Interview: Emir Mavani
What is needed to encourage global storage and trading companies to use Malaysia as a base?
EMIR MAVANI: The Labuan Financial Services Authority and MPRC launched the Global Incentives For Trading programme in October 2011. This is a major step in our efforts to develop Malaysia as an oil and gas trading centre. MPRC is tasked with overseeing and making necessary recommendations on policy, business regulations and fiscal incentives, which serves to ensure Malaysia’s competitiveness.
Global storage and trading companies want to be as close to the product as possible. Malaysia’s advantage lies in being an established hydrocarbons producer. Additionally, traders want to be linked to storage facilities, which is why Malaysia is building a 10m-cu-metre petroleum terminal in Johor’s Pengerang area.
The other advantage is Malaysia’s cost competitiveness compared to Singapore. The incentives currently being offered for traders in terms of tax rebates and income tax for personnel are superior to those of Singapore. Where Malaysia still needs to strive for improvement is lifestyle, logistics and connectivity.
Currently, the global trading centres of the world are Houston, London, Geneva, Dubai and Singapore – all of which boast excellent connectivity. Geneva and London offer well established financial services to supplement trading activities. Dubai competes by offering 100% exemption on taxes; however, this advantage is diluted by high operating costs. Singapore has a very strong financial backdrop, but Malaysia has the rare combination of tax incentives, major ports, physical product, low cost environment and storage facilities.
To what extent will local oil and gas service providers benefit from the new enhanced oil recovery (EOR) development projects in Sabah and Sarawak?
MAVANI: We see vast opportunities created by the significant capital expenditure Petronas has allocated towards domestic exploration and production (E&P) over the next five years. The two big areas in the global upstream industry right now are South-east Asia and eastern Brazil. Malaysia looks to be a big contributor with E&P seeing a revival across the board in shallow areas, deep-water blocks and EOR projects. There will be substantial opportunities for local companies to participate in EOR projects, with the growth of oil and gas service companies being a key development area for the energy sector over the next 10 years.
In areas where there are gaps in technological expertise among local firms, foreign companies will ideally partner with local providers to fulfil technical requirements.
MPRC is currently working with a variety of local universities as well as exploring partnerships with foreign universities. We look to focus on enabling local companies to provide more services.
Once adequate expertise and capacity is built, we will look to these companies to expand as regional players.
With upstream activity in Vietnam and Myanmar set to increase significantly, multinationals are finding the need to relocate substantial parts of their global operations to the region. Many multinational oil and gas services companies have chosen Malaysia for their global services or manufacturing headquarters, including Transocean, Schlumberger and Halliburton.
How are recent mergers and acquisitions among local oil and gas players affecting the landscape?
MAVANI: As competition heightens in the oil and gas sector, market forces certainly seem to have kick started an era of collaborative efforts and mergers. The SapuraCrest-Kencana merger is an important example of two indigenous firms coming together to try and qualify for larger contracts. The merger will open doors to new markets and opportunities for the firms when it comes to the regional playing field.
In anticipation of more contracts under the new Petronas spending plan, smaller companies may likely follow suit. After all, consolidation will give them a bigger balance sheet and access to the type of financing facilities required to fulfil a number of larger tenders.
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