Analysis of Problems Facing PETRONAS Corporation - Research Paper Example

PETRONAS Corporation Affiliation Analysis of problems facing PETRONAS Corporation Introduction Public sector organizations have been performing efficiently in the accomplishment of their goals and objectives. There are numerous government agencies in the world that undertake a broad range of activities in different industries. Most of them participate in utility industries where the private organizations are reluctant in venturing. Public organizations are categorized in various government departments depending on the country of origin. These organizations operate under different government departments such as defense, labor, health, energy, education, justice, transport, commerce and housing and urban development. There are some public organizations that are independent agencies, but are formed through an act of parliament. Public sector organizations get support from the government through grants, public funding, and personal support. However, these organizations face some challenges that hinder them from executing their duties and objectives efficiently. These challenges are both internal and external challenges. This study aims at identifying and analyzing the challenges faced by organizations in the public sector. The specific challenge that will be discussed is the poor management of the Malaysian state-owned multinational corporation, PETRONAS. The current state of the organizations will also be analyzed in the study after reviewing various resources on the organization selected. Recommendations will be provided on how the organization can improve its performance and be effective. The public sector organization selected and analyzed is the Petroliam Nasional Berhad (PETRONAS) Corporation. Background Information Petroliam Nasional Berhad is one of the largest multinational corporations owned by the Malaysian government. It is an integrated gas and oil-based organization that is aimed at producing, distributing and marketing oil and gas based products all over the world. The oil corporation was founded in 1974, and it is located in Kuala Lumpur, Malaysia. The company received its operational powers from the Malaysian Petroleum Development Act of 1974. The legislation offered the oil corporation exclusive rights and ownership over all Malaysian hydrocarbon natural resources (Von Der Mehden & Troner, 2007). The Malaysian government was motivated to establish the corporation by the rapid discovery of many oil fields in the country and high prices of oil in the international market. The multinational Corporation was entrusted with the responsibility of adding value and developing various oil and natural gas resources in Malaysia. Currently, the multinational corporation is ranked among the largest corporation in the world, and it is among the Fortune Global 500’s multinational corporation. In 2013, the PETRONAS Corporation was ranked the seventy-fifth largest multinational company in the world (Abidin, 2006). PETRONAS Corporation is engaged in various activities. These include the exploitation of oil and gas fields, development of oil processing plants and production of natural gas and oil. In addition, the multinational corporation participates in downstream activities in the energy industry. The activities include manufacturing of a range of petrochemical products, gas transmission through pipelines, refining crude oil into useable petroleum products, liquefaction of natural gas and marketing purified natural gas. The Corporation also undertakes shipping activities such as ship operators, ship owning and offshore floating operations (Jakarta, 2012). In the previous four decades, the multinational company has been gaining a large market share in about thirty-one countries in the world (Research and Markets, 2012). Literature review The energy industry has received attention from various interested groups of people in the world. Investors, writers, and government organizations have shown great interest in the industry and documents has been written on issues facing the industry. The Malaysian energy industry is one of the developing industries in the world. The industry began in the late 1870s with the discovery of Oil in the country. After that, more oil fields were discovered, and oil companies emerged in various areas. However, the Second World War severely affected the industry as the country experienced the destruction of the oil plants and fields (Von Der Mehden & Troner, 2007). However, the industry expanded later in 1970s with the formation of government-owned company to ensure that the industry is efficiently operating, and more market is served by the company. There were more discoveries of oil field and production of oil increased in return. In 2004, the national oil production in Malaysia was approximately 750000BBD, a rise from the previous 90,000BBD. Presently, PETRONAS Corporation is among the best performing oil companies in Asia with a large market share in over 30 countries (Research and Markets, 2012). Despite the multinational corporation has been performing effectively, there are various challenges that the corporation experience. Some of the main challenges facing the organization include environmental pollution, corruption and mismanagement of resources and fire accidents. The main challenge facing PETRONAS in Malaysia is corruption and mismanagement of resources (Sakmongkol, 2009). Corruption and mismanagement of resources in PETRONAS are undertaken by senior managers, and top government leaders in Malaysia since the organization is controlled and governed by the state government. The public and media have identified corruption and poor management of resources that lead to exploitation of fuel users in Malaysia. For instance, in July 2013, two senior managers at PETRONAS were charged in the court with money laundering and graft. According to the Malay Mail Online (2013), the two senior managers in the PETRONAS Corporation were charged in a court of law. The Malaysian Anti-Corruption Commission (MACC) accused and charged two senior managers of PETRONAS for accepting laundering monies and bribes that amounted to approximately RM 1 million. Ishak Hashim and Idris Shuhud were the senior managers charged in the Kuala Lumpur court for corruption. Malaysian Anti-Corruption Commission stated that the Petronas Carigalis pipeline project manager, Idris Shuhud was charged under Section 17 (a) of the Anti-Commission Act 2009. The charge arose due to the allegation that he took a bribe amounting to RM 403000. The MACC said that the manager received bribes by cheques that were directly transferred to his accounts between 2007 and 2012. The commission added that these cheques were received from vendor Penaga Orbit Sdn Bhd purposely for the approval of some official documents of Petronas. Idris was also accused of money laundering when he used approximately RM 385000 acquired as bribes to renovate and buy a house in Cheras (The Malay Mail Online, 2013). Ishak, a senior employee at Petronas, was charged with three allegations under Section 11 (a) of the Malaysian Anti-Corruption Act 1997. The Commission charged him with receiving bribes worth RM 22800 on two different occasions. He was also charged with allegations that as the Operations Coordinator, Ishak received bribes of approximately RM 11800 and RM 11000 from Erision Chem’s director in 2008. These bribes were given to Ishak as payment for 70 lorries worth supply of Natural Gas Liquid to the Erision Company (The Malay Mail Online, 2013). Corruption and mismanagement of resources were evidenced among the top government officials. According to Mei (2013), the problem of Petronas did not lie on the corporation’s CEO or staff members, but rather on the Prime Minister, Najib Razak’s predecessors Mahathir Mohamad and Abdullah Badawi. These government officials were accused of mismanagement and plundering of Petronas. The Prime Minister was captured saying that tender decisions would be determined by the board of management. However, he later announced a special bonus for all oil firms’ staff. This shows the level of corruption and mismanagement of the Prime Minister. In addition, the PETRONAS Corporation was established under the Petroleum Development Act. According to the Act, the Prime Minister of Malaysian has the power to check financial accounts of the PETRONAS. The power to check the Petronas accounts provide an opportunity for the Prime Minister to mismanage the corporate resources (Mei, 2013). Issue Analysis Mismanagement and corruption within the PETRONAS has negatively affected the organization and the Malaysia government. Corruption and mismanagement have resulted in the loss of huge capital for the corporation and decrease in the profit gain by the Malaysian government. According to Malay Mail Online (2013), two senior managers in the corporation were accused of receiving approximately RM 1million. Corruption and mismanagement of the PETRONAS Corporation have also resulted in poor performance of the organization. For instance, the Prime Minister was captured making decisions for the corporation rather than allowing the board of directors to make decisions (Mei, 2013). Therefore, effective measures should be done to eradicate mismanagement and corruption with the PETRONAS Corporation in order to enhance performance of the organization and provision of quality services to the public. The corporation has developed anti-bribery and corruption policy that covers all employees in the organization since they are public servants. The policy is an effective tool to fight against corruption and bribery within the organization.(PETRONAS, 2014). The policy is known as “the zero tolerance policy”. Employees working in all PETRONAS venture companies and distributors are expected to comply with the anti-bribery and corruption policy. In addition, other service providers working on the behalf of PETRONAS such as contractors, consultants, agents, subcontractors and representatives are also required to comply with the policy. Secondly, the corporation is also collaborating with the Malaysian Anti-Corruption Commission to fight against bribery, mismanagement and corruption. The commission has policies related to corruption, bribery and money laundering that applies to public organization such as PETRONAS (Owen, 2012). However, other measures should be adopted in order to eradicate corruption and bribery completely within the government owned organization, PETRONAS. Proposed Solutions Several measures can be adopted and applied within the corporation and within the Malaysian government to fight effectively against corruption and resource mismanagement in PETRONAS. These solutions include development of a comprehensive policy aimed at addressing bribery, corruption and mismanagement of public organizations, establishment of safe and secure mode of payment and tendering, amendment of the Petroleum Development Act, regular auditing of financial reports by an international body, and cooperative or group decision making processes. These solutions will enable the PETRONAS Corporation to fight against corruption, bribery and mismanagement of resources. The Malaysia government will also benefit by receiving more revenue and quality services. Application of these solutions will improve the performance of PETRONAS. Strategic Recommendations The corporation can carry out some measures to ensure that corruption among employees and manager is eradicated. First, the government should develop a comprehensive policy against corruption and mismanagement. The policy will comprise of penalties for corrupt employees or client, forms of payments that would ensure that there is not financial mismanagement and corruption. Safe mode of payment tendering would reduce corruption cases in the organization. The government of Malaysia should amend the Petroleum Development Act that allows only the Prime Minister to check Petronas accounts. The cabinet should be given power to address and monitor PETRONAS’ activities to make decisions on oil and gas industry in collaboration with PETRONAS Corporation. Thirdly, the corporation needs to change the management to improve its performance. The government of Malaysia should review the management body of directors since the public has continued complaining about poor performance of the corporation. Accountable and performing managers and directors should be appointed to run the organization to improve its performance. An international auditing body should be contacted to audit financial reports in the Corporation regularly to ensure that resources are properly managed, and incidents of corruption within the organization identified. In addition, senior managers in the organization should be effectively vetted and analyzed to identify the corrupt employees or stakeholders. Last, the problem of mismanagement can also be solved through cooperative and group decision making of managers in the PETRONAS organization. The group of managers would be responsible for making decisions and considering all plans and objectives of the organization. Conclusion In conclusion, government-owned organizations receive high consideration and support from the government to effectively operate and achieve their goals. Similarly, PETRONAS Corporation is a Malaysian government-owned corporation that receives support from the government and enables the corporation effectively to exploit oil and gas fields in Malaysia and in other countries. Although PETRONAS is a government-owned company, it is a profit-based entity owned by the Malaysian government rather than a public utility organization. Currently, the corporation is among the five best companies producing Liquefied Natural Gas in the world. The success attained by the corporation is dependent on the support of the Malaysian government. Despite the great and significant success, PETRONAS Corporation faces several problems. Some of these problems are environmental pollution, corruption and mismanagement of resources and fire accidents. Corruption and resource mismanagement is the main problem facing the multinational corporation. Many managers and employees have been found to receive bribery from other organizations for services rendered. In addition, others have poorly managed resources thus leading to loss of capital and unaccountability within the organization. Although there are several policies limiting corruption, bribery and mismanagement, the corporation should adopt other measures to reduce and eradicate corruption. References Abidin S. (2006). PETRONAS- An Overview. Retrieved from http://www.ceri- mines.org/documents/R10a-AbidinCombined.pdf The Rakyat Post (2015). Petronas reports loss in latest quarter, hit by lower global oil price. Retrieved from http://www.therakyatpost.com/business/2015/02/27/petronas-reports-loss-in-latest-quarter-hit-by-lower-global-oil-price/#ixzz3UJJINDO1 PETRONAS (2014). Petronas Anti-Bribery and Corruption Manual. Retrieved from http://www.petronas.com.my/about-us/governance/Documents/PET%20ABC%20Manual.pdf Owen C. (2012). Petronas launches anti-corruption initiative. Oil and Gas Technology. Retrieved from http://www.oilandgastechnology.net/business-strategy-news/petronas-launches-anti-corruption-initiative Koswanage N & Kaiser E. (2012). Special Report: Petronas chafes at its role as Malaysias piggy bank. Reuters. Retrieved from http://www.reuters.com/article/2012/07/02/us-malaysia-petronas-idUSBRE86105420120702 Mei W. (2013). The problem with Petronas - not the CEO or the staff but Dr. M: PR to send in an audit team - Kee Kwong. Retrieved from http://johorpkr.blogspot.com/2013/04/the-problem-with-petronas-not-ceo-or.html The Malay Mail Online (2013). Two Petronas senior managers charged with graft, money laundering. Retrieved from http://www.themalaymailonline.com/malaysia/article/two-petronas-senior-managers-charged-with-graft-money-laundering#sthash.gfEJvfSV.dpuf Jakarta (2012). Negative sentiment takes down Petronas. Retrieved from http://www.thejakartapost.com/news/2012/10/25/negative-sentiment-takes-down- petronas.html Research and Markets (2012). Petroliam Nasional Berhad (PETRONAS) - Strategic SWOT Analysis Review. Retrieved from http://psasir.upm.edu.my/8121/1/GSM_1999_6_A.pdf Sakmongkol (2009). The PETRONAS issue again. Retrieved from http://sakmongkol.blogspot.com/2009/07/petronas-issue-again.html Von Der Mehden F. & Troner A. (2007). Petronas: A national oil company with an International vision. Retrieved from http://bakerinstitute.org/media/files/page/9dd51576/noc_petronas_tronervdm.pdf Read More