Sovereign Rating on the slide?

Apparently it appears to be good news.

Petronas posted a higher revenue of RM264.2 billion for the year ending March 2009 due to bigger sales volumes and a stronger US dollar. In 2008, its revenue had amounted to RM223 billion.

However, lower global prices and higher operating costs has led to a 14 per cent drop in net profit to RM52.5 billion from nearly RM62 billion before.

Given that the average price of oil this year is likely to be softer than last year's average of US$88 per barrel, its oil revenue and profit in the coming year is likely to be weaker.

According to projections by Standard & Poor's equity research, prices are likely to average US$56 this year and US$63 in 2010.

Given that Malaysia has always depended on Petronas as a cash cow — its payments last year contributed a whopping 45 per cent of federal government revenue — the revenue shortfall may be painful.

In the last fiscal year, including royalties, taxes and dividends, the oil major paid a total of RM74 billion to the federal and state governments, a fifth more than the previous year's of nearly RM62 billion.

Over the years, nearly every other economist and analyst has warned about the disproportionate importance of Petronas' earnings on government revenue and the general economy. They said that inherent addiction to easy oil money is hard to shake — and doubly harder when those managing it lack the fiscal discipline to ensure the country derives maximum returns from it.

Indeed ratings agencies often cite the shrinking oil revenue but increasing Budget deficit as reasons why Malaysia's sovereign ratings do not warrant a higher grade.

With the Budget deficit ballooning to 7.6 per cent of gross domestic product this year after the government set aside an additional RM67 billion to stimulate the economy, many questions on how the deficit — expected to swell to over 8 per cent next year — is going to be pared when despite the oil boom years, pump-priming has only engendered partial success.

Last week, Petronas revealed that from 2003 to 2008, it paid a whopping RM268 billion to the national offers or 57 per cent of all it has since its founding 35 years ago. Many questions abound why the Federal government has not managed a more balanced budget, but instead needed to run successive deficits since the last Asian financial crisis in the late 1990s, is difficult to comprehend.

Because of the hefty payments to the Federal Treasury, Petronas' reinvestments have dipped over the years, and in its last fiscal year it only reinvested 21 per cent of its profits. In comparison, the oil majors managed an average 57 per cent and other national oil companies, 72 per cent.

Meanwhile content with the easy pickings, not enough emphasis has been placed on developing other areas of the economy. At the same time, much of the windfall returns from oil appears to have been channeled into the operating expenditure, which sky-rocketed from RM45.6 billion in the 1998 national Budget to RM154.2 billion in 2009.

If asked, Malaysians would be hard-pressed to say where the oil revenues have been invested since development spending that is tangible to the average person is not evident. Paradoxically, the oil producing states of Terengganu, Sabah and Sarawak remain the most lacking in infrastructure.

Take the most basic: public transport. “Inefficient public transport hits you right in the face every morning when you leave your home to go to work, when you wait to take the bus, commuter train or the light rail transit or drive your car in congested smog-filled roads and highways,” the New Straits Times wrote in its editorial yesterday, noting the mess was in part a consequence of the affirmative action being carried out by the Commercial Vehicle Licensing Board without due regard to the more important issues of public transportation.

So, what steps are we going to take with regards to Petronas's falling investments as well as the over dependence of the Federal Treasury on petroringgits?