Change of Malaysian government could ‘dramatically’ impact energy sector

The opposition Pakatan Harapan (PH) coalition secured victory on 9 May in Malaysia’s 14^th general election, winning 113 seats in the federal parliament (along with another eight for an ally in Sabah), just over the 112 required for a majority.

Commenting on the result, Steve Jenkins, Vice-President of Chemicals Consulting, Wood Mackenzie, says: ‘The result is nothing short of a political earthquake, although there are still many unknowns at this stage. The impact of the change in government in Malaysia on its oil, gas and chemicals sector is likely to be tied in to changes in the country's wider economic policy, but could be dramatic in their own right. The newly elected coalition campaign contained a number of populist promises that are almost certain to impact Petronas, the country's national oil, gas and chemicals producer.’

‘First amongst these is the pledge to abolish the goods and services tax (GST) which the former government introduced in April 2015 as a replacement for the sales and service tax which had been in place for many years. The aim was to diversify and expand the tax base, seeking additional revenue to offset a growing budget deficit and reduce dependence on revenues from Petronas at a time when global crude oil prices had slumped.’

‘Other pledges range from provision of targeted oil subsidies to decentralisation of power to Sabah and Sarawak and the establishment of a special committee to check the implementation of the Malaysia Agreement 1963 which outlines the state’s oil and gas rights, including the collection of export tax on crude petroleum, oil royalties and ownership of oil fields.’

He adds: ‘The newly elected government will need to act quickly to establish confidence and stability in its ability to manage the economy, to calm financial markets and to set out a clear budget which will begin to shed light on how it intends to address some of its campaign pledges.’

Given the size of Petronas within the Malaysian economy and its historic role in providing a significant part of the country's revenue, there could be potentially be quite an impact on its management and operations, notes Jenkins. Budgets and finances may be influenced, especially for future investments and exploration; there could be less autonomy and more governance over the management of the company; and there may be issues regarding the potential rights to manage Sabah and Sarawak oil blocks.

‘The new Prime Minister, Tun Dr Mahathir Mohamad, had been an advisor to Petronas until March 2016, when he was sacked by the government, and will undoubtedly have a keen understanding of the oil major's finances,’ concludes Jenkins.

It is thought that the status of major projects such as the $27bn Pengerang Integrated Complex (PIC) in Johor should not be affected given that it is already financed and close to completion.