Will the government keep him on?

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THE extension of Petroliam Nasional Bhd (Petronas) president and CEO Tan Sri Shamsul Azhar Abbas’ employment contract hangs in the balance. Prime Minister Datuk Seri Najib Tun Razak has yet to approve it, according to sources in the oil and gas (O&G) industry.

Najib’s hesitation is apparently due to Malay rights groups and former prime minister Tun Dr Mahathir Mohamad objecting to the extension of Shamsul’s tenure. Shamsul, who has led the national oil firm since Feb 2010, is perceived to have shown a preference for foreign companies in the awarding of Petronas contracts. Some quarters view this as being against the bumiputera agenda.  

However, a Petronas executive who has worked with Shamsul disputes the notion that he is not giving enough jobs to local O&G companies.

“Between 2012 and 2014, Petronas awarded six central processing platform (CPP) contracts to local and regional fabricators through competitive bidding — four were given to local companies, and two to Hyundai (Heavy Industries Co Ltd). For the same period, we also awarded contracts for 30 other structures — such as wellhead platforms, booster compression modules, and floating production storage and offloading (FPSO) — to local fabricators.

“Of the 30 contracts from 2012 to 2014, TH Heavy Engineering Bhd (THHE) won six — four wellhead platforms, one booster compression module and one FPSO contract,” says the executive, who spoke on condition of anonymity.

“Don’t you find it odd that Petronas gets blamed for another company’s losses? Petronas is not involved in the management of the company. How can it be blamed? How long can we afford to have this lack of competitiveness persist among local companies?” he asks.

His singling out of THHE stems from the fabrication and FPSO operator’s claim that Petronas, under Shamsul, has opted to award jobs to foreigners, which in turn have resulted in local companies sinking into losses.

Following this, and after being nudged out of a few CPP jobs, THHE laid off more than 200 workers recently.

Other than THHE, there are several other companies that have hit out at Shamsul for his dismantling of the allocation system by which local companies — largely bumiputera — are awarded contracts.     

With the removal of the allocation system, companies such as Hyundai have allegedly been awarded jobs without local companies being given the chance to match their bids.

While this debate goes on, executives from several O&G companies question whether local players have the capacity to handle jobs as large and complex as CPPs.

“Other than SapuraKencana (Petroleum Group Bhd) and MMHE (Malaysia Marine and Heavy Engineering Holdings Bhd), none of the rest can do it. It could be problematic to Petronas to award jobs to these companies,” he says.

But this appears to be a moot point because THHE has partnered with McDermott, a reputable player in the global O&G industry.

According to the Petronas executive, only its CPP contracts were open for international bidding, with the rest of the jobs being left to local companies. However, he points out that Hyundai had awarded MMHE the fabrication work for the Bergading platform and jacket, connecting bridge and jacket, for the CPP.

In the case of the THHE-McDermott joint venture, all its fabrication works for the CPP are in Batam, where McDermott’s huge yard is. This means that the joint venture does not subcontract its jobs to other parties.

“It’s not like they (the local O&G players) are in a rut. It is forecast that between 2015 and 2017, there will be another CPP contract and 25 other offshore structure contracts to be bid for. If you don’t have the expertise for CPP, at least you get [some of] the other 25 smaller jobs,” he says.

Considering the tumble in oil prices and the Pengerang Integrated Petroleum Complex — of which the RM60 billion Refinery and Petrochemical Integrated Development Project known as RAPID is still in its early stages — the government could extend Shamsul’s contract to safeguard the national oil firm’s cash holdings. Shamsul has proposed to the board to set a dividend policy of 30%. The proposal is yet to be approved. Pundits say it is a step in the right direction, and only a strong-willed leader such as Shamsul can implement such caps, which they argue are necessary for the longevity of Petronas as a going concern.

But some quarters argue that Petronas is a national oil firm that has a social agenda to fulfil. Profitability may not necessarily be the priority, so much as helping to grow the domestic O&G industry. In other words, if a majority of jobs is given to foreign players, how will local companies get the opportunity to gain expertise?

The front runners for Shamsul’s job

While it is uncertain whether Najib will extend Shamsul’s contract, a few names have surfaced as possible contenders.

A source familiar with Petronas says among the favourites is Datuk Ahmad Nizam Salleh, 59, currently managing director and CEO of Petronas’ 80%-owned unit Engen Ltd based in Cape Town, South Africa.

He has made his rounds in Petronas since joining in 1981, and was in the running to replace former president and CEO Tan Sri Hassan Marican when the latter left Petronas in February 2010.

Another strong candidate is Datuk Wan Zulkiflee Wan Ariffin, current chief operating officer and executive director of Petronas.

Wan Zulkiflee also doubles up as the executive vice-president of downstream business at the oil company. He has been with Petronas since 1983, when he joined as a process engineer.

He has held many key positions in the company, being managing director (June 2003 to May 2010), CEO of Petronas Gas Bhd (June 2003 to 2007) and chairman of Petronas Gas Bhd (August 2008 to August 2010. He has been chairman of Petronas Dagangan Bhd since Aug 17, 2010, and a director of Petronas Chemicals Group Bhd since December 2008.

Another name that has cropped up is Datuk Mohd Anuar Taib, who is currently the senior vice-president of Petronas’ upstream business in Malaysia. Mohd Anuar previously worked with Shell Malaysia, where he was chairman and vice-president of its upstream international business, until he left in mid-2012. However, he would be considered a young candidate for the position at age 48.

 

This article first appeared in The Edge Malaysia Weekly, on January 26 - February 01 , 2015.