Don’t
kill goose that lays the golden eggs, DAP rep warns Putrajaya
August 03,
2013
Yeo said Petronas funds have been used in the past for
several ‘bailouts’.
PETALING JAYA, Aug 3 — The “Negative” outlook on Petronas’s
debt rating by ratings firm Fitch Ratings shows Putrajaya must stop using the
state oil firm as a “piggy bank” or put its survival at risk, said a DAP
lawmaker.
On July 31,
Fitch revised the outlook on Petronas Long-Term Local Currency Issuer Default
Rating (IDR) from “Stable” to “Negative”. A day before that, it also made the
same revision to Malaysia’s sovereign debt outlook.
“For
Petronas, the dividend is paid to the government but the dividend payout ratio
is not capped, i.e. the government has the authority to decide on how much to
‘withdraw’ from Petronas every year,” the DAP’s Damansara Utama assemblyman Yeo
Bee Yin said in a statement yesterday.
This ability
to dictate how much Petronas should pay has also led to the funds being used
for “bailouts”, she added.
“Some
infamous Petronas bailouts are the bailout of Bank Bumiputra in 1985 and 1991
as well as the Konsortium Perkapalan Berhad bailout through MISC in the 1997
financial crisis under the reign of Dr Mahathir,” Yeo said.
“Therefore,
we call upon the federal government to re-consider the proposal of Petronas in
2011 to cap the dividend payout ratio so it has sufficient cash to reinvest in
oil and gas exploration.”
Petronas has
also baulked in recent years over its status as Putrajaya’s “piggy bank” and in
2011 sought to limit the amount of dividends — then reaching nearly 75 per cent
of its annual net profit — made to the Malaysian government annually.
The firm
said then that the unlimited drain on its funds constrained its ability to
reinvest and grow its business.
The Najib
administration agreed in 2012 to limit this to 30 per cent of net profit
beginning this year, but it is unclear how binding the informal deal will be
ultimately.
“As of now,
more than 50 per cent of Petronas net profit is paid as dividends to the
government, well above the average of 38 per cent paid by national oil
companies around the world,” Yeo said.
This
rendered the state oil firm more vulnerable to future revisions such as the one
just made by Fitch Ratings, she said, noting that ratings firms were “sensitive
to post-investment cash flow, which is defined as cash flow from operations
less capital expenditure, acquisitions and dividend.”
Aside from
the free flow of funds from Petronas, Yeo added that allowing the prime
minister to have sole control was imprudent as the temptation exists to draw
upon the firm’s resources heavily during times of economic trouble, forcing the
firm to fund its own expenditure with debt.
“In addition,
there is a need for the amendment of Petroleum Development Act 1974 so Petronas
will be accountable to the Parliament and not only to the prime minister,” Yeo
said.
“Petronas
long-term survival and its governance are important to ensure the rakyat can
benefit fully from the natural resources endowed to the country.”
Prior to
Wednesday’s downgrade, Fitch also revised the outlook on Petronas’s Foreign
Currency IDR to “Negative” from “Stable” in September 2012 given the
sovereign’s growing influence over the company’s free cash generation.
It also
warned that because Petronas is fully-owned by the Malaysian government, its
current Foreign and Local Currency IDRs are constrained by Malaysia’s “A”
Country Ceiling and Local Currency IDR, respectively.
Petronas is
Malaysia’s sole representative on the Fortune Global 500 list of the world’s
largest firms.
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