The risk of pushing for regional O&G champions

THE latest target for Malaysia’s oil and gas service and equipment (OGSE) providers is to create five regional champions. This was revealed this week by Economy Minister Datuk Seri Rafizi Ramli in the mid-term review of the sector.

The idea, Rafizi says, is for these companies “to have the ambition to build abroad and compete with the top”.

All of that is well and good but we have had similar ambitions in the past and are still reeling from the plans of most of those aspirants that went awry.

Just last week, the saga of the RM1.1bil injection by the Finance Ministry into Sapura Energy Bhd caused quite a stir. This is after Permodalan Nasional Bhd having injected billions of ringgit to fund Sapura Energy’s growth over the years.

Companies like Sapura Energy were being supported by the government to create Malaysian oil and gas (O&G) champions in the region.

There were others like the Scomi Group and Serba Dinamik Bhd. So there are risks to this ambition.

Instead, the government’s focus should be to ensure that these companies have the right competence and strong risk management in place.

This could be done especially if the government though any agency is a shareholder or financial supporter of the company.

The government could insist on having board seats, to ensure these companies have the right measures in place. These companies need to appreciate the fact that the O&G sector is cyclical and moves in tandem with global geopolitics.

Furthermore, in our exuberance to create regional giants, there could be a tendency for Petroliam Nasional Bhd to load one company with too many contracts thinking that would nudge it to competitiveness.

But without the right skill sets and risk management systems in place, things could go awry. Banks should also not lend too much to one company.

Such efforts could help us ensure we do not have any more spectacular failures in our efforts to create these so-called regional champions.