As its first chairman, Tengku Razaleigh Hamzah, pointed out, Petronas has always been the custodian of the nation’s – and by extension the people’s – oil and gas wealth.
“Therefore, it cannot belong to any government, federal or state. It is the people’s company,” he told FMT.
It is this principle that has laid the foundation for its impeccable corporate governance.
This same focus on integrity, coupled with a history of good management, has led to Petronas’s corporate success and its rise as a Fortune 500 company.
As Prime Minister Anwar Ibrahim has pointed out, Petronas could not have been able to contribute the billions it has done to the country if not for those qualities.
Starting on the right foot
Tengku Razaleigh, who was given the task of setting up the national oil corporation by then prime minister Abdul Razak Hussein, said his priority was to pick only people who were knowledgeable enough to manage it.
“We’d heard of national oil companies going down the tube thanks to incompetence, ignorance of market forces or because of greed and corruption,” he told FMT on the occasion of Petronas’s 50th anniversary on Aug 17.
Among academics, the phrase “resource curse” has been used to describe the misuse and abuse of the windfall from oil and gas in countries such as Nigeria, Venezuela, the Democratic Republic of Congo and Angola.
For instance, Nigeria is the world’s sixth largest producer of oil but most of the money from the resource has been squandered by corrupt politicians and poor governance.
Based on those concerns, Tengku Razaleigh said, he turned to Razak, who had also assigned him the task of drafting the Petroleum Development Act.
“I needed good people to start with,” he said.
“The start is very important. If you start with a bad habit, you will end up with a bad habit.”
Keeping it Malaysian
It was in the 1960s when Abdul Rahman Ya’kub, then Sarawak chief minister, first mooted the idea of assuming control of Malaysia’s oil and gas resources through a statutory body.
Rahman later changed his proposal to a national oil company and even suggested that Tengku Razaleigh be appointed its first chairman.
The proposal gained traction in the 1970s when the global oil crisis hit.
The outbreak of war in the Middle East and the subsequent oil embargo imposed by the Organisation of Petroleum Exporting Countries pushed crude oil prices up from US$1.50 a barrel in 1972 to US$12 in 1974.
This made Rahman’s proposal even more imperative.
But for the federal government, returns from the oil business also made it possible to move forward in its national development agenda.
By taking control of the resource on behalf of the people, the government could ensure that the wealth be spread equitably across the nation, thus ensuring that no state was left out in any development programme.
This was all the more crucial given that not all the states were resource-rich.
While states such as Penang, which did not have any natural resource, could depend on their head start in commerce, others such as Perlis were entirely dependent on the national government.
Being in the unique position as Malaysia’s first oil-producing territory, Sarawak was well-placed to help underwrite the cost of national development.
This was a far cry from the early days after oil was first discovered in Miri in 1910.
The exploration and extraction processes were undertaken by Royal Dutch Shell, now renamed Shell plc.
While the resource belonged to the state, the Sarawak government had no control or say over how it was to be exploited.
Shell was given a free hand to exploit the resource and all it had to do was pay the required sum in taxes to the Sarawak government.
Handling its accomplishment
Petronas continues to generate a massive amount of revenue for Malaysia and, according to Tengku Razaleigh, that poses the question: “How do we manage the success?”
The answer, he said, lies in the calibre of its leadership and staff.
“Do we have people who are knowledgeable enough, sufficiently equipped and adequately competent to run an oil company?
“Petronas is not just any oil company. It’s a national oil company,” he pointed out, highlighting the importance of the right expertise and integrity in extending the company’s success.
At over RM343.6 billion just for the 2023 financial year, the oil company’s revenue surpasses that of even the largest corporations on Bursa Malaysia.
For the same year, it turned in a profit after tax of RM80.7 billion and contributed RM40 billion in dividends to the government.
But Petronas’s impact has now extended far beyond oil exploration.
Changing the nation
Over the last five decades, Petronas has been pivotal in the creation of new industries within its supply chain.
New service providers have sprung up to meet the specialised demands of oil exploration and refining, logistics and retailing.
Tengku Razaleigh said the emergence of these sectors has generated thousands of jobs – both directly and indirectly related to oil and gas – over the years.
“Thousands of people are now involved with industries that are related to oil and gas,” he said.
He said the broad impact of the oil and gas sector also underscores the role of Petronas in uniting the three regions of the nation, namely Sabah, Sarawak and Peninsular Malaysia.
“The potential of oil wealth as a contributor to national unity and development cannot be denied,” he added.
Global expansion
Petronas has also made inroads in other oil-related businesses over the years and its footprint now covers more than 100 countries across the globe.
Its exploration activities have yielded oil fields from Indonesia to Suriname. It has deepwater exploration blocks in the Gulf of Mexico, natural gas extraction activities in Canada and exploration blocks in Brazil.
In the UK, Petronas is involved in commodities marketing and trading through its subsidiary Petco Trading (UK) and it is a major supplier of LNG to China and Japan.
Petronas’s extensive network of businesses and continued growth, coupled with its strict adherence to corporate governance requirements, has put it at No.167 on the Global Fortune 500 list, making it the only Malaysian company to make the cut.
Looking ahead
As the focus on sustainability gathers momentum, oil companies are forced to take steps to adapt to a new environment.
For instance, Petronas is targeting to cap the greenhouse gas emissions from its Malaysia operations to 49.5 million tonnes of carbon dioxide equivalent this year from 54.03 million tonnes equivalent in 2022.
It is also raising its renewable energy capacity to 3,000MW this year by, among others, stepping up investments in hydrogen.
Changes in consumer demands, with greater emphasis on transparency and accountability at both the local and global levels, have also necessitated enhancements in standards in areas from production to employees’ welfare.
However, the spirit of equitable distribution of the nation’s oil and gas resources will continue.
As Petronas embarks on its next half century, it will bank on strategic investments to ensure long-term growth and stability while it continues to trek the tried and tested path of excellent management and corporate governance.
As Anwar pointed out, Petronas plays a vital role in Malaysia’s economy and its potential to drive sustainable growth.