Sabah’s gold standard O&G success

Definition of Gold Standard: “Gold standard means something that is considered to be the best and that is used to judge the quality or level of other, similar things.” 

Here are some Gold Standards of Sabah’s historical achievement in oil and gas. 

Until 2021, Sabah’s share of the oil and gas resources has been minimal since MA63. 

[a] There was 5% royalty which amounted to less than RM1 billion in annual revenue. That was about it. Even this 5% was unverifiable in term of Sabah’s share of oil production. We just accepted what was paid. 

Thanks to “NO NONSENSE” Masidi [Sabah’s De Facto Oil Minister] for plucking the loophole in the collection of sales tax! Good example: After a particular company refused to pay even after prolonged negotiation, he threatened to take stern action. It paid! 

Now, Sabah’s revenue from royalty and sales tax has increased exponentially. Revenue from oil/gas has reached all time high at RM3.44 billion or 49.35% of total revenue of RM6.97. Impressive achievement! 

[b] Sabah did not have a representative in the Petronas Board even though Sabah is a major producer of oil and gas since MA63. Sabah plea was ignored. 

For the last 3 years, Sabah has a representative in the main Board of Directors of Petronas! 

[c] Sabah were deprived of downstream. 

A few downstream has started. More can be expected! SOGIP is full! Another industry park for oil and gas is being planned. 

[d] Greatest insult that really hurt: Sabah’s gas was pumped to Bintulu to be processed into LNG for export while Sabah was starved and depraved of gas for power generation and industrial development. Sabah was unable to collect the sales tax from this gas as the excuse was that the point of sales was not in Sabah. Guess who got it at our expense? 

Sabah’s gas has stopped going to Bintulu! Sabah has more gas for our industrialization now. Not as much as we want it be. But it is a good start. We can’t afford to stop fighting for what we are entitled! 

[e] SMJ Energy is flourishing! More below. 

No previous government in Sabah had achieved this much before. 

The best gold standard is the CCA [Collaboration Commercial Agreement] between Sabah Government and Petronas. The Hajiji-Masidi-Lim Haw Kuang team has done tremendously well to tear down barriers that have previously prevented Sabahans from benefitting from our oil and gas resources. 

CCA was signed, sealed and delivered on 7th December 2021. Significantly and in essence, CCA has given Sabah the followings: 

[i] Greater Revenue Share. 

[ii] Greater Say in the management in upstream and downstream of oil and gas. 

[iii] Greater Participation by Sabahans in the oil and gas industry. Please see below. 

Best Gold Standard of Sabah’s oil and gas in the context of The Sabahans First Policy. 

Gold standard means nothing if it doesn’t translate benefits for Sabahans. In this respect the Hajiji-Masid-Lim Haw Kuang team has done outstandingly well. 

In transforming the oil and gas, there were considerable initial resistance from Petronas as can be expected. The team has dismantled this resistance with a highest level of political persuasiveness and diplomacy, tough and patient negotiations and expertly formulated technical and strategic planning. 

The benefits to Sabahans in the context of Hajiji’s Sabahans First Policy are varied and deeply meaningful. These are latest real figures. 

[I] Sabahan active companies in oil and gas have increased by 43% from 79 to 113 from 2022 to Sept 2024. 

[ii] Sabahan companies’ growth has increased by 81% from 263 to 475 from 2022 to Sept 2024. 

[iii] Smart partnership [JVs and MOUs] by Sabahan companies with non-Sabahan companies has reached 69 in September 2024. There will be substantial transfer of technical expertise. 

[iv] New jobs created for Sabahans have exceed 1,000 from new contracts awarded in 2024. Unknown to many, there are now jobs chasing after suitably qualified Sabahans. 

Lest it be forgotten by the sceptics. Before CCA, Sabahans could only gaze and envy non-Sabahans invading and taking these opportunities away from us. The oft-used excuse was that Sabah did not have expertise and capital. The Hajiji-Masid-Lim Haw Kuang team has succeeded to dismantle this 40-year myth! Sabah is truly well on the way in the participation of this industry. 

[v] Under the CCA, Petronas is bound to implement quota in jobs and contracts, training for Sabahans! Incredible changes! 

Yes, the oil/gas industry is a very tough, highly technical industry. No doubt, Sabahan players will face the test of fire. Take comfort that many, under the guidance of SMJ Energy, are doing well and will survive and prosper. 

SMJ Energy’s many Gold Standard achievements. 

[a] SIP was hopelessly mired in debt of more about RM1.6 billion. Bleeding money badly. Interest rate was high. Financial cost was heavy. All hope was lost. The SMJ Energy team took it over, revamped it with deft financial restructuring and turned it around in double quick time. 

[b] With a seed capital of RM50 million from the Sabah Government, SMJ Energy is now a thriving GLC with asset value of RM5.1 billion, net profit of RM259 million and has declared RM50 million dividend to the Sabah Government in 2023. 

[c] Outstandingly and because of its extra ordinary performance, RAM has given SMJ Energy AAA rating. This has enabled it to raise RM900 million from SUKUK at a very favourable rate. 

[d] SMJ Energy is a shinning template for the transformation of all the loss making and/or underperforming GLCs in the following manners: 

[i] No politicians in the Board of Director. Masidi, as the Minister of Finance, is the chairman. Tough fellow! All the Board members are professionals with some veterans in oil and gas. These guys know the business and know what is good management. 

[ii] Closely watching over SMJ Energy is Lim Haw Kuang as the Technical Adviser. 

[iii] Professional senior management. No political appointee at all. Meritocracy is key, performance is everything! 

The Gold Standard success in oil and gas [especially SMJ Energy] is the best template for GLCs and other economic sectors [especially oil palm]. 

[a] This is no rocket science. No excuse for GLCs, especially those that the Sabah Government has given monopolistic rights and dirt-cheap land [premium at RM1,000] to lose money. They should be making tons of money. No brainer. Just follow SMJ Energy’s modus operandi, i.e. creditable chairman and board of directors and professional management. Good governance will follow automatically. 

The GLCs can just do the followings: 

[i]  Install credible, knowledgeable and professionals in the board. Reduce political appointees who often become a liability. 

[ii] Employ the best professionals to manage. Make them accountable. Meritocracy and performance are bottom lines. 

[ii] SMJ Energy has shown that it can monetarized its position/assets as a GLC of the Sabah Government to great effect. Most GLCs do not have a clue! 

In the case of other economic sectors: 

[b] The oil palm industry is very long overdue for a critical review in its returns for Sabah. It should contribute to Sabah more, like the oil and gas industry. Oil palm is contributing very little to Sabah’s economy. 

It must be made to do a lot more, in quit rent [some huge companies pay RM0, others only RM6 per acre per year.], more sales tax and payment for lack of downstream. 

— DailyExpress