He also informed that he too had
received similar complaints and had passed along the concerns to the top
management of PETRONAS.
“My work (as adviser), I’ve
informed the PETRONAS President (Tan Sri Shamsul Azhar Abbas) about these issues
(complaints that PETRONAS for sidelining Malays),” he was quoted as saying.
With regard to the NEP, it ended
officially in 1990, but the key aspects of its Malay/Bumiputera-preferred
action plan remains in various forms years later. When Datuk Seri Najib took on
the reins of the country in 2009, he sought to burnish his reformist and
liberalist image with pledges to revamp the administration, even introducing
the New Economic Model (NEM) to replace the NEP.
The NEM was launched on 30th
March 2010, with an eye on doubling the nation’s per capita income by the year
2020 to an estimated US$15,000 (RM49,500).
The three underlying themes of
this dream were “high income, sustainability and inclusiveness”, as the Prime Minister
stressed on the need to reduce fiscal disparity between the rich and poor without
relying on affirmative action policies ala the NEM.
But faced with harsh objections
from many within his own team, and even worse, from a large segment of the
Malay-dominated Malaysian electorate, Najib has had to rollback on some of
these pledges slowly over the years.
Just weeks before he sought
re-election as UMNO president this year, the Prime Minister announced a new
Bumiputera economic agenda, which some have termed as the “pro-Bumiputera NEM”,
effectively giving the NEP a new lease on life.
The Government Announcement on the Bumiputera Economic Council
To quickly address the pressing
issues mooted by MTEM and the corresponding lame responds from PETRONAS, the Government
has announced new measures and strategies to empower the Bumiputera economy,
with the Prime Minister himself heading the Bumiputera Economic Council (Majlis
Ekonomi Bumiputera or MEB), which will be set up soon.
Najib said the MEB, will
implement five main strategies as a continuation of the implementation of the Bumiputera
economic empowerment agenda. He said the focus areas will include enhancing Bumiputera
equity ownership in the corporate sector as well as asset ownership.
One of the main measures in this
strategy is the setting of targets for all Chief Executive Officers (CEO) of government-linked
companies (GLCs), including for projects awarded to vendors. This means that
all GLC CEOs will have a KPI specifically on Bumiputera economic development in
their job scope. In addition, in all government ministries, there will also be
a Bumiputera Development Unit, responsible for formulating proposals and
implementing Bumiputera agenda initiatives. With this announcement and
measures, the CEOs like Tan Sri Shamsul will have to put priorities in the
Bumiputera agenda, and not mere offering lip services.
The Government stressed that it
will ensure the Bumiputera socio-economic development agenda is effectively
implemented and the delivery system will also be strengthened to create an
efficient, comprehensive and constructive ecosystem.
Further Observation and Conclusion
The ETP is seen to be a forward
looking economic plan by the Malaysian Government under the leadership of Datuk
Seri Najib. The NKEA OGE in the ETP has sufficiently addressed the needs for
the required holistic development in the sector which contributes more than 20%
of the GDP.
PETRONAS is transforming itself
from a National Oil Company (NOC) to a multinational integrated energy giants
competing with the likes of Shell and ExxonMobil. PETRONAS has to be seen to be
competitive and inclusiveness.
However, being a wholly owned by
the Malaysian Government, PETRONAS is in fact a GLC, and bound to advocate and
support national interests. Among the top priority is to develop the Bumiputera
economy to become resilient so that the majority population will close the
apparent economic gap between the Bumiputera and the minorities especially from
the Chinese ethnic.
Yes, it is acknowledged that the
ETP National Key Economic Areas (NKEA) for the Oil & Gas Industry is a good
platform to increase the economic cake, but on its own do not have the specific
mechanism to support the Bumiputera Economic Agenda.
Most of the Bumiputera companies
which involved in the Oil & Gas will be looking forward with full
enthusiasm on the details of the MEB and the mechanism, the checks and
balances, especially now the strengthening of the Bumiputera Economic Agenda
will be put as the KPI for all GLCs and GLICs CEOs.
References
4.
www.mtem.my
5.
www.mogsc.org.my
6.
The New Straits Times
7.
The STAR
8.
The Edge
9.
Sinar Harian
