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Malaysia’s top energy company Petronas could go broke within a decade if the government takes all of its profits, the company’s president and chief executive Tan Sri Hassan Marican recently said. Few executives are fans of new tax schemes, but there is more to Hassan’s complaint than meets the ear. Time could be running out for one of the developing world’s most powerful state-owned energy companies.
Companies rise and fall as a natural consequence of free market economics, but a failed Petronas would have major geopolitical implications because the Malaysian government depends on the firm’s success for stability. Moreover, the failure of Petronas would have serious consequences for Malaysia’s energy-hungry neighbors.
Petronas’ Profile
In 1974, the Malaysian government established Petroliam Nasional Berhad (Petronas) to manage the country’s abundant oil and natural gas deposits. The Petroleum Development Act of that year gave Petronas unique control over Malaysia’s petroleum resources. Today, Petronas dominates Malaysia’s oil sector upstream and downstream, with exclusive ownership of all production and exploration. It also rules the country’s natural gas sector, with a primary position working in conjunction with foreign firms in downstream and liquefied natural gas (LNG) projects. The company has incorporated exploration, production, refining and distribution, and has created four subsidiaries to do these jobs. Petronas became fully integrated and went international in the 1990s, eventually operating in more than 30 countries and drawing about 30 percent of its revenues from operations abroad.
Like other nationally owned energy giants, such as Brazil’s Petroleo Brasileiro (Petrobras), Russia’s Gazprom and Saudi Arabia’s Saudi Aramco, Petronas performs at a consistently high level and is rich in resources. In 2006, its total revenues were $23.3 billion and its net income was $14 billion — higher than Petrobras’. Petronas also has an energetic entrepreneurial mindset comparable (though not quite equal) to Petrobras’.
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