This article first appeared in Forum, The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

Two events dovetailed together in the last two months. On Sept 16, we Malaysians had our anniversary as a nation. Then just recently on Oct 18, the prime minister dropped Budget 2025 on parliament. To me, these events provided the backdrop of politics and economics that has been in my thoughts of late.

First, from a political standpoint, despite this being our 60th year as a nation. Unfortunately, the din of discontent on the political fronts, especially in Sabah and Sarawak, has grown louder by the day. MA63 (the Malaysia Agreement 1963) and the fragility of our parliamentary majority are being used to sway parochial sentiments. We seemed to have forgotten our shared history that we have gone through as a nation. We withstood Indonesian claims on Borneo in 1963 for three years in a military confrontation. We have forgotten how lethal or devastating that could have been. Indonesia invaded and annexed East Timor not that long ago in 1975. The Philippines has yet to officially drop its claim on Sabah. As recently as this year, it still filed a UN claim on the seabed territory of North Borneo. We have also forgotten the insurgency of the North Kalimantan Communist Party that went on from 1962 for more than a decade, where almost 100 of our military personnel were killed and more injured and maimed in protecting our people. And most recently, China has aggressively positioned its maritime might on its “nine-dash line” right into the territorial waters of Sabah and Sarawak. It is Malaysia and its unity as a nation that has stood against all these threats.

Second, from our current economic environment. Out of everything in Budget 2025, one item jumped at me from the Fiscal Outlook and Federal Government Revenue Estimates. Malaysia’s petroleum-related revenue is projected to decline from 41.3% of the total federal revenue in 2009 to 18.3% in 2025. This decline cannot be attributed mainly to oil prices but to a reduction in such income revenue from the states. My take is that this will significantly be due to the reduction in federal income revenue as a result of actions from the states that will impact Petroliam Nasional Bhd (Petronas) and its returns in terms of dividends, royalties and income tax revenue as of next year.

In all this talk and effect, the biggest risk to the nation is our petroleum economy, which represents about 7.9% of the gross domestic product (GDP) based solely on natural gas, crude oil and condensate alone in 2023. That does not include the downstream industry and the associated services sector that get lumped into manufacturing and services. Our states and people must start thinking about the national economy first. In this globalist world, unless one is already a developed economy and provides a fundamental service to its region, such as the likes of Singapore or Switzerland, a consolidated bigger economy is the only way to survive and grow. And in the natural resources game, the bigger your consolidated economy, the more leverage you hold against competitors, investors and customers. Going your own way, especially one fraught with pitfalls of potential corruption, will only be in service to the few and a disaster for the rest of the populace. In all this, with such fragmentation of our national economies of scale, what may happen is the fundamental collapse of our petroleum ecosystem that has been carefully and professionally managed by Petronas.

Our federation created Petronas for the benefit of all. As a small nation, Malaysia needed to create a professional organisation large enough to pool our national resources with consistent and uniform policies to attract investment and exploit these resources as a country. It had to be run with not just professionalism but with integrity, and it has. The result of which is that today, Petronas is a Fortune 500 entity belonging to all Malaysians. Some 50-plus years on, led and catalysed by Petronas, we have produced a national petroleum ecosystem employing Malaysians with engineering, technical and management skills from all our states, especially Sabahans and Sarawakians.

Not counting the more than RM1.2 trillion since inception until 2021 in cumulative Petronas contributions to states, the federal government and the National Trust Fund, the investments in Sabah and Sarawak alone measure into the billions in US dollars over the years. Just to name a few, they include the Asean Bintulu Fertilizer plant, Petronas LNG Complex in Bintulu and the floating LNG plants in Sarawak. In Sabah, the Petronas Chemicals fertiliser, Kimanis Power and methanol plants are just some of the major investments by Petronas. Then there is the network of Petronas service stations all over the map and other operating infrastructure to support both upstream and downstream sectors of the oil and gas economies of Sabah and Sarawak that not merely directly employ the people but also generate supporting indirect economies.

The upstream sector is a high-risk and high-capital economy which is very technical in nature. The petrochemical sector is equally high capital with long-term return on investment, while the downstream side of the industry overall is extremely sensitive to crude oil and gas prices. The short-sightedness of state-centric fragmentation of the national oil and gas economy cannot be underestimated. In the hubris and euphoria of potential concentration of state wealth, we have gambled away the future of not just our national economy but also the state-owned economies. To attract the massive investments needed in the oil and gas industry, economies of scale are paramount and the spreading out of risks is essential.

Let me give two examples. First, in exploration and production. A new exploration block for oil and gas needs to attract big enough companies that can take the risk of losing tens of millions of dollars before even having enough confidence to invest more in drilling. And after exploration drilling, there is no guarantee of development. Large companies need to ensure the business to be generated in that territorial market is big enough to warrant their risk and investment. When the market is fragmented, the risk profile is very different. They must now contend with different policies and terms and increased administrative and logistical costs across “borders” of this now fragmented market. We may very well see some smaller and even mid-sized fields that would have been viable to be funded for exploitation cease to be so.

Second, let us take a major supporting industry such as the fabrication business, be it major or minor fabrication. It is not feasible to have companies set up and maintain fabrication yards to support a market that is too small for them to exist. These yards carry large capital and operating expenditures regardless of the ups and downs of the oil and gas cycle. Every major fabrication yard in Malaysia has been in dire straits for more than a decade now and has not been able to rebound for the quite simple reason of there being too many players for a small Malaysian market. Imagine when we break up this market into state-sized bits. The market would simply be unsustainable.

This fragmentation of our national oil and gas market is a real threat to the economic health of the sector that no one seems to talk about. The discourse from the states has been very short-sighted. It has taken the nation more than 40 years to build what we have today, and we are now risking it for what the states think they may get now. The operative word is may. What is certain, however, is the fragmentation of our national market and the loss of its economies of scale. In addition, we delay economic progress for all for the sake of political gamesmanship. In this fast-changing global economic environment, the calculus of the oil and gas sector is no longer the same as it was even 20 years ago. The boom-and-bust cycle of the sector has been shorter and shorter. This is mainly due to booming record discoveries of reserves globally, including those brought in by fracking technology. Further, there is the pressure on demand because of alternative “green” energy. In my opinion, the price of crude oil will never see the heyday of US$100 oil anymore. We may not even see anything approaching US$90 a barrel. Even with multiple wars currently going on, we can see that is the case. Prices go up momentarily and fall equally rapidly on speculation rather than fundamentals. And we have not yet factored in the imminent slowdown of China’s massive economy.

With all this backdrop, the rhetoric of divide and rule between Semenanjung, Sabah and Sarawak needs to stop. It is no different than the divide and rule politics that we have seen played out between our Malay and non-Malay populations by our politicians, tearing us apart by portraying ourselves as haves and have nots, us versus them. The fact is, whether we have or do not have in terms of public infrastructure, population welfare and development, the funding for them has always been there. It has always been in the hands of all our elected leaders, both federal and state. They worked hand in glove. When they point fingers, they are pointing at themselves. We, the people, need to realise this.

Our country has been a rich one, but a minority political class has lorded over this wealth for generations, which has meant that the majority in our societies do not see this wealth or even satisfy some of their basic needs, including schools and infrastructure.

Our people need to unite as Malaysians. Our political leaders need to unite as Malaysians. We are a small nation in a world of giants that does not care about us. Do we need to be broken up economically further as smaller fragments within a nation? Does that really make sense for us as a people? We have no global political strength as a country. That only comes with either economic or military might. We definitely do not have any military might to project. Our GDP was slightly more than US$400 billion in 2023. The 20th-ranked GDP in the world, Switzerland, is more than double our economy. We do not even rank past the 30th largest economy in the world. Even Singapore has a higher GDP than us. Can we stop the hubris already?

We need to learn the lessons of history and construct a united future. England morphed into Great Britain and its colonies became the United States. It was the Federalists in the union that made that nation what it is today, the United States of America. To be more blunt, the great George Washington had already made a strong point in his farewell address in 1796 for such unity and to be wary of factionalism and party interests. I quote: “It agitates the community with ill-founded jealousies and false alarms, kindles the animosity of one part against another.”

My point is, Malaysia needs to evolve beyond historical treaties, agreements or supposed social contracts and the past. Our nation needs a consolidation of its economy, not breaking it up further. Our politics need to unite. The states must outwardly work together to help Petronas further our national agenda. The state leaders must work together at the federal level to ensure that national development is spread out and not concentrated. This we have been doing to a level of success that is the envy of most developing countries. Why can we not continue this evolution in our national growth and progress?

This is where we as a people need to show the lead. Even though it was enacted by parliament, Petronas was not built by politicians. It is one of the crowning achievements of our Malaysian professionals and citizenry. It was these professionals that created the Malaysianisation policy in Petronas that has consolidated our petroleum economy for the benefit of all, not just Terengganu, Sabah or Sarawak. And that economic return flows back to all, especially to Terengganu, Sabah and Sarawak, if only we are honest in our admission. Our union is not perfect but strive we must for a more perfect one. We must not just have the gratitude of having each other, through ups and downs, we must find that gratitude for what has made us what we are today because we were and are together.

We cannot abandon this consolidation at the feet of parochialism. The world does not care about our divisions. It cares about the market we create and the economic might we project. That we have achieved with Petronas. In such a global scenario, exploitation of our national reserves must be timely, strategic and consistent. Our economic market must be consolidated and big enough to withstand the vagaries of the global market. It took us, as a nation, 40 years to build that infrastructure that resides within Petronas. No other nation has done more with the limited petroleum resources to the extent we have. I urge our state leaders to rethink the current go-on-your-own mindset towards our oil and gas economy. The impact on the nation and the states themselves will not be what we all may desire.

Tengku Ngah Putra is head of the oil and gas cluster of Majlis Tindakan Ekonomi Melayu Bersatu

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