A Doctor in The House: A Memoir of Tun Dr Mahathir Mohamad (101 page)

Today PETRONAS has enough money to build 20 of these tower complexes and still have a lot to spare. The company is now regarded as a major international petroleum player and was once listed in 
Fortune
 magazine as the most profitable company in the world. Its profits in 2005 were bigger than our total collection from income and corporate tax. Therefore, if it could afford to build such towers, then why not? Other countries have shown greater extravagance, and often in far less productive forms that have impeded—not advanced—national economic development. It is hard to deny that the towers have been a major plus for Malaysia.

How could PETRONAS afford the towers when Malaysia is a relatively new and small producer of petroleum? Aside from small-scale onshore production in Miri, Sarawak, which Shell started during the colonial period, Malaysia’s petroleum production and export only started in earnest in 1975. Unfamiliar with offshore production, we awarded the entire continental shelf east of the Peninsula to just one company. Fortunately, we were able to renegotiate the concession and regain most of it. Today most Malaysian oil is produced there and much of it belongs to us. Our highest total production is 700,000 barrels per day—we use some 400,000 barrels, leaving 300,000 for export. PETRONAS is 100 per cent Government-owned to ensure that oil revenues benefit all Malaysians.

At first we thought of operating as other national petroleum companies did—by simply collecting royalties from oil and gas production by foreign oil companies. Initially, no one thought we could involve ourselves in production or any of the upstream and downstream activities. Nobody believed we had or could acquire the necessary expertise and capability. The cost of exploring and producing oil was very high and seemed beyond our means, especially in the case of offshore production. But PETRONAS soon accumulated enough capital from our royalties, so the Government decided that it should invest in the oil business. We incorporated PETRONAS Carigali, an oil-prospecting company, while PETRONAS engineers and management staff studied the various upstream and downstream parts of the petroleum industry. They became involved in management, operations and marketing. Instead of sharing the production revenue under production-sharing agreements, PETRONAS began to take over the entire operation in their concession areas. There would be no more easy money for others from our resources. We had had quite enough of that under colonial rule.

When I became Prime Minister, I urged PETRONAS to reach out abroad. In Tun Hussein Onn’s time there had been some talk of increasing trade overseas but the idea of actively going abroad only took off when I was Prime Minister. It was logical for PETRONAS to go abroad—our own reserves were small and, according to the experts, would be exhausted after 20 years. To secure future supplies, we needed to have concessions and produce oil in foreign countries. Unless we went abroad, all our acquired expertise would be wasted once our own reserves were finished.

In 1992, for its first overseas venture, the company opened PETRONAS Carigali Overseas Sdn Bhd in Vietnam. Although its war with the US had ended in 1975, Vietnam was still very distrustful of European companies. PETRONAS was welcomed by Vietnam. After that we looked elsewhere and went to many other countries to enter into all aspects of the oil business, from building pipelines to prospecting, from production to involvement in petrochemicals. Some welcomed us because they were rejected by the major American and European players. We made a point of training locals in every aspect of the oil business: from negotiating production-sharing agreements to training engineers and workers. We wanted the locals to operate, manage and control their own oil production, just as we did.

Sudan had earlier given contracts to US companies but then the US Government forbade American companies to work there, regarding it as a rogue country. The President of Sudan, who had attended Malaysia’s Staff College when he was in the Sudanese army, knew our country. The Americans had said that Sudan’s reserves were small, at just 10,000 barrels a day. But PETRONAS, working with the Sudanese Government and the Chinese, now produces about 350,000 barrels a day there. Other concessions were awarded to PETRONAS after that. The US Government would have liked to stop PETRONAS from operating in Sudan but a partnership with China’s petroleum company protected PETRONAS. In other countries, PETRONAS teamed up with other major oil companies to avoid US Government harassment.

The company’s successes in Sudan led to offers of oil exploration and production agreements from many countries that feared exploitation by the big Western oil majors. PETRONAS ventured into laying pipelines in Argentina and bought the South African oil company Engen, which refines and supplies oil to practically all the countries in southern Africa. In Egypt, PETRONAS built two LNG plants which produce liquid gas for export to Europe. We already had such a plant in Bintulu in Sarawak and had mastered the expertise so most of the managers at all these plants were Malaysians. PETRONAS retailed oil in many countries and has even bought some oil-retailing chains overseas. Highly-trained PETRONAS engineers are often enticed away by other petroleum companies, both national and multinational. PETRONAS now operates in almost 40 countries and has one of the largest fleets of LNG tankers in the world.

PETRONAS went through a very stormy period in its early days. During my time it was decided that the company should have a non-executive Chairman and an executive President. Before the roles were split, Raja Tun Mohar Raja Badiozaman
[5]
 had been both Chairman and CEO. Azizan, then Secretary-General of Home Affairs and my former Private Secretary at the Prime Minister’s Department, was appointed President and Tan Sri Basir Ismail
[6]
 Chairman. Later, Azizan became Chairman and Tan Sri Hassan Merican became President. The combination of Azizan and Hassan brought stability to the management and PETRONAS was at last able to move ahead and expand. Stable management is essential for overall company profitability but in the oil business, you can make very large profits simply from big increases in crude oil prices.
 

Profit margins in the industry are good and demand for petrol almost always exceeds current supply. Rumours of trouble in major producing countries are usually enough to push prices up further. When the price rose from USD30 to USD70 a barrel, the extra USD40 was pure profit. By the year 2008 we were forced to wonder whether the world had reached “peak oil”—a situation where demand continues to rise, where supply and production must contract, and where oil prices must accordingly skyrocket. If so, the political economy of the oil industry would have reached a new stage worldwide. If that is ever the case, PETRONAS will be well positioned to adapt to the new situation and its demands, provided its own corporate leaders and the Malaysian Government act prudently. There is both a global economic and a domestic political dimension to the problem. In early 2008, the Malaysian Government delivered a huge shock when it suddenly withdrew much of its price subsidies to domestic consumers. It is a situation that requires very careful handling.

In Malaysia, the Government controls petrol pump prices but in England, there is a very high tax on oil because the roads are not tolled. There the cost of building and maintaining roads is funded from tax on oil, which is based on a percentage of the pump price. When the price of oil goes up, so does the tax, which the people have to pay. Even in the oil-rich Gulf States, the price of oil is higher than Malaysia. Yet Malaysians will create an uproar whenever the Government wants to raise oil prices. Many refuse to recognise or acknowledge the distortions caused by oil subsidies: cheap Malaysian oil can be smuggled out of the country, foreigners can come to our country to fill their tanks, and foreign-owned industries using oil for fuel and electricity also benefit—thus we end up subsidising foreigners, not only ourselves. Only when their petroleum products are for domestic consumption do Malaysians benefit. Yet some people here happily profiteered when the price of oil went up, raising the price of products by the same percentage as the increase in oil price even though oil may have constituted only 10 per cent of their costs. An oil price increase of 10 per cent would cause only a one per cent increase in their cost which does not justify a 10 per cent rise in price. The other nine per cent is claimed by greed, opportunism and a readiness for shady dealing.

PETRONAS pays the same petroleum tax as other petroleum companies, and since the Government owns the company, it also earns all its profits after tax. In 2005, PETRONAS made RM86 billion in profit and paid about RM30 billion as tax. The remaining RM56 billion belonged to the Government. If you compare this with the national income tax revenue at RM60 billion, PETRONAS profits are huge. It is the Government’s cash cow. But in 2008, Tan Sri Hassan issued a warning—more than half the Government’s funds now came from PETRONAS and its various subsidiaries. In relative, and in absolute terms, public expenditure in Malaysia was far more dependent on oil now than it had ever been on tin, rubber or electronics, or all three combined. This situation, he warned, could not continue indefinitely and the Government and Malaysian people were perhaps living in a fool’s paradise.

Meanwhile, there are other demands on PETRONAS funds, but the company has to retain some of its profits to invest in new ventures. On average we still produce 650,000 barrels a day. I don’t put much stock in the early predictions about supply running out after 20 years. When we first became involved in the petroleum industry we allocated practically all our reserves to PETRONAS, which also entered into production-sharing agreements with foreigners. They were reluctant to tie up with locals because they thought locals did not know how to do the job. That is not true anymore; and since we still prospect for oil in our waters I suggested we establish a second petroleum company, to be owned by the private sector. Such a company might get involved in certain small blocks at sea in which PETRONAS is not interested. So far, however, no Malaysian company has been given concessions locally, though some have been awarded concessions in other countries, such as Indonesia, and have been successful there.

The business side of PETRONAS was not its only important role. We also instructed the company to always be a good corporate citizen. In Sudan, for example, they built a hospital for their own staff and made it accessible to the locals, and they ran schools for local children. We generally treat local people as our friends, and are careful to employ them wherever we open an office. Many foreign students have been given scholarships to study at the prestigious PETRONAS Technological University.

PETRONAS is today one of the most successfully run national petroleum companies in the world. By going abroad to explore for and produce oil and to market its diverse products, PETRONAS has shown Malaysians that our companies and people can be successful outside of Malaysia. Because the company has successfully pioneered foreign business ventures, other Malaysians have been encouraged to follow suit. It is heartening and satisfying to see Malaysians doing business and providing professional expertise all over the world. It is yet another milestone in our progress towards becoming a developed country.

We have advanced, but not rapaciously in the way of many Western countries in colonial times. Even in these days, Western countries continue to impoverish their neighbours and other countries generally. We have progressed by winning friends and entering into mutually beneficial business partnerships. PETRONAS not only built our Twin Towers; it has made Malaysia a tower among developing nations.

ENDNOTES

[
1
] Prominent on the Kuala Lumpur skyline in the 1970s were the 36-storey Crowne Mutiara Hotel (formerly the KL Hilton) built in 1972, the UMBC building and Menara Promet.
 

[
2
] One of the wealthiest businessmen in Malaysia, T. Ananda Krishnan’s interests are based around the world and include satellite television, telecommunications, farming, gaming, and even a cartoon studio in Hollywood.
 

[
3
] The 39-storey Kompleks Dayabumi was the first Malaysian skyscraper to be designed in the
modern Islamic style.
 

[
4
] Malaysians often eat
nasi lemak
—rice cooked in coconut milk, with side dishes of spicy sauce, anchovies, a boiled egg, and sliced cucumber—for breakfast.
 

[
5
] Raja Tun Mohar Raja Badiozaman was also Chairman of Malaysian Airlines System from 1973 to 1991 and Special Economic Adviser to three Prime Ministers—Tun Abdul Razak Hussein, Tun Hussein Onn and me.
 

[
6
] Among Tan Sri Basir Ismail’s many posts were Malaysia Airports Holdings Bhd Executive Chairman, Kumpulan Fima Chairman, Sepang International Circuit Chairman and United Plantations Chairman.
 

In the late 1980s and early 1990s Kuala Lumpur underwent a period of very rapid growth. Hundreds of construction cranes towered above the city skyline and, with the introduction of the national car stimulating car ownership, traffic jams became a daily occurrence all over the city. This was proof, but also an unwelcome and irritating aspect, of our astoundingly successful development.

Inching along the city’s clogged streets took enormous amounts of time, energy and money, and made going to work a chore for civil servants, especially as the Government’s offices were scattered all over Kuala Lumpur. Maintaining connections and making deliveries between different Government departments also became a challenge. Tan Sri Elyas Omar, then the Datuk Bandar or Mayor, suggested that the capital should be moved elsewhere as the city could no longer be home to the Government and its administrative apparatus. I saw his point—the need for some relief was obvious. But Kuala Lumpur had been our national capital since Independence. It is also where Parliament is located and where the Yang di-Pertuan Agong maintains his official residence. What we needed to build, I thought, was not a new capital but a new administrative centre.