New chief of Malaysia Petronas faces test of mettle

CAPITALS: The chief of Malaysia''s national energy giant Petronas is under pressure to prove he is more than an interim replacement for the respected and fiercely independent Hassan Marican who built it into a Fortune 100 company.

New Chief Executive Officer (CEO) Shamsul Azhar Abbas faces increasing government demands on the company''s coffers and from Malaysia''s oilـrich states for a share of revenues, but must also bolster global investments to fill declining domestic output, analysts say.The 57ـyearـold Britainـtrained former oil trader, who retired in 2009 after five years as Managing Director of shipping arm Malaysia International Shipping Corporation (MISC), will be chief executive and acting chairman of the board.

Malaysian media said the contract could be a brief one, while sources said it is normally on a threeـyear renewable basis, although Hassan held office since 1995.Other industry sources said the governmentـdriven succession planning process will continue, even as the company''s global business strategy stays intact.

"What we still have not heard about is how long his contract is going to be, which will be important as an indication of whether he will pursue his own strategy or will simply be a placeholder for the next man," said David Kiu, analyst at Eurasia Group.Petronas is the top contributor to the government''s budget, accounting for around half the country''s revenues.

"The company may be under intense pressure to give more as the government aims to trim its deficit, the deepest in more than 20 years in 2009 after dishing out significant fiscal stimulus packages," said Victor Shum from Purvin and Gertz."Indeed, Shamsul looks a safe choice ـ a Petronas man having had a long career with the company and having been in leadership positions in all key operating segments," said Shum.

"Considering Shamsul''s age, he certainly won''t be CEO for 15 years like Hassan. It looks like succession planning for a CEO will remain in high gear."Hassan in recent years had successfully campaigned for the government to cut fuel subsidies that have strained the company. He had also fretted over the need to invest more in technology, staff and global acquisitions to vie with equally ambitious countries such as China, South Korea, Japan and India.

"The key question is about the tension between running Petronas as a profitable company and using Petronas as an instrument for state policy," Kiu said.Question of independenceLeading up to the replacement of Hassan, who had run Petronas without much state encroachment in its decisionـmaking strategy in his 15 years as CEO, was the board''s move to block the appointment of one of the Prime Minister''s advisers as director.

One industry source familiar with Petronas said even if Premier Najib Razak were seen to be grooming the adviser, Oxfordـtrained Omar Mustapha, for the top job, this would take years since he is only 38 years old, though Hassan was 42 when he became CEO in 1995.Omar was appointed an independent, nonـexecutive director of Petronas last year.In the immediate future, the source said, there are concerns that Hassan''s top management team could also see some changes, including the post of chief financial officer.

Despite the issues of transition, industry sources said they did not think that Petronas debt, rated as a standalone entity by Standard and Poor''s, would be lowered from "AAـminus"."On the one hand, there will be changes to senior management who are more in line with the current climate while on the other, Petronas will also have to satisfy its bondholders that the new people are as capable as the previous ones, which are highly regarded," the source said.

Some analysts said while the issue of Omar''s appointment to the board could have soured ties between Hassan and Najib, Kiu said he did not see the Westernـoriented Shamsul, "bending over backwards for the government either".Analysts also pointed to his vast experience within Petronas since 1974, on a fastـtrack career which has carried him to several senior posts since his early 30s.

These included vice president of the international oil business, Vice President Petrochemicals, Vice President Exploration Upstream and Vice President Maritime and Logistics."The global strategy is crucial for Petronas in tackling the many challenges it faces," said Shum."These include reserves replacement in a very competitive climate, with major national oil companies and international oil firms competing for resources, refining and petrochemical profitability in a struggling economy and recruiting, training as well as retaining vast human resources," he added.

Analysts said Shamsul may also have to decide the role that Malaysia, the world''s 14th biggest gas producer, must play if it were invited to the Gas Exporters Forum, a group of 11 gas producers controlling nearly 70 percent of the world''s reserves.The loose group of pipeline gas and Liquefied natural gas (LNG) exporting countries is facing the first global drop in demand at a time when new production plants are coming onـstream to serve a US market that has lost interest.ـ

Reuters