KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) has performed respectably well during the recent volatile oil price environment and should not undergo massive management changes, analysts said.
Last year, Petronas recorded higher net profit of RM45.5 billion, after having gone through the steepest decline in oil price since June 2014, proving its resilience while remaining profitable, they said.
These comments come amidst recent changes in top management of government linked companies (GLCs) following the change in government after the 14th General Elections, and speculation of more to come.
Following the change of government since last month, government-linked and owned companies with their top leadership have become a hot topic of late among the public, following the stunning victory of Pakatan Harapan at the recently held polls.
While several GLCs have come under scrutiny and have seen management changes recently, other state-owned enterprises continue to focus on improving their businesses while at the same time distancing themselves from any controversies.
An analyst from a local research firm said shake-ups can be good when it promotes checks and balances, better corporate governance and improved internal audits.
“However, it could also hinder good progress in the already thriving GLCs such as Petronas.
“We have seen Petronas performing well under the leadership of its CEO Tan Sri Wan Zulkiflee Wan Ariffin and he has remained apolitical thus far,” said the analyst.
An industry observer said under the current management, the national oil company has managed to pull itself out of a very difficult environment in the last few years during the low oil price period.
“The leadership team instituted cost cutting measures within the company and rallied the industry to collaborate to cut cost to operate under the new low price environment,” the observer added.
Petronas introduced the Cost Reduction Alliance 2.0 or better known as CORAL 2.0, a long-term industry wide programme to inculcate cost-conscious mindset across the upstream sector in Malaysia.
As a result of this initiative, the amount of annual savings are expected to grow each year, reaching a steady state of between RM4 and RM7 billion annually by the year 2019.
During the height of the low oil price environment, the company was also spared a downgrade by rating agencies as a result of its effective response to the industry downturn.
In 2015, Moody's Investors Service affirmed the A1 rating of Petronas, reflecting the company's strong operating cash flows and solid liquidity profile, strong financial metrics even with the steep drop in crude oil prices at the time.
As a result of prudent management Petronas continues to pay dividends and taxes to the government while carrying out its social responsibilities to the communities in which it operates.
Institute for Democracy and Economic Affairs (IDEAS) fellow Jayant Menon said in terms of countries that have the highest state - owned enterprises presence among their largest firms, Malaysia ranks fifth highest in the world.
In his research paper titled “Government-Linked Companies: Impacts on the Malaysian Economy”, he said many of the GLCs are household names in Malaysia with total assets amounting to 51 per cent of GDP at end-2015.
One example of a GLC that dominates the economic landscape in Malaysia was Petronas, Menon said.
“Petronas’ debt amounts to more than 15 per cent of GDP, and its revenue almost a quarter of GDP. In the 2017 Fortune Global 500 List, Petronas ranked 184th,’ he stated in the report.
Meanwhile, on the flipside, the analyst said the operations of a corporation or an organization is not dependent solely on the CEO or the management team.
“Another point to note is that our country does not lack professional talents. We can always replace a management team with better and more qualified individuals,” said the analyst.
The analyst quoted Petronas as an example, in which their chief executives of their subsidiaries are changed to encourage staff mobility amongst staff and also to identify fresh talents to replace older ones.
Petronas has committed to pay RM19 billion in dividend to the government for 2018, higher than RM16 billion in 2017.
Its cash flows from operating activities improved to RM75.7 billion last year with assets standing at RM599.8 billion.
The group’s gearing ratio also remained stable at 16.1 per cent compared to 17.4 per cent recorded last year and capital investments for the year ended December 31, 2017, totalled RM44.5 billion, mainly attributable to the Refinery and Petrochemical Integrated Development (RAPID) Project in Johor.