Economist Yeah Kim Leng of Sunway University said reducing its obligations to the government now would enable Petronas to invest in activities that could extend its life as a source of revenue.
He was responding to a statement by law and institutional reform minister Azalina Othman in the Dewan Rakyat last week that Petronas’ reserves for oil and gas are projected to last for only another 15 years.
Azalina, who cited the Reserve Life Index data, said that as of Jan 1, last year, the country’s probable and proven reserves of petroleum amounted to 6.9 billion barrels of oil equivalent.
However, she said, this could be extended to more than 40 years if there is high capital investment and with the introduction of new technology.
Yeah said reducing the government’s reliance on Petronas could boost its capital expenditure on oil exploration and other upstream activities.
“It can also enable the national oil corporation to step up its investment in renewable energy,” he told FMT Business.
He said Petronas was able to pay a high dividend when oil prices were up. For instance, it paid out a RM54 billion dividend to the government in 2019, the highest in a decade. That year, the world crude oil price was at an average of US$64 a barrel.
“However, the dividend dropped to RM34 billion in 2020 when the price of crude oil fell 33% to US$43 a barrel. This shows that Petronas’ ability to sustain high dividends are constrained by global oil prices,” he said.
The dividend for 2022 was only RM50 billion, despite crude oil price averaging at US$100.93 a barrel.
Yeah said that even with crude oil price now hovering at US$84 a barrel, there is no guarantee that the dividend for 2023 will be higher than in 2022 given that the price is volatile.
He said there is a need for Petronas to invest a considerable amount of money into upstream activities and new technology to extend its proven reserves while working to meet national zero-carbon emission targets.
“The government may have to rely on Petronas for short-term solutions such as keeping the fiscal deficit and debt levels down, but not for long-term economic support,” he said.
He said an alternative for the government is to raise tax revenue but to that end, it has to revamp the tax base and rebalance its structure.
“This means that the government will have to raise revenue from indirect taxes and this can be done by re-introducing broad-based consumption taxes such as the goods and services tax (GST) or value-added tax,” he said.
Yeah noted that the indirect taxes amounted to RM41 billion in 2019, which was close to the dividend payout by Petronas.
Carmelo Ferlito of the Center for Market Education said the lower dividend paid in 2020 could have been a strategic decision by Petronas.
“A company may be profitable but it may decide to use the profits for new investments rather than declare dividends,” he told FMT Business.
Ferlito said the company could also decide to not pay dividend if there is a negative business forecast.
“Petronas may have reasons to keep its funds ‘at home’. The company may be trying to be prudent with its spending in light of the challenges faced,” he added.