Petronas Ignores Globalization Fears to Make Its Mark : Malaysia's Little Oil Giant 
International Herald Tribune
June 30, 2000
Thomas Fuller

On the 41st floor of the world's tallest building, the chairman of Malaysia's national oil company summed up in one tidy sentence the reasons why his company reported a whopping $3.3 billion profit on Thursday

"We are now reaping the benefits of globalization," said Azizan Zainul Abidin, one of two no-nonsense top executives at what has been described as the best-managed national oil company in Asia — if not the world.

But Mr. Azizan was also summing up a national paradox. Two days earlier at a conference of Islamic foreign ministers, the country's prime minister, Mahathir bin Mohamad, railed against the dangers of globalization, saying that ever-larger corporations would soon be able to "swallow up all the tiny banks, industries and businesses that we possess."

But if the financial results announced Thursday are any indication, Malaysia, wary of globalization, is also enormously successful at it.

Buoyed by higher oil prices, Petroliam Nasional Bhd., the national oil company, increased its profits by 85 percent last year. The company earned roughly the same amount as the French oil giant Total Fina Elf SA, for instance, a far larger company.

"We are still a young company," said Hassan Marican, president and chief executive of the company, known as Petronas. "But over the last 25 years we have established ourselves as a world-class competitor."

Analysts agree. "Petronas is a slightly different color horse than most state oil companies," said Al Troner, managing director of Asia Pacific Energy Consulting. "They've been much more flexible and much more commercially oriented."

Other state-run oil companies have a reputation for being bloated and inefficient. A recent audit by PricewaterhouseCoopers revealed that Indonesia's state oil company, PT Pertamina, lost $3.97 billion between April 1996 and March 1998 and that it stands to lose more money if it is not overhauled soon.

Petronas, by contrast, has been consistently profitable and is respected throughout the industry. The company has established joint ventures on several continents with the oil industry's major players.

"They're perceived as a very cash-rich company — good assets, low debt, very strong balance sheet," said James Brown, oil and gas analyst at Merrill Lynch in Singapore. "They clearly have a diversification strategy that goes well beyond the shores of the Asia-Pacific region."

Following an aggressive push to globalize the company that began in the early 1990s, Petronas today has interests in 24 countries, most of them poor, underdeveloped nations. Last year, Africa accounted for 17 percent of the company's revenue.

By the standards of the industry giants, Petronas remains a dwarf. Its sales last year of $15 billion were huge for Malaysia — it is by far the country's biggest company — but amounted to less than one-tenth last year's revenue of $160 billion at Exxon Mobil Corp

One competitive advantage that Petronas has over U.S. oil companies is the lack of restrictions on where it can and cannot invest. Human rights groups in Malaysia have a small voice and rarely comment on the activities of Malaysian companies abroad. Petronas has operations in Iran, Sudan and Burma, all of which have been targets of U.S. sanctions or boycotts.

But the chief difference between Petronas and other major oil companies is in its management structure. Executives at the Malaysian company are directly answerable to the prime minister. The company's results do not even figure in the national budget.

Petronas money has been used for national projects and corporate bailouts. The oil company is in the process of buying a controlling stake in the national car program from its highly indebted parent company.

Petronas helped finance the construction of the Petronas Twin Towers, the world's tallest buildings, which serve as the headquarters for the oil company, as well as a massive 20 billion-ringgit ($5.26 billion) administrative capital still under construction outside Kuala Lumpur. The prime minister has already moved his office to the new city, which was built from scratch.

The surge in profits at Petronas this year has led to speculation that the oil company could be tapped to help finance other projects. It has also led to a controversy over the royalties that the oil company pays to the Malaysian states from which the natural resources are extracted.

Under a 1974 law Petronas is obliged to provide oil-producing states with 5 percent of the value of the oil and gas extracted. But this year the government is faced with a dilemma: One of the oil-rich states fell into the hands of the opposition during the November election.

Handing over the royalties from this year, which amount to more than 800 million ringgit — a 60 percent increase from last year — would mean helping finance the Pan-Malaysian Islamic party, Mr. Mahathir's arch rivals.

Mr. Mahathir has said the matter will be "studied" before any royalties are handed over.

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