"50 Years & Still Going Strong" — Here's A Look At PETRONAS' Journey Over The Decades
Throughout these years, PETRONAS has remained true to its underlying principle.
By Dale John Wong — 23 Oct 2024, 03:14 PM
Did you know that the oil and gas (O&G) sector contributes billions of ringgit to Malaysia's economy each year?
Throughout the past 50 years, PETRONAS has been successful in spreading the wealth from this sector equally across the nation.
When Petroliam Nasional Berhad (PETRONAS) was set up in 1974, the underlying principle that guided its formation was that it was to be owned by the people.
The company's first chairman, Tengku Razaleigh Hamzah, said that PETRONAS has always been the custodian of Malaysia's and Malaysians' O&G wealth, and that it could not belong to any government, federal, or state.
As pointed out by Prime Minister Datuk Seri Anwar Ibrahim, PETRONAS couldn't have contributed billions of ringgit to the country if not for those qualities.
In an interview with FMT, Tengku Razaleigh opened up about the company's journey over the last 50 years, and the reasons for its success.
According to him, the early years were extremely crucial.
When Tengku Razaleigh was tasked by then prime minister Abdul Razak Hussein with setting up the national oil corporation, his focus was on filling it only with people who were knowledgeable enough to run it.
"We'd heard of national oil companies going down the tube thanks to incompetence, ignorance of market forces, or because of greed and corruption," Tengku Razaleigh told FMT during PETRONAS' 50th anniversary celebration on 17 August.
The term "resource curse" has been used by academics to refer to the misuse and abuse of wealth gained from O&G companies in countries such as Nigeria, Venezuela, the Democratic Republic of Congo, and Angola, among others.
For instance, Nigeria is the world's sixth largest producer of oil, but most of the money from the resource has been squandered by corrupt politicians and poor governance.
These concerns prompted Tengku Razaleigh to turn to Razak, who had also assigned him the task of drafting the Petroleum Development Act.
"I needed good people to start with. The start is very important. If you start with a bad habit, you will end up with a bad habit," said Tengku Razaleigh.
Another key moment was the decision to keep Malaysia's oil riches within the country — this led to resources being channelled towards national development
In the 1960s, then Sarawak chief minister, Abdul Rahman Ya'kub, first suggested the idea of taking control of Malaysia's oil and gas resources through a statutory body. This proposal was later changed by Rahman to a national oil company, with the suggestion that Tengku Razaleigh be appointed as its first chairman.
The proposal gained traction in the 1970s when the global oil crisis hit.
War in the Middle East an the subsequent oil embargo imposed by the Organisation of Petroleum Exporting Countries pushed crude oil prices up from US$1.50 a barrel in 1972 to US$12 in 1974.
This made Rahman's proposal even more urgent, and the federal government saw the returns from the oil business as a way to move forward in its national development agenda.
By taking control of the resource on behalf of the people, the government could ensure that the wealth was spread evenly across the nation, making sure that no state was left out in any development programme — especially the ones that were not resource-rich.
For example, while states like Penang that had no resources could still depend on commerce, other states like Perlis were fully dependent on the national government.
As Malaysia's first oil-producing territory, Sarawak was well-placed to help underwrite the cost of national development — a far cry from the early days after oil was first discovered in Miri in 1910.
Then, the exploration and extraction processes were handled by Royal Dutch Shell (now known as Shell plc). While the oil belonged to the state, the Sarawak government had no control or say over how it was to be exploited.
Shell was given a free hand to extract and use the resource, and in exchange, all it had to do was pay the required sum in taxes to the Sarawak government.
Amidst the success, PETRONAS balanced its achievements with competency
Having recorded over RM343.6 billion for the 2023 financial year, PETRONAS' revenue surpasses that of even the largest corporations on Bursa Malaysia. In the same year, the company turned in a profit after tax of RM80.7 billion and contributed RM40 billion in dividends to the government.
With PETRONAS proving successful in generating massive amounts of revenue for Malaysia, the question asked by Tengku Razaleigh was, "How do we manage the success?"
He said that the answer lay in the calibre of its leadership and staff.
"Do we have people who are knowledgeable enough, sufficiently equipped, and adequately competent to run an oil company?
"Petronas is not just any oil company. It's a national oil company," he pointed out, highlighting the importance of the right expertise and integrity in extending the company's success.
Along the way, PETRONAS' impact trickled down to the creation of new O&G-related industries
Over the past five decades, PETRONAS has been key in the creation of new industries within its O&G supply chain, with new service providers emerging to meet the unique demands of oil exploration and refining, logistics, and retailing.
According to Tengku Razaleigh, these new sectors have created thousands of jobs over the years, both directly and indirectly to O&G.
"Thousands of people are now involved with industries that are related to oil and gas," he said.
He also added that the broad impact of the O&G sector also highlights PETRONAS's role in uniting the three regions of Malaysia, namely Sabah, Sarawak, and Peninsular Malaysia.
"The potential of oil wealth as a contributor to national unity and development cannot be denied," he said.
Now, the company stands on strong foundations and has become a global powerhouse
Over the years, PETRONAS has also made inroads in other oil-related businesses, with its footprint now covering over 100 countries globally.
Its exploration activities have produced oil fields from Indonesia and Suriname, while it also has deepwater exploration blocks in the Gulf of Mexico, natural gas extraction activities in Canada, and exploration blocks in Brazil.
In the UK, PETRONAS is involved in commodities marketing and trading through its subsidiary Petco Trading (UK) and is also a major supplier of liquefied natural gas (LNG) to China and Japan.
The company's extensive business network and continued growth, coupled with a strict adherence to corporate governance requirements, has placed it at 167 on the Global Fortune 500 list. This makes PETRONAS the only company to make the cut.
For the future, PETRONAS is looking to adapt itself to new environments and global changes focused on sustainability
With oil companies around the world forced to comply with new green directives, PETRONAS will look to to do its part.
For instance, PETRONAS is targeting to cap the greenhouse emissions from its Malaysian operations to the equivalent of 49.5 millions tonnes of carbon dioxide this year, down from a 54.03 million tonne equivalent in 2022.
Among other steps, it is also raising its renewable energy capacity to 3,000MW by increasing investments in hydrogen technology.
The company is also looking to raise its employee welfare standards. This stems from changes in consumer demands, as well as greater emphasis on transparency and accountability at both the local and global levels.
Throughout it all, the spirit of equitable distribution of Malaysia's O&G resources will continue
As PETRONAS looks ahead to the next half-century, it will bank on strategic investments to ensure long-term growth and stability while it continues to go down the tried-and-tested path of excellent management and corporate governance.
As Anwar has pointed out, PETRONAS plays a vital role in Malaysia's economy and its potential to drive sustainable growth.
