Indonesia Ranks Well

Among Southeast Asia’s main oil and gas producers, Malaysia was ranked 34th in the latest global index that measures the quality of governance in oil, gas and mining sectors of 58 countries, tailing neighbours Indonesia, the Philippines and even poverty-plagued Timor-Leste.

According to the 2013 Resource Governance Index (RGI) published earlier this month, Malaysia’s performance was judged as “weak” by the New York-based Revenue Watch Institute (RWI), a non-profit organisation, monitors policies in resource-rich countries in addressing poverty, corruption and violent conflict.

The index grades each country on four areas: institutional and legal setting; reporting practices; safeguards and quality controls; and enabling environment with the latter looking at how the government manages income from the country’s natural resources based on state-owned companies, natural resource funds and subnational revenue transfers.

Malaysia scored 46 composite points out of 100, on par with west African countries such as Gabon, Guinea and Sierra Leone and just ahead of China, which scored 43 points and ranked 36th out of the 58 countries.

The world’s top performers were Norway which bagged the top spot with its composite score of 98 points out 100, followed by the US (92 points), the UK (88 points) while Myanmar bottomed out with four points.

Timor-Leste which scored 68 points was the highest-ranking Southeast Asian nation, beating Indonesia (66 points) by one step to take the 13th spot. The Philippines came in at No. 23, followed by Vietnam (43) and Cambodia (52).

While Malaysia’s “partial” score of 60 points under its enabling environment, one of the four grading points set by the institute, which it said reflects a satisfactory ranking for government effectiveness, but it noted the country scored low on budget openness and democratic accountability.

The RWI criticised the opaqueness over Petronas’s decision-making policies and the management of the National Trust Fund, set up in 1988 to conserve resource wealth for future generations and which can only be used for development projects.

“While the fund is managed by the central bank, policy decisions are made by the Finance Ministry, which publishes the fund’s balance in annual reports. Its legal framework does not specify the percentage of revenues Petronas is required to contribute,” RWI said.

The federal government also does not report the transfer of the agreed five per cent share of profits to the four oil-and-gas-producing states, also the poorest out of the 13 states, the RWI said.

Malaysia’s performance was also dragged down by its “failing” scores in institutional and legal setting, which was poorer than Guinea’s 86 points, Gabon’s 60 points. Even Sierra Leone scored higher in this aspect, drawing 52 points against Malaysia’s 39 points.

“Malaysia’s ‘failing’ score of 39 reflects an inadequate legislative framework,” the institute reported.

RWI highlighted that the Petroleum Development Act of 1974 gives Petronas the exclusive right to hand out licences and collect payments that include taxes, but noted that the broad policy protected the state-owned oil and gas company from independent scrutiny.

“Some of these revenues cover Petronas’ expenses and are never deposited in the treasury. There is no independent regulator,” RWI said.

The RWI also remarked at the lack of disclosure policies and checks on licensing authorities, which led to it awarding Malaysia a failing grade of 39 points for safeguards and quality controls.

“The legislature does not play a significant oversight role in the petroleum sector,” the institute said, pointing out that Petronas is accountable only to the prime minister, and the licensing process is often used to advance national interests and favour Malaysian companies.

“There is no procedure to appeal licensing decisions,” it added.

It also observed that the Auditor-General reviews the finance ministry’s accounts, but raised eyebrows over the absence of specific audit of oil revenues.

It observed that while Malaysian laws require companies to produce environmental impact assessments, “it is possible for projects to begin before assessments are complete”.

“There is no freedom of information law and the Official Secrets Act restricts disclosure of information deemed crucial to national security,” RWI said.

Selangor state lawmaker Yeo Bee Yin has urged the Barisan Nasional (BN) government to take a leaf from the Pakatan Rakyat’s book and pass into federal law the Freedom of Information Act, as has been done in Penang and Selangor.

Petronas may be among the world’s most profitable firms but the Damansara Utama assemblyman said that the Malaysian public had been denied the trickle-down effect from the state-oil company’s wealth.

“Given the sheer size of monies involved – hundreds of billion of ringgit annually, they [sic] must be legislation to ensure greater transparency and accountability in the petroleum sector,” the DAP’s social media strategist said in a recent statement.

Malaysia is one of Southeast Asia’s leading oil and gas producers and was world’s third-largest exporter of liquefied natural gas in 2010.

The petroleum sector contributed 14 per cent to federal coffers and represented 10 per cent of the national gross domestic product and 20 percent of exports in 2011, the RWI reported.

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