National oil company Petroliam Nasional Bhd (Petronas) has criticised the federal government for continuing to subside gas in a bid to woo foreign direct investments (FDIs), saying the policy was “distorted” and “inefficient”.
President and chief executive Shamsul Azhar Abbas said the continued reliance on cheap gas has not helped to encourage power producers and consumers to pursue efficiency.
“Something has to be done to change their mindset,” he told reporters after announcing the company’s first-quarter financial results at its headquarters here today.
“If you were TNB (Tenaga Nasional Bhd) and there is an increase in demand for electricity, which one do you go for? Two dollar gas or 10 dollar coal?”
Shamsul said the government’s policy to keep gas prices low has forced Petronas to fork out some RM20 billion worth of subsidies while the gas supply system was being distorted due to taxation of up to “zero (reserve) margin”.
He questioned the need to give cheap power to foreign companies investing in Malaysia when investors in Singapore have done well to cope with gas sold at market prices.
This reflected the prevailing inefficiency in the country’s power policy.
“So why is it that over here they require subsidies in order to survive? Something is just not right.
“It just goes to show the amount of inefficiency that’s prevailing within the system. And all this distortion is created by the (gas) subsidy,” he said.
Onus on government
Weak domestic market caused by the low spread of high-tech industries has forced the government to rely heavily on Petronas for revenues. The national oil company contributes some 45% to the government’s coffers annually.
The oil giant turned heads last June when it made a firm stand and decided to pay 30% of its net profit starting from 2013 as it could no longer remain competitive should it continue to slash its revenues for subsidies.
Shamsul said that the liquefied petroleum gas (LPG) subsidy cut in June was a step in the right direction and hoped that such efforts would continue until gas prices reach market parity by June 2015.
He added that the onus is on the government to remove the “subsidy mentality” in consumers and praised Prime Minister Najib Tun Razak’s move to dismantle its costly subsidy regime albeit slowly.
“Nothing comes for free,” he said.
Najib has pledged to cut subsidies and widen the tax base as part of its effort to trim a 20-year record public debt of 7% of GDP in 2009.
Meanwhile, Petronas said its net profit increased to 48.6% for the first quarter on the back of higher crude oil prices triggered by political turmoil in the Arab states.
Net profit jumped to RM21.66 billion for the quarter ended June 30 from RM14.6 billion in the same period last year, while revenue rose 24.6% to RM72.97 billion.
