Revitalising Affected Sectors

National Economic Recovery Plan
Chapter 7


Mining and Petroleum

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 periods.

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:

  1. 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.

  2. Allow PETRONAS the flexibility to adjust production accordingly to sustain the benchmark price for Tapis in the face of continued falling oil prices.

  3. 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 skills.

  4. 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 cent.

  5. 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.

  6. Study the implications of maintaining the current prices of petroleum products on tax collection before proposing any increase in the price of petroleum products.

  7. Study the reduction in taxes as a result of the exemption accorded to NGV.

  8. 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:

  1. 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.

  2. 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 activities.

  3. Consider the export of the surplus cement to earn foreign exchange while keeping the manpower employed.

  4. Study the use of ground water.

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