Govt may revisit Petronas dividend

Last year, Petronas committed to a RM34b dividend payout while this year, the national oil company is scheduled to hand over some RM18b

by HARIZAH KAMEL / Pic by MUHD AMIN NAHARUL

HIGHER commodity prices could provide a financial lifeline to the government as the higher crude oil and crude palm oil (CPO) prices provide much-needed tax/tariff revenue to offset the limited fiscal capacity.

Crude oil prices rose with the Brent contract topping above US$71 (RM293) a barrel yesterday, on growing optimism that fuel demand would grow in the quarters ahead, especially from the aviation sector as tourism gets a boost from the vaccination programmes across major economies.

Energy traders anticipate demand will be supported by the US summer driving season and the factory activity expansion in China.

CPO at the RM4,000 a tonne range levels offer producers in the upstream such as smallholders more purchasing power and tax revenue to Putrajaya.

The higher oil price is good news as the federal government is still dependent on the income from the sale of natural gas and oil gained through the petroleum income tax and royalties from oil and gas (O&G) production.

Asia School of Business Assistant Prof Dr Renato Lima de Oliveira said on average, this has represented about 11% of total government revenues since 2010.

“It has been estimated before that for every additional US dollar in the price of crude, the government gains RM300 million in revenues.

“Indirectly, higher oil prices benefit Petroliam Nasional Bhd (Petronas), which is owned by the government. As its sole shareholder, the government accrues dividends from Petronas, which are critical for the national budget,” he told The Malaysian Reserve.

Last year, Petronas committed to a RM34 billion dividend payout while this year, the national oil company is scheduled to hand over some RM18 billion.

Lima de Oliveira said if energy prices continue to gain, the government may have an inkling to revisit the expected dividend to be paid for 2021 especially with finances of the centre stretched due to the impact of the Covid-19 pandemic on the economy and health of society.

An analyst with a local brokerage said it is not a matter of if but when the government will revisit the dividend.

“Usually, the dividend amount is reflective of last year’s performance. Last year oil prices crashed. With energy prices rising now, the government will be hoping for a higher dividend for next year in my view,” said the analyst.

While the higher commodity prices will help boost the government’s revenue, it is still likely Putrajaya will have to further raise the statutory debt ceiling to 65%

from 60% at present, according to Tan Sri Ramon Navaratnam, to combat the impact of the lockdowns and Covid-19 pandemic.

“Further fiscal injections should be well-targeted to assist those in the Bottom 40% and lower Middle 40% category. Moving forward, the government will have to expand its tax base to assist in closing the fiscal deficit. This includes the possibility of implementing capital gains taxes and one-off windfall taxes for industries which enjoyed supernormal profits during the pandemic,” the chairman of the Centre for Public Policy Studies noted in a release last week.

The stronger price environment for crude oil comes as OPEC+ has remained disciplined with supply lines.

“In the short run, oil prices are quite good for sellers and most forecast agencies are expecting oil to trend between US$50 to US$70 this year,” Lima de Oliveira said.

Hong Leong Investment Bank Bhd (HLIB Research) has upgraded its Brent crude oil price per barrel for calendar year 2021 (CY21)/2022 forecast from US$60/US$65 to US$65/US$70.

Its analyst Low Jin Wu said this was based on OPEC+’s commitment to providing a good equilibrium for oil supply, the timeline and the efficacy of vaccine rollouts leading to significantly higher oil demand in 2H21.

He also listed the economic recovery in the US, Europe and China from the Covid-19 pandemic and the massive under-investment on O&G capex from oil majors would lower the future supply of oil.

The research house downgraded its call for Serba Dinamik Holdings Bhd from ‘Hold’ to ‘Sell’ at a target price (TP) of 78 sen from RM1.45 to address the uncertainties pertaining to the audit matters raised by KPMG PLT.

HLIB Research’s top picks in the sector are Bumi Armada Bhd with a ‘Buy’ call and TP of 80 sen and Dialog Group Bhd (‘Buy’; TP: RM3.45).