Petronas’ Shamsul may get extension of contract

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THE government is mulling over extending Tan Sri Shamsul Azhar Abbas’ tenure at the helm of national oil company Petroliam Nasional Bhd (Petronas), sources say.

Shamsul first took the top job at Petronas in 2010 as president and CEO on a three-year contract. He was then given a two-year extension, which will expire early next month.

“Many, especially the Malay rights groups, do not see him in a good light, but he has his fair share of fans,” says a source familiar with Petronas.

“It’s a difficult time, oil prices are not good and Petronas has several ongoing large-scale projects. So, maybe it’s best not to change anything … (best to) keep the status quo,” he says, explaining the reasons for Shamsul’s proposed extension.

A Petronas official and spokesperson declined to comment, saying that he was not aware of the latest developments as the president and CEO’s appointment or extension is decided by Prime Minister Datuk Seri Najib Razak.

At the end of last year, there was market talk that Shamsul might be replaced. Despite getting his fair share of criticism, he has done well on many fronts, note some industry observers. Some of his achievements include spearheading the RM60 billion Refinery and Petrochemical Integrated Development (RAPID) project in Pengerang, Johor, acquiring OGX  Petroleo e Gas Participacoes S.A.’s oil fields in Brazil for US$850 million and buying Canada’s Progress Energy Resources Corp for US$5.4 billion.

He was also behind the award of risk service contracts that provide opportunities for local oil and gas companies to venture upstream and the setting up of Vestigo Sdn Bhd, which paves the way for Petronas’ involvement in the production of marginal fields.

“However, some of his policies such as opening up tenders to foreign companies and scrapping the allocation of contracts did not go down well with many,” an oil and gas executive says.

He adds, “Personally, I think he has done well. He has actually liberalised the idea of having marginal exploration and production … he opened it up. And he is good with cost control, telling contractors not to jack up their prices.

“But it will be tough for him. While he is a nationalist, he is at odds with the Malay agenda … (but) does he want to take it on (to be in this position) for a few more years?” he asks.

A market watcher says, “His (Shamsul’s) contract renewal will be a disappointment to domestic service providers who feel that more work should be kept in the country … with the local contractors.

“If it (the awards of jobs) is down to pricing, Petronas should allow the locals to match the foreigners’ prices. In some cases, foreigners are subsidised by their governments, hence their lower bids. I think Petronas needs to strike a balance between being a responsible national oil company and an efficient international oil company,” she says.

But will Shamsul take the extension?

Shamsul came under fire for many of his decisions, particularly those related to local contracts given to foreign companies. Malay rights groups and former premier Tun Mahathir Mohamad have taken him to task for some of his contract awards.

For instance, Shamsul opened up the tender process for the fabrication portion of Petronas’ five central processing platforms (CPP) and has awarded two contracts — Bergading and Baronia — to South Korea’s Hyundai Heavy Industries. Another contract, SK316, went to a joint venture between Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE) and France’s Technip S.A. The remaining two, Sepat and Kasawari, are slated to be awarded later.

Then again, even the award to local company MMHE was scrutinised as it is a 66.5% unit of shipping company MISC Bhd. MISC, in turn, is 62.7%-controlled by Petronas.

Many local companies were eagerly looking to bag a piece of the CPP contracts as they were valued at more than US$1 billion each. Local companies such as pilgrim fund Tabung Haji-controlled TH Heavy Engineering Bhd (TH Heavy) have been adversely impacted by Petronas’ opening of tenders to foreigners. TH Heavy, which is bleeding, recently had to undergo a voluntary separation scheme, parting with some 200 workers, as a result of the dearth of jobs. The company’s yard is less than half utilised now.

On Nov 28, when announcing Petronas’ third-quarter results, Shamsul stated that the company would slash its yearly RM50 billion capex by 15% to 20%. He also suggested that the government tighten its belt as payments by Petronas to the government — in the form of dividends, taxes and royalties – in 2015 could dip by as much as 37% to RM43 billion if oil prices stayed at around US$75 a barrel.

In 2013, Petronas paid RM63 billion to the government — comprising RM36 billion in tax income and royalties and RM27 billion in dividends — amounting to 29.5% of government revenue.

Prices of Brent crude have since fallen to below US$60 per barrel, which would indicate that fourth-quarter earnings are bound to be worse.

Nevertheless, Deputy Finance Minister Datuk Chua Tee Yong told a news conference that “dividends paid (to) the government is also decided by the government, not fully by Petronas”.

For its third quarter ended September 2014, Petronas’ net profit slipped 12% to RM15.1 billion and revenue dipped 1% to RM80.4 billion from the previous corresponding period. For the first nine months, Petronas’ net profit inched up 4% to RM54.9 billion while revenue strengthened 7% to RM249.8 billion.

On Dec 1, the trading day after Shamsul’s announcement on the cutting of Petronas’ capex, the share prices of Petronas-linked companies Petronas Gas Bhd, Petronas Dagangan Bhd and Petronas Chemicals Group Bhd fell RM1.72, RM1.44 and 50 sen respectively, bringing the overall market down as well. The benchmark FBM KLCI tumbled 2.3%, or 42.6 points, to close at 1,778.3 points.

Shamsul has indicated previously to The Edge that it would not be a problem for him to leave once his contract was up, suggesting that the job can be unnecessarily difficult due to politicking. Thus, whether he actually accepts an extension this time around remains to be seen.

 

This article first appeared in The Edge Malaysia Weekly, on January 5 - 11, 2015.