Petronas S Role As Government S Buffer Faces Esg Risk Says Moody S

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Moody’s Investors Service senior VP Christian de Guzman says Petronas is Malaysia’s buffer for ‘unforeseen events’. (Facebook pic)PETALING JAYA: Moody’s Investors Service has warned that national oil corporation Petronas’s pivotal role as the government’s financial backstop in times of crisis is at risk as the world moves away from fossil fuels.
Senior vice-president (sovereign risk group) Christian de Guzman stated that Malaysia has a buffer for “unforeseen events” and that buffer is Petroliam Nasional Bhd (Petronas).
“This is interesting because other countries do not have Petronas. I think there is a degree of comfort taken by policymakers in Malaysia that there is some kind of financial backstop in the case of unforeseen events,” he said at the MARC360: Pre-Budget 2024 Views Series 2 – Malaysia’s Long Story of Fiscal Consolidation webinar today.
“In the event of a massive shortfall in revenue or when there is a need to bulk up revenue to meet higher spending, whether it is a cyclical shock like Covid-19, or a large shortfall takes them away from fiscal consolidation, there is this tendency to tap into the national oil and gas company.”
On the topic of environmental, social, and corporate governance (ESG), de Guzman noted Malaysia was not going to be spared from fiscal climate risk due to the increasing severity and frequency of climate-related shocks. “Floods are one of the incidents which Malaysia is prone to.’’
Another part of Moody’s assessment of ESG is the current transition risk. “Assuming all the countries in the world are continuing to work towards their commitment to the Paris Agreement, the long-term demand for petroleum and natural gas will dwindle over time.
“And to my point about Petronas, that means the buffer is not going to be there – whether it is extraordinary dividends or current royalty income,” de Guzman warned.
Petronas paid out a bumper dividend of RM50 billion to the government last year, and will pay a total of RM40 billion in dividends this year, which is RM5 billion more than the initial RM35 billion announced earlier.
A new buffer?
De Guzman said sovereign wealth fund Khazanah Nasional Bhd was also seen as a source of income for the government and a way of addressing a better use of continuous sources of income.
“Perhaps not using them as a source of financing but systemise their role in fiscal finance. We have already seen that in Singaporean state-owned investors GIC and Temasek Holdings where their returns are invested back into the budget,” he added.
Malaysia also requires a great degree of political will to raise its revenue, he said.
He noted that overall support for the economy had dwindled over time due to the emphasis on fiscal consolidation in the past.
“The way fiscal consolidation has happened in the last 10 to 15 years is (the government) has been cutting spending to match lower revenue,” he said.
De Guzman said in early 2010, Malaysia’s overall revenue-to-gross domestic product stood at 20% but has since fallen to about 15% of GDP. - FMT

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