17 June 2008

Letter from a Petronas employee

Following the fuel price hike in Malaysia, one company in particular has become the target of the furious Malaysian public. The Malaysian oil company - Petronas. Some have even called a boycott of Petronas as a protest against the fuel hike.

Anyway, I recently received this forwarded email from a Petronas employee. SO what do you think?


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 in the last 33 years. 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.


Anonymous said...

Dear Adam,

Thanks for your article which shed a lot of light on the issue of concern to everyone today. One thing I don't understand, if Petronas re-invest its profits in R&D and exploration in new oil fields offshore for many years, I presume; why is it still producing the qty that you mention and not increase exponentially if possible.


Jaui said...

even though i'm not the biggest expert on Petronas, I just have to say that I work across (and live down the road from) the 2 gleaming towers of wealth built with the money that oil made.
also, I live down the road from the not-yet-functioning Prince Court Hospital - a rm300million investment in a PRIVATE hospital, when there is a severe lacking in healthcare to the people who really need it.
yes, an initial investment of $10million might seem small now, but it was the 70s. 50c was a lot of money back then!

I'm not complaining about the petrol hike, but seriously, Petronas should stop defending themselves and arming themselves with excuses and become more proactive in investments in RENEWABLE ENERGY and crude oil alternatives.
Since many of the companies are inter-related, perhaps Petronas should be encouraging Proton and other car manufacturers into creating Hybrids or petrol saving cars. Or even reinvest the money and help create a better public transport system.
Maybe even follow suit of BP and become a socially more transparent company. BP is the perfect example of a petroleum company who is trying to make a difference. Just compare the Petronas website and the BP website and you'll know what I mean.

Just stop making excuses and do something that will show us Malaysians that we're paying the extra for a reason.

Anonymous said...

you believe a petronas employee write all those crap?
sounds more like a tale-spinner from the 4th floor.
this guy writes somewhat better than the editor of the star newspaper. lol!

Anonymous said...

Dear Pandankia,

if ur willing to publish your e-mail address, i'll be very grateful to forward u the original e-mail (complete with the e-mail address of the original writer). i can confirm that he's an employee of PETRONAS.


Dilip Mutum said...

Anon: That's an interesting question. I will forward it to my friends in Petronas.

Jaui: I totally agree with you. Shell, BP and energy companies like Eon are looking at alternative energy sources.

Pandankia: You sound surprised. It's a fact that Petronas employs some of the best brains in Malaysia.

*lynne* said...

how timely! I had one of those calls for boycott in my email box today (I'm in the U.S. deyyyyy!), which had me totally shaking my head because it's just a Malaysianised version of a chain-mail call to boycott gas pumps in the u.s. from a while back.

Without taking anything else into consideration, the proposal is already flawed: what's the use of not filling up yr gas tank on one day when you're just going to fill it up again the next day or so? It's only if *everyone* *stops* filling up all together, that's when it would hurt. Not going to happen, right? Not right now, anyway: too many things need to go differently in order make this a possibility.

btw, I'm *very* amused that a reader doesn't think a petronas employee capable of good writing. Such low expectations... sedih, sedih...

and a final thought: I'm actually concerned about the "health" of this petronas employee. After all, this person has inadvertently become the company's mouthpiece - all facts quoted had better be right... either way, I bet it's been an uncomfortable few days for this person :p

p/s> for jaui: IMO petronas' mindset and expertise is that of a petroleum / oil&gas producer, not that of an *energy company*. Also, research into all these alternatives is really expensive, and while petronas might be the "richest" company in Malaysia, compared to the other O&G/petroleum companies worldwide I'm guessing petronas is the runt of the litter. Better to buy the established technology than duplicate research efforts? But how expensive is this technology? In USD summore...

All that said, it would be nice to have hybrids in KL. Now, whose pocket would need to get lined for such a thing to happen, though? And how much extra tax would be levied on such a vehicle precisely because it'll use less petrol?


(omg sorry!! panjangnye my comment!!)

*lynne* said...

p/s: about hybrid cars coming to malaysia... just saw this on Rocky's Bru...

Michael said...

Through my dealings in business I have learned two things: 1) There's the way it actually IS, and the way they TELL you it is...

So after all this yah, maybe this particular person or the average person in the company isn't making much..

But I can guarantee you the folks at the top are making a killing at our expense...

It's the same thing that is going on here in the U.S.


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