Higher inflation

THE already high cost of living is about to get higher in the coming months and Malaysians should brace themselves for it.

Why? Crude oil prices are rising. From June 21, when prices were at the lowest for the year, to Sept 14, Brent, the global benchmark, has jumped 21.56% while the US benchmark WTI has risen 16.13%.

When crude oil prices broke the US$50 a barrel level late last year and into this year, consumers felt the pinch. Headline inflation was at its highest led by transportation and fuel costs in March before tapering off as oil prices dropped into a trading range in the low to mid-US$40s.

Brent has gone back to above US$50 and should WTI break above the US$50 level, there is a possibility it will go back to the mid-US$50 trading levels. Transportation and fuel costs will rise in tandem and this will have a spillover effect on other prices.

Because of the high-base effect (inflation was rising late last year into this year), it looks like inflation is moderating when comparisons are made. But when volatile fuel and food prices are stripped off from the consumer price index, core inflation, which reflects the prevalence of inflation, is actually rising.

The grouses of consumers, despite the best efforts of policymakers to explain, are real where prices are concerned. The high cost of living, coupled with low wages, will mean that households that spend the better portion of their income on necessities such as food, housing and transportation, will feel the impact even more.

The economy looks like growing at a healthy pace this year versus the doom-and-gloom at the beginning of the year. But the growth rate is not reflected in consumer sentiment.

Will the unexpectedly good performance of the economy this year reflect in the wages of ordinary wage earners in the coming year? Because it is of no use to say that the economy is growing when the benefits do not trickle down to wage earners.

Samling, a trail blazer?

THE oil and gas (O&G) industry may not be exciting in Peninsular Malaysia, but it sure is sizzling in Sarawak.

The Samling group this week increased further its interest in Barakah Offshore Petroleum Bhd to 13.19%, underling its interest in the O&G company. It does not take much to guess the interest of Samling group in Barakah – it obviously has to do with the greater development of the O&G industry in the state.

Last month, the state set up its very own version of Petronas – Petros Sarawak. Petros is now actively looking for a chief executive and other key officials to drive the organisation.

All O&G-related jobs in Sarawak will likely be channelled through Petros.

As this is unfolding, obviously Sarawak-controlled O&G companies would stand a better chance to bag jobs from Petros.

At the moment, there are not many large O&G companies from Sarawak. And it would be futile to build one from scratch when there are many O&G companies that are going for a song.

Two years ago, nobody would have been able to buy into an O&G company such as Barakah at such low valuations. Today, it is very possible because the peninsula-based O&G companies are fighting for a small pool of jobs.

Margins are low and many have assets that are left idle with a bank loan to service.

The time is ripe for more merger and acquisition activities in the O&G sector.

For companies such as Samling that made its fortune in timber, switching focus to the O&G sector with the help of Petros is apt.

Timber is a tough industry, as the easy logging concessions have all been taken up. The O&G sector is not easy. But valuations are low and good companies with strong manpower are up for sale at a bargain.

So, is the Samling group’s move into Barakah just the start of a new acquisition trail?

A Geely CEO for Proton

TO those following the developments of Proton Holdings Bhd, they should not be surprised at the latest development.

The new chief executive of the company that produces the national model will be from Zhejiang Geely Holding Group Co Ltd. The person will replace Datuk Ahmad Fuaad Kenali from Sept 30 onwards.

This will mark the first time that a foreigner would be holding the CEO’s post in Proton, a post that would effectively make him (or her) the head of production operations.

The other key positions such as chairman and the head of Proton Edar – the marketing and distribution arm of Proton – are still held by Malaysians.

As a 49% shareholder in Proton, Geely certainly is entitled to nominate its representative to Proton.

The automotive group from China has put in its money for its stake. It has the right to see that its interest is taken care of.

Not to be forgotten is that Proton was bleeding DRB-Hicom to the extent that the local automotive group had to seek financial assistance from the government. The losses were close to RM1bil per annum at a critical stage.

It was at this juncture that Geely came into the picture.

Going forward, if a change in guard at the helm can help Proton turn around, then it is something that should be welcomed.

After all, we have tried local talent and it has not worked.

So, let’s give the new strategic shareholder a chance, even if it means putting its representative as the CEO.

For long, Proton cars’ quality has been viewed unfavourably. That is one of the reasons why it has not been able to capture a bigger share of the local market.

Hopefully, with a new strategic shareholder and a new man at the helm – even though the person is a foreigner – the view on Proton cars will change, and the fortunes of the company with it.

Source: https://www.thestar.com.my/business/business-news/2017/09/16/higher-inflation-samling-a-trail-blazer-a-geely-ceo-for-proton/

Petronas gets tested by Sarawak’s Petros

As higher oil prices lifted the profit of Petronas Nasional Bhd by more than 100% at the end of its second quarter, it does appear that the vagaries of the oil and gas sector have found some stability.

Oil prices have found stability of late after a period of volatility that saw a number of oil and gas companies endure pain none had seen for years prior to the crash in oil prices in 2014.

With profits on the mend, thanks in part to better cost management, Petronas declared a higher dividend of RM16bil to the Government after its second quarter financial results were announced last month.

With more money to dish out, it then appears the time has come for not only the service providers to ask for greater clarity in the jobs they can expect ahead, but also for states where oil is being produced from.

Sarawak, which has long asked for a greater share of oil revenues from production activities in the state, has decided to set up its own oil and gas company called Petroleum Sarawak (Petros).

Indications are that the state is looking for Petros, which was in the works for some time and before Petronas’ profits had bounced, to be an equal partner with Petronas for oil activities in the state, which will dramatically change the dynamics of the oil industry in the state and also the country.

But the move by Petros is not the first by a state in demanding a greater share of oil revenues from Petronas.

Terengganu, which has a big oil and gas industry, used to receive nearly RM6bil a year in royalties from Petronas but that was ended in the year 2000.

Reports are that the state and Petronas are back discussing the return of royalties to the state.

Apart from states asking for a greater share of oil revenue, the Government too has in the past made moves to expand to role of companies engaged in the oil and gas business in the country.

Jawala Corp, Crest Petroleum and Ranhill Bhd once formed a consortium to get involved in the country’s oil and gas space through the drilling in marginal oilfields.

The creation of the consortium came after the tabling of Budget 2004 where an approval was given to a private consortium to drill for oil in marginal fields.

The stance taken by Petronas then with regard to the consortium entering the oil and gas space was the same taken by the company when it deals with requests from states for more money.

It was reported that Petronas president and group chief executive officer Datuk Wan Zulkiflee Wan Ariffin recently said that he welcomes any involvement by state government entities in the oil and gas (O&G) business, but it has to be within the Petroleum Development Act (PDA).

“We have a strong relationship with the Sarawak government, as such, we welcome its participation in the O&G industry.

“But we also have regulations in place, of which under the PDA, Petronas is the custodian and manager of the O&G resources in Malaysia,” he told reporters at a briefing on Petronas’ mid-year results recently.

Wan Zulkiflee adds in the report that the partnership with Petros could be similar to other Petronas partnerships, either as service providers or as a partner under the production sharing contract (PSC).

“Discussions are ongoing with the Sarawak state government,” he said when asked about the potential partnership between Petronas and Petros.

Chief Minister Datuk Amar Abang Johari Tun Openg officially announced last month the formation of Petros, with a target for the company to be operational in the first quarter of next year.

“The formation of Petros is an unprecedented step taken by the state government to enable Sarawak to actively participate in the extraction of oil and gas in Sarawak while still pursuing its request for a 20% royalty from Petronas,” he says.

The pressure Sarawak can put on Petronas has been evident in the past. As employees in Sarawak need work permits, even for those from Peninsular Malaysia, the state had in the past wielded that right as it pursued that in the past.

In August last year, Petronas issued a press release citing its concerns over a moratorium imposed by the Sarawak state government on all new applications for work permits for Petronas’ employees from outside Sarawak to work in the state.

“Petronas believes the decision, announced over the weekend, may have been made based on the misperception that Petronas’ recent group-wide business restructuring had unfairly impacted its employees from Sarawak.

“Sarawak remains a key investment state for Petronas, where its workforce requirement will continue to grow. Petronas expects the majority of the workforce required to meet the new manpower demand will constitute Sarawakians, as per existing recruitment practices. A number of positions is expected to be filled by experienced employees, which may include non-Sarawakians,” it said then in a statement.

Related story:

Search for Petros CEO intensifies

Source: https://www.thestar.com.my/business/business-news/2017/09/09/petronas-gets-tested-by-sarawaks-petros/

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