Petroliam Nasional Berhad: A Critical Evaluation Of The Likely Impact On Its Competitive Position Through Sustainable Development

“The moral issues of distributive justice are unlikely to be realised if biophysical limits to

growth are ignored” - Philip A. Lawn, 2001.

Introduction

This paper evaluates the likely impact on the competitive position of PETRONAS if it were to

strengthen its business strategy based on Sustainable Development.

PETRONAS, acronym for Petroliam Nasional Berhad, is a Malaysian owned oil and gas

company that was founded on 17 August 1974. Wholly owned by the Government, the

corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with

the responsibility of developing and adding value to these resources. PETRONAS is ranked

among Fortune Global 500’s largest corporations in the world. In 2007, its revenue was in

excess of US$51 billion.

Source: Wikipedia and Fortune Global 500

Since its incorporation it has grown to be an integrated international oil and gas company with

business interests in 31 countries. As of the end of March 2005, the Petronas Group

comprised 103 wholly owned subsidiaries, 19 partly-owned outfits and 57 associated

companies. Together, these companies make the Petronas Group, which is involved in various

oil and gas based activities. The Financial Times has identified PETRONAS as one of the

“new seven sisters”: the most influential and mainly state-owned national oil and gas

companies from countries outside the OECD.

Source: FT.com, 11 March 2007

The Group is engaged in a wide spectrum of petroleum activities, including upstream

exploration and production of oil and gas to downstream oil refining; marketing and

distribution of petroleum products; trading; gas processing and liquefaction; gas transmission

pipeline network operations; marketing of liquefied natural gas; petrochemical

manufacturing and marketing; shipping; automotive engineering; and property investment.

PETRONAS built the Petronas Twin Towers (opened 1998), the tallest twin towers and once

the world’s tallest buildings, as its headquarters.

Source: PETRONAS

The Reality

The looming growth of globalisation and continuous development have resulted in a negative

impact on the environment, which will be detriment to the survival of mankind and other

living things on this planet if we do not take the necessary steps to reduce this impact. As for

our planet, it has all the time in the world to regenerate itself, but we don’t.

The threat to our survival has become more apparent with the increasing number of

environmental catastrophe such as earthquakes, flooding, drought, water shortage, depleting

natural resources and ultimately the increase in Greenhouse Gases fueled by rapid

development to meet the current population demands, which contributes to Global Warming.

Global warming is the result of the constant increase in the level of carbon dioxide (CO2) in

the atmosphere measured in parts per million (PPM). Scientists has revealed that if this

measure reaches 450PPM, the world will be at the tipping point of its own survival, and this

number is climbing fast.

Source: The 11th Hour, 16 June 2008 & InterGovernment Panel for Climate Change.

However, this can be mitigated through increasing awareness of how real the problem is, by

the adoption of Environmental and Ecological Economics, alongside mainstream/neo-

classical economics which takes into account the environmental impacts that economic

growth promotes as well. One way of addressing this issue is through Sustainable

Development (“SD”).

According to The Brundtland Report (1987), Sustainable Development is the development

that meets the needs of the present without compromising the ability of future generations to

meet their economic needs (intergenerational equity). Mainstream economics measure a

country’s development through demand and supply expressed in Gross Domestic Product. However, it does not take into account the depletion of natural, inadequate

treatment of defensive expenditures i.e. pollution abatement and health protection costs, and fails to take into account the effects of environmental degradation. At the same time, we

cannot forget or ignore the needs of the present (intragenerational equity).

Oil and Gas (“O&G”) companies such as PETRONAS are often seen as one of the major

contributors to the world’s polluters, directly and indirectly right down from exploration

activities i.e. upstream activities, through to its downstream services or the refining, selling

and distribution of oil and gas products. Conservationist and environmental activist will

highly unlikely stop rallying against O&G companies even though some might prove, in the

future, that they are able to minimize the impact of global warming. This is so because of the

facade that they have built upon themselves since crude oil was discovered, and the role they

played in helping us pollute the world we live in, even though it contributed greatly to the

development of human kind, economically and socially. This has since become the fate of the

future of O&G companies, and the only hope is to find a solution that will someday rectify this

detrimental belief, and we have to face the facts.

One way of turning this image around is to show concern about the environment and taking

measures to reduce the impact of businesses such as the one PETRONAS is operating,

through SD.

Leading By Example

There is a growing number of oil companies that are revising its business strategy to include

SD policy in order to tackle Global Warming. For example, Royal Dutch Shell is one of the

first energy companies to acknowledge the threat of climate change and is constantly

promoting its environmental policy to limit green house gas emissions through control of

green house gas emissions, investing in new technologies to produce renewable fuel which

reduces the depletion of natural capital and reduce their carbon footprint.

Source: Shell Global

As mentioned earlier, PETRONAS is emerging as one of the top energy companies in the

world. This is a good time and opportunity to revise its business strategy to include SD policy.

In practice, this commitment requires PETRONAS to both delivery benefits and reduce its

impacts. Importantly, it covers what is produced as well as how it is produced. Through

PETRONAS’s portfolio and products, benefits are delivered by providing the modern energy

that people need to prosper, and help reduce energy’s impacts by offering cleaner products

like natural gas, better biofuels, and petrol and diesel that help customers drive more fuel

efficiently.

Through operations, PETRONAS should look to create lasting social benefits by employing

local people, using local contracts and suppliers, and setting good example through its

business practices and ethics.

To work to reduce environmental and social impacts out its operations by safeguarding the

health and safety of its employees and neighbours, reducing disruptions to the community,

lowering its emissions including greenhouse gases, reducing its impact on biodiversity and

depletion of natural capital through using less energy, water and other resources to produce

the energy the world needs for development.

The Benefits

There is no trade-off between being economically responsible (profitable) and socially and

environmentally responsible. In fact, it is the combination of both that will make PETRONAS

even more profitable. By adopting SD, the company is less seen as the big bad wolf. It will

earn the license to operate and grow. By listening to the communities in which it exist and

addressing their expectations, it significantly reduce the chance of project delays, approval

failures or disruption in existing operations. These are significant risks to PETRONAS’s

business. Contributing to SD also helps attrach and retain staff, customers and business

partners who are central to its business success and future growth.

By being aware of emerging changes to its customers’ values and changes in regulatory

requirements, it can develop products and services before competitors that meet its

customers’ needs for clean, convenient and affordable energy.

By adopting new or cleaner technologies it can improve the efficiency of its operations,

reduce costs, avoid current and guture costs of emissins, and even create new income streams

like carbon credits.

Moving Forward

Clearly, by adopting SD, not only will PETRONAS gain the competitive advantage that most

energy companies require at this important stage in time, it will also ensure the protection

that the environment needs for us to co-exist a little bit longer on this planet and safeguard the

future of our generations.

However, one must be wary of the fact that the sentiment of some group of people i.e.

environmental activists, will not diminish entirely and will take a very long time for this to

change. One must also be wary of the term Greenwashing i.e. “not walking the talk”, which

can ultimately hinder the turnaround of energy companies’ negative image that they have

been carrying all these years.

For example, Chevron had been accused of Greenwashing because they claimed that they are

taking all the steps necessary to go green, but at the same time dumping toxic waste as well as

violating human rights in Ecuador and other parts of the world.

Source: Cleanup Ecuador Campaign

Conclusion

It is imperative that PETRONAS take the necessary actions to operate a sustainable business

and be mindful of the impacts on the environment. There are steps that can be implemented

immediately so it will not lose out on its competitive advantage. Changes must take effect

from the top level management and instilled right down to the people working on the ground

level. Leaders should first to make the move so there will be less resistance to change.

Bringing about changes to PETRONAS’s business strategy to include SD will not be easy,

and greenwashing should be avoided. However, when done properly, the company will not

only thrive but also looked upon as an eco-friendly greenie rather than a master-less genie.