Published June 30, 2009

Heads may roll at Petronas over Omar affair

Founder chairman suggests CEO should resign if he disagrees with PM

By S JAYASANKARAN
IN KUALA LUMPUR

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A BATTLE of wills could be shaping up between Prime Minister Najib Razak and the board of Petronas over the non-appointment of a confidant of Mr Najib to the oil firm's board. In the worst-case, it could result in heads rolling in Petronas.

BT had reported that on June 24, Petronas's board decided to defer the appointment of Omar Mustapha pending an explanation to the premier of the reasons behind the board's disapproval.

The meeting, which could happen this week, will be led by lawyer Kadir Kassim, a member of the board. Mr Omar, 38 and an Oxford-trained economist, was an aide of Mr Najib until he moved to Ethos, a consultancy firm.

This is the second time the board has objected. Sometime in May, the board rejected Mr Omar on the grounds that he'd defaulted on a Petronas scholarship given him almost two decades ago.

The episode has sparked a debate in the media over the issue of corporate governance and alleged government interference in Petronas, which happens to be Malaysia's only Fortune 500 company and contributed 45 per cent of government revenue last year.

The problem with the board's obstinacy, however, is that it runs afoul of the articles of association of the oil firm. In a statement yesterday Petronas founder-chairman Tengku Razaleigh Hamzah weighed in on the debate in support of Mr Omar.

The prince, who was a former finance minister, said any board member who 'disagrees on point of principle' with the premier 'should resign'. That was because the firm's articles 'give the premier the absolute power to appoint and remove every single member of the board and management.'

That is a problem because Mr Najib had, apparently, given clear instructions that Mr Omar be appointed to replace non-executive director Zaki Tun Azmi, now the current Chief Justice.

On May 12, according to the premier's allies, Mr Najib first brought up Mr Omar's appointment in a meeting with Hassan Merican, the acting chairman and chief executive of Petronas. This was followed by a letter the next day by Mr Najib to Mr Hassan stating that he 'agreed' to Mr Omar's appointment.

After the board rejected the appointment, Mr Najib told Mr Hassan to reconsider the rejection, notably in a private golf game in Beijing during a state visit there, the allies said.

The standoff has been exacerbated by its public airing and could have hardened stances all-round. What Mr Hassan's allies fear is that Mr Najib could misconstrue the matter as an act of insubordination.

Mr Hassan's contract is up for renewal in February but many oil executives had been hoping it would either be renewed or he would be retained as chairman with a successor from within Petronas becoming chief executive. Mr Hassan is highly respected in the industry and any untoward action against him could roil the oil firm's international bonds.

Mr Omar's chances don't look good either. He possesses an over-achiever's share of detractors which includes former premier and Petronas adviser Mahathir Mohamad. In addition, even Mr Najib's allies concede that the current climate has been 'poisoned' by the controversy.

Mr Omar declined comment but the allies furnished BT with a copy of a June 23 letter he wrote to Dr Mahathir. In it, Mr Omar explained that when he left Petronas for a state agency in 1997, it was with Mr Hassan's verbal consent on 'national service' grounds.

After three years, he joined McKinsey in London triggering a legal suit from Petronas which Mr Omar claimed not to know about. In 2004, he joined Mr Najib and found out about the suit which was then resolved by a settlement signed with Petronas in 2005.

Mr Omar said he joined Ethos, which he co-founded, in 2006 only after its head died but had agreed to serve Mr Najib as and when required. He said he wrote to Petronas 'regarding my scholarship obligations or payment' but the firm never replied.

Mr Omar lamented in conclusion that the media campaign against him had turned 'vicious and personal and, at times, racial'. He is the son of Mustapha Ong, an ethnic Chinese convert to Islam.