PETRONAS, as principal player in the domestic petroleum scene,
has been able to weather the recent ringgit fluctuations since its ventures are generally
US dollar-denominated. Its financial reserves have either been deposited in Malaysian
banks abroad, or are being regularly repatriated to local banks at a rate of US$250
million/month. Given its strong financial position, PETRONAS is confident of fulfilling
its commitments, which are primarily capital-intensive projects with long gestation
Notwithstanding PETRONASí relatively strong position, the ringgit's
depreciation has exacerbated certain issues faced by the petroleum sector. These
include high fuel costs charged to the various industries, procurement contractors
beset with ringgit-depreciation problems, as well as falling Government revenue from
the sale of petroleum products. In addition, the petroleum industry faces falling
crude oil prices, inadequate level of local inputs/content in PETRONAS' bid packages,
as well as the lacklustre promotion of Natural Gas for Vehicles (NGV).
In the non-petroleum mining sector, minerals
and minerals-related products are traded in US Dollars. There is currently a drain
in foreign exchange because Malaysia continues to be a net importer of minerals such
as coal, gold, aluminium and copper. The lower ringgit has brought about an escalation
of production costs, a slowdown in demand for non-metallic minerals as a result of
the depressed construction and infrastructure sectors, as well as excess in the production
capacity of cement. To encourage foreign investments, there is a need to address
particular issues, such as the lack of cooperation and support by state governments,
decline in mining land for exploitation, as well as environmental concerns due to
the extractive nature of the mining industry.
To resolve problems in the petroleum sector, the following
measures are recommended:
- Study the feasibility of amending the Petroleum Development
Act, 1974, pertaining to the rights, powers and exclusive privileges accorded to
PETRONAS with a view to allowing local companies to participate in petroleum exploration,
exploitation, development and production activities.
- Allow PETRONAS the flexibility to adjust production accordingly
to sustain the benchmark price for Tapis in the face of continued falling oil prices.
- PETRONAS should reformulate its bid packages to maximise local
content by consciously setting aside for Malaysian companies the portions of the
bid where local capabilities are available, such as engineering and construction
- Review the necessity of using procurement agents for the purchase
of supplies and equipment as this will result in add-on costs of between 15-20 per
- Reconsider the Cabinet's directive to PETRONAS on 21 January
1998 that domestic airlines plying domestic routes should be allowed to purchase
fuel at prices quoted in ringgit. The reason for this is that despite the higher
exchange rate, aviation fuel prices are lower than before with the fall in international
crude oil prices.
- Study the implications of maintaining the current prices of
petroleum products on tax collection before proposing any increase in the price of
- Study the reduction in taxes as a result of the exemption
accorded to NGV.
- Refocus fully the role and function of PETRONAS on its core
business, namely, the petroleum industry. If the income from petroleum is required
for development projects, PETRONAS will be required to contribute to a fund that
could be utilised by other experts for activities that are of priority to the Government.
To promote development in the non-petroleum mining sector,
the following are recommended:
- The Federal-State Liaison Committee established to resolve
the various issues affecting the non-petroleum mining sector should be chaired by
the Deputy Prime Minister to improve its effectiveness.
- Restore and rehabilitate more ex-mining land for other economic
uses, e.g. as industrial areas or recreational grounds, while the water from mining
ponds can be purified and used for commercial purposes in water-deficient areas.
Mining ponds can also be promoted as suitable sites for aquaculture and duck-rearing
- Consider the export of the surplus cement to earn foreign
exchange while keeping the manpower employed.
- Study the use of ground water.