Economics

Petronas: Malaysia’s Historical Cash Cow

Victor Tan
 

Sepupus, not every company in Malaysia can be called the literal cash cow of the country, but that’s effectively what Petronas is. 

It is one of the single largest sources of finance in Malaysia, providing vital funds, jobs, and resources to Malaysia through its contributions in the form of tax revenues, dividends, and various other sources of finance – it is also an important source of discretionary finance in Malaysia, given the fact that it is controlled extensively by the government of Malaysia and the Prime Minister of the country.

But just how large and how important is it? 

In this premium report, accessible to our premium members or purchasable as an individual copy right over here, we will dive deep into that question. Let’s go!

Petronas: History and Symbolism

Petroliam Nasional Berhad (Petronas) was established in 1974 under the Petroleum Development Act, which vested all of Malaysia’s oil and gas resources in this new national company(en.wikipedia.org). Petronas was formed to assert national control over petroleum reserves (which had been dominated by foreign firms like Shell) and to spearhead Malaysia’s oil & gas exploration, production, and development(theimpactlawyers.com)(iseas.edu.sg). 

Over the decades, Petronas grew into a fully integrated multinational oil and gas company with operations in over 100 countries(en.wikipedia.org), becoming a pillar of Malaysia’s economic development and a source of national pride – as of 2021 it was Malaysia’s sole Fortune Global 500 company(iseas.edu.sg). 

Petronas’ success is visibly etched in Malaysia’s skyline and infrastructure: oil revenues funded iconic projects like the Petronas Twin Towers in Kuala Lumpur (once the world’s tallest buildings), the development of the new administrative capital Putrajaya, and the Kuala Lumpur International Airport(iseas.edu.sg). These projects underscore how pivotal Petronas has been in transforming Malaysia’s infrastructure and advancing its economic ambitions.

Beyond symbolism, Petronas has been a key enabler of Malaysia’s economy and public finances(iseas.edu.sg). The oil and gas sector (with Petronas at the helm) has long contributed substantially to Malaysia’s export earnings and GDP(iseas.edu.sg). Critically, Petronas has also been a financial lifeline for the government – often helping to “bail out” or support troubled firms and budgets when called upon(iseas.edu.sg). 

For example, Petronas profits were used in the 1980s to rescue a failing bank and in the late 1990s to weather the Asian financial crisis. This close government nexus means Petronas’ fortunes directly affect national finances. In 2008, Petronas paid a record RM67.6 billion dividend to the government, which astonishingly amounted to 44% of federal government revenue that year(en.wikipedia.org). Historically, oil and gas-related receipts (including Petronas contributions) made up as much as 40% of Malaysia’s government revenue in 2009(iseas.edu.sg). Although this reliance has since moderated – dropping to about 19% of government revenue by 2021(iseas.edu.sg) – Petronas remains an indispensable source of income for the nation.

Petronas in the Federal Budget and Consolidated Revenue

We have spoken briefly about the historical role that Petronas has played within the federal budget, and in this section, we will focus on more recent developments. 

Petronas’ role in the federal budget is significant and multifaceted. Being wholly government-owned, Petronas regularly pays large dividends into the government’s coffers, and it also contributes via petroleum income taxes and royalties. 

These revenues flow into Malaysia’s Consolidated Fund, specifically the Consolidated Revenue Account, which is the main pot of government income used to finance public expenditures. 

“Consolidated revenue” refers to the total annual income received by the federal government from all sources combined – including tax revenues (like income taxes, sales tax, etc.) and non-tax revenues (like dividends from Petronas, licenses, and fees). 

In other words, it is the aggregate pool of funds available to the government for budget spending in a given year. Petronas’ payments, alongside other receipts, are part of this consolidated revenue and thus help fund government operations, development projects, education, healthcare, subsidies and so on, according to the allocations of each year’s budget.

Over the past five years, Malaysia’s government revenue has fluctuated, and Petronas has often been a swing factor. 

Below we provide a breakdown of the major federal revenue sources for each year 2019–2023, in descending order of magnitude, highlighting where Petronas stands among them. This illustrates how critical Petronas’ contributions (primarily as dividends) have been relative to other revenue streams.

2019: Revenue Sources in Descending Order

2019 was a high-revenue year, boosted by an extraordinary RM30 billion special dividend from Petronas (on top of its normal dividend) that the government requested to settle outstanding tax refunds(theedgemalaysia.com). That special payment helped push Petronas’s total dividend to RM54 billion in 2019(en.wikipedia.org), an all-time high. The table below shows 2019’s largest revenue sources:

Revenue SourceAmount (RM billion)
Company Income Tax (corporate profits)63.8
Petronas Dividend (incl. special)54.0
Individual Income Tax38.7
Sales and Services Tax (SST)27.7
Petroleum Income Tax (PITA)20.8
Licenses & Permits (incl. oil royalties)~14.5

Sources: In 2019, corporate income tax was the single largest revenue source (about RM63.8 billion)(assets.kpmg.com). 

Thanks to the one-off injection, Petronas became the second-largest contributor to Malaysia’s revenue in 2019 – its RM54 billion dividend comprised roughly 20% of total government income(en.wikipedia.org). Individual income taxes (RM38.7 billion) were the third-biggest source, followed by the SST consumption tax (RM27.7 billion)(malaymail.com). Petroleum income tax – a profit tax on oil & gas operators – contributed around RM20.8 billion(assets.kpmg.com). Non-tax revenues from licenses and permits (which include petroleum royalties paid to the federal government) added another ~RM14.5 billion(malaymail.com). 

In sum, oil-related receipts (Petronas dividends + petroleum taxes/royalties) formed a large chunk of 2019’s revenue – It was truly Malaysia’s cash cow. 

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The Sepupunomics of Racial Discrimination – Part 1.

Victor Tan
 

Sepupus, it’s been a minute! Haven’t been posting videos for a while because I was working on Sepupunomics (read: To serve you!), but here we are with a brand new update featuring some of our acquaintances from PAS that’s giving ✨racial discrimination ✨, which has been completely fair game for economics since Gary Becker’s The Economics of Discrimination.

Now, why am I writing this?

Essentially, Malaysia got its very first Malaysian Chinese three-star general in the country (Congratulations, Datuk Johnny Lim!), and then immediately, as with most problems in Malaysia… PAS.

PAS’s Zaharudin Mohammad, who is also an in-law of PAS president and communism accuser Hadi Awang, came out and started undertaking wild speculations about Chinese prime ministers and the lot, feeding into the racial frenzy, imaginary fear of oppression, and rabble-rousing that the party is so famous for using in lieu of any sort of measurable, tangible economic success or semblance of intelligent decision making.

Speaking of intelligent decision making, seems like even though he tried deleting his Facebook post, Zaharudin didn’t make the intelligent decision of removing his Instagram post, which I reproduce here.

Meanwhile, he is just casually saying now that what he wrote was taken out of context.

I find that interesting. How and in what way was it taken out of context?

How do you even take something out of context when you established the context very clearly, and in what way was it not related to the context? Is there genuinely no relation? I wonder.

Well, if it was not related to the context because he was just writing in an incomprehensible way while expecting his piece to somehow go viral or go completely off into the stratosphere, I think that he’s got something else coming there – I also find it funny how he proceeded to delete the Facebook post but left the Instagram post intact. If he forgot, then he’s incompetent. If he left it up, then I suppose it’s pretty obvious that he’s just intentionally baiting us. Neither is a good sign.

Update: He tried to come up with a justification. He also cropped the picture and tried to hide the fact that he misspelled “My Second Home” and cannot even get simple facts correct lmao.

But is this just a Zaharudin thing?

Before you ask about whether discrimination exists in Malaysia and before you meet any Malaysians who ask if you are crazy for asking this question…

Yes, discrimination 100% exists and it is a widespread thing – you can already see it in the comments below.

Oh, did you need a trigger warning? Here’s your trigger warning.

Now, confront reality.

What did you learn from that wonderful sampling of comments?

These are real comments from people who are not Zaharudin.

These are people who seem to have all these suspicions and hears about Chinese people and who will mock Chinese people, lie about Chinese people, express paranoia about Chinese people or about people from other races, and thrive in calling Chinese people communists whether that’s true or not, while casually suggesting that Malaysians are communists and do not deserve their positions.

The thing is, whether they even understand what communism is is beyond a convenient label for Chinese people deeply suspect, and frankly, this is just scratching the surfaceNot even close.

How is this related to Economics?

Discrimination is deeply relevant to Economics, given that discrimination is the differential treatment of individuals or groups based on perceived group membership, rather than individual merit.

Discrimination shapes how resources are allocated in our society by others, and it also shapes our view of ourselves and what seems logical for us to do when we ourselves allocate resources, whether we invest our time into an endeavor, our money into a business, or our presence within a country.

So, what does it mean when people and the politicians that they elect support, favour, and facilitate discrimination with no qualms or compunction?

Politicians or elected representatives are in charge of constituencies. They decide how resources will be allocated for their people, how they will fight for their people, and how in turn they will fight in order to push forward the nation as a whole. In deciding intelligently or at least that’s how it’s supposed to be how the nation’s resources income from taxation dividends and everything else will end up giving Malaysia the best possible future.

If you elect people like this, they are the ones who are going to make decisions about how government budgets will be spent.

They will be the ones planning out what’s going to happen in the country, and they will be the ones who decide on the long-term vision of your country’s development.

Now here’s a question for you:

How confident do you feel about leaders like Mr. Zaharudin in terms of how they could potentially steer Malaysia as a country?

Let me be frank here, I am not confident in them at all.

Just look at this person. He cannot write properly, he can barely articulate himself, and he features in this beautiful little graphic here raising question after question about familial ownership and affiliation… And that’s even leaving aside the fact of his casual discrimination and the way that affects the country as a whole.

The unfortunate thing about Malaysia though is that people’s utility functions and the way that they make their decisions, at least in aggregate and within certain sub-classes of people within Malaysia, is such that people like this individual are likely to come to the top not necessarily due to any particular merit but instead because he happens to fit the correct religious profile.

Apparently, this is a sufficient condition – no need for ethics, no need for administrative skill, no need for anything beyond a qualification from a mediocre religious school…It also helps if they discriminate against the correct people while appealing to the weaker part of the population that somehow thinks that they are constantly persecuted or need to thrive and fight against colonialism even though it isn’t there in the same process becoming colonizers themselves while pretending that that’s not what they’re doing.

The unfortunate thing about democracy is that if enough people choose individuals like this to lead a country and if their propaganda effort succeeds, which we can at least partly see with some of these people in the heartlands of Malaysia with people who are less educated, then that’s probably what’s going to happen unless there is a realization that there is a danger in the first place on a wide scale, beyond any echo chamber, any language community, any platform – which means that if you merely leave this here and don’t talk about it, it will die as an issue unless you start discussing it.

Having said that, we are not completely blind on this or committed only to just raving about our personal opinions – there is a little bit of economics research about discrimination, most of it is done outside of Malaysia, and what is done in Malaysia concerns the private sector, not the public sector, the military, or otherwise.

Beyond Greg, Emily, Lakisha, and Jamal, we have our very own Muhammad Abdul Khalid and Lee Hwok Aun, who feature in the study of this extremely interesting topic with Discrimination of High Degrees; It is possible to study, understand, comprehend, and perhaps address this issue and the toxic subcultures that have come up around it.

I’ll have more to say about that, but for now, here’s a new video to enjoy – Apparently, Chinese People Cannot Defend Malaysia!

Discrimination is a fascinating topic, so expect more posts on this topic soon!

Meanwhile… Do you think that people with religious credentials should be leading Malaysia?

And what kind of future would Malaysia have economically if people like these were to presume to lead?

Feel free to let me know your thoughts in the comments!

Cambridge Economics 9708 Paper 2 and Paper 4 sample answers are out!

Victor Tan
 

Sepupus! 

Those of you who are taking A-levels, listen up! 

There are now sample responses for both Paper 2 and Paper 4 in the Premium Memberships section, and you will find them here!

Go ahead and make use of them and conquer and bathe in the blood of your enemies do your very best to learn the patterns that you need to succeed and achieve that scholarship that UMS, that university admission that you’ve always dreamt of!

The sample answers are tailored to give you a sense of the highest performing essay scripts for the exam across modalities and they include the relevant diagrams and justifications; they are a resource designed to help you achieve the highest possible marks with the least possible effort. If you just take the time to look through them, practice seeing if you can reproduce such a level of response, and then repeat.

Each response is tailored to the official mark schemes and materials which were developed by Cambridge, and they are your perfect companion to conquer A-Level economics! 

I think most of you are aware that A-levels economics is where it already starts getting hard. Writing analyses isn’t easy, and neither is getting ideas. 

Well, hopefully, reading sepupunomics has given you a little bit of insight here and there, and picking up our premium reports as well gives you lots of insight into plenty of issues which you may never have thought about before! 

As with the IGCSE sample responses, these aren’t meant to be used through copying and doing nothing else, but instead should be used wisely. There are a lot more examples and ideas here, and I hope that you will find this valuable and useful. 

Hopefully you will get a sense of how to answer these essay questions appropriately and also the kinds of things you need to do in order to target the highest possible scores!

Learn lots and sign up! 

Yours,

Sepupu.