Published January 14, 2009

Gas supply hitch in M'sia deters foreign investors

8 foreign firms defer RM8b investments on gas supply concerns

By S JAYASANKARAN
IN KUALA LUMPUR

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PART of the reason foreign investors find it difficult to get natural gas for industrial use is the disincentive to supplier Petronas. It stems from the inherent subsidy element implicit in gas sold to Malaysian industries.

Paying the price: Industrial users enjoy a subsidy in the form of a price discount on gas supplied by Petronas whose main local buyers are the power producers

Petronas is the national oil company and Malaysia's largest and most profitable company: for the year to March 31, 2008 it made a net profit of RM61 billion (S$25.4 billion). But even at current world oil prices, industry officials said Petronas sells gas to industrial users in Peninsular Malaysia that's discounted against the market by RM5-6 per million British thermal (mbtu) units.

At its peak last year the discount was as much as RM55 per mbtu - revenues directly forgone by Petronas and, thus, anathema to a profit-driven corporation which would be more willing to export its products at market prices.

In addition, distribution to local users is lopsided in favour of the independent power producers which take up almost 62 per cent of gas sold locally. Indeed, since 1997, Petronas has 'lost' around RM58 billion in foregone revenue in subsidising the power sector.

The other users are 1,500 or so companies that enjoy artificial competitiveness ranging from small and medium enterprises to Top Glove, the world's largest producer of rubber gloves.

Malaysia exports slightly over 40 per cent of its gas to countries like Japan, Korea and Taiwan through locked-in, long term supply contracts so Petronas is in no position to supply more subsidised gas to local industry.

The matter cropped up on Tuesday, after International Trade and Industry Minister Muhyiddin told reporters that concerns over gas supply have forced eight foreign companies to defer investments worth up to RM8 billion in Malaysia.

Mr Muhyiddin identified two of the firms as Samsung and Nippon Electric Glass. He said the firms were concerned with the supply of gas to their plants rather than the pricing.

'This had affected investments ranging from RM5 billion to RM8 billion,' The Star quoted him as saying.

State-controlled gas supplier Petronas Gas has stated it was unable to redistribute the gas supply before 2014, said Mr Muhyiddin. 'We are pushing it to be earlier as the industry needs gas,' he said.

The companies affected were involved in steel manufacturing and electronics, and were from the US, Europe, Japan and South Korea.

But Nicholas Zeffrys, a former president of the American Malaysian Chamber of Commerce, told The Business Times that he thought the figure of foreign companies unable to get gas for their industrial needs could be greater than the numbers cited by Mr Muhyiddin and could 'be as high as 40.'