Blessed with sweet crude but cursed with bitter debts
Petronas has contributed about RM800 billion to the government since its inception in 1974. In 2008 alone Petronas contributed about 44% of the federal government revenue but dropped to 31% in 2014 and expected to drop further to 22% in 2016.
Fossil oil, called black gold, was once priced at US110 is now hovering around US30 per barrel. Crude oil has plummeted to a new low, never seen for a long time and the market foresee a worsening supply glut along with slowdown in demand. So the good old days of high oil revenue is over and Malaysia has to tighten its fiscal belt.
Wastage, pilferage and leakages in public spending have to be curbed but UMNO/BN government has a poor record on this spending. The government for the first time has turned to tax people by introducing GST to raise revenue. It’s a known fact that governments with rich natural resources are poor in managing wealth.
Petronas the government savior, sitting tight in its 88 floored twin towers, once the world’s tallest buildings, dominate the skyline of Kuala Lumpur. Over the years, Prime Ministers have tapped into Petronas funds to build their dream projects like the twin tower and bail out their mistakes like Bank Bumiputra Bhd in 1985 with RM3.5 billion, saving debt ridden shipping company and even rescuing proton at one point.
Petronas is only accountable to the prime minister’s office were used by powerful UMNO politicians for lucrative and exorbitant contracts. Now Petronas is finally trying to say no which may lead to strained relations between Petronas and the government. Resource rich government of UMNO/BN were less dependent on taxes for revenue and thus less accountable to Malaysians and more authoritarian using oppressive laws and tactics to rein opposition and dissenting voices. Opposition to the construction of white elephant and extravagant projects built at high prices went unheard.
Now that oil revenue has reduced drastically and a new indirect tax, GST, has been introduced the government will be forced to be more accountable. Divide and rule policies of yesteryear may lose its bait and those taxed now for the first time, will demand more accountability.
Despite the RM800 billion oil revenues paid by Petronas for the past 50 years, Malaysia remains heavily indebted, with public debt at RM582.8 billion or 54.5% of GDP and household debt at RM940.4 billion or 87.9% by end of 2014. Malaysia had to face a continuous budget deficit for the past 16 years. Essential services like supply of water, electricity and highways just to name a few are all privatized. Malaysia has driven away its skilled and knowledgeable citizens to other countries and instead imported 6.7 million legal and illegal unskilled foreign workers who are stagnating the wages of Malaysian workers. Only 28% of our labor force is considered skilled compared 50% in Singapore.
Malaysia did create the National Trust Fund in 1988 to ensure revenue from natural resources, including oil and gas, continues to generate wealth for future generations. As of 2013, Petronas was the sole contributor to the fund with cumulative contributions of 8 billion ringgit. With more demand for dividend payment from government, Petronas will have less to contribute to this fund in future. Malaysia have spent away RM792 billion of the revenue received from Petronas since 1974.
Norway started oil production in 1971 and had managed its oil wealth to protect future generations and invest the money generated in education and human resource development. For many countries resource wealth seems to have been a curse rather than a blessing. But Norway has invested instead of spending and they own one of the largest sovereign wealth funds in the world which has grown from zero to USD865 billion within 18 years.
Norway government emphasized on transparency in all aspect of the fund. The revenue from oil and gas were invested in a well- diversified global portfolio of financial assets to reduce the dependence on the value of remaining oil reserves. Through this fund they have transferred oil wealth into financial wealth that will benefit generations to come. Norway with a population of 5.084 million has made every citizen wealthy.