Thursday, May 30, 2013

Media Statement: Malaysia Poor Ranking in Resource Governance Index (RGI)

Malaysia fares worse than Kazakhstan, Azerbaijan and Iraq in the latest Resource Governance Index published by Revenue Watch Institute.

Malaysia ranks 34th out of 58 countries with a score of 46 out of 100 in Resource Governance Index (RGI) published on 8 May 2013 by Revenue Watch Institute (RWI), a non-profit organization that promotes effective, transparent and accountable management of natural resources. Malaysia is categorized as ‘weak’ among the four standards of governance - satisfactory, partial, weak and failing while our neighboring countries Indonesia and Philippine are categorized as partial with better rank of 14th and 23rd respectively. We also tail behind 8 African countries - Ghana (15th), Liberia (16th), Zambia (17th), Morocco (25th), Tanzania (27th), Botswana (30th), Gabon (32nd) and Guinea (33rd) as well as countries like Indonesia Kazakhstan (19th), Venezuela (20th), Azerbajian (28th) and Iraq (29th).

Petroleum sector is one of the most important sectors in Malaysia, representing 10% of gross domestic product and 20% of exports as well as 40% of federal government revenue in 2011.  According to Petroleum Development Act of 1974, Malaysia national oil firm, Petronas, has the exclusive right to manage the petroleum sector and can grant licenses and sign contracts without public scrutiny. It is only accountable to the Prime Minister. Because there’s a lack of disclosure policies, Petronas is currently publishing little information on extractive contracts or resource-funded subsidies. On licensing, it announces the award of licenses through press releases with little details and without the disclosure of the terms and conditions.

Petronas may be one of the best-run national oil firms in the world, ranking 12th under the most profitable companies category in the latest Fortune 500 list (FY2011 ended Jun 30), the pertinent question is whether the “profits” earned are properly distributed and trickled down to the rakyat instead of being cannibalised by the privileged and politically connected. Given the sheer size of monies involved – hundreds of billion of ringgit annually, they must be legislation to ensure greater transparency and accountability in the petroleum sector.

Norway, which ranks 1st in RGI, is a perfect example of how transparent and accountable petroleum sector can create long-lasting benefits to the society. It’s Government Pension Fund Global, previously known as the Petroleum Fund, of which all the government income derived from petroleum is deposited in, is the second largest fund in the world, valuing at RM 2158 billion (USD 710 billion). The fund was established in 1990 to ensure that the country’s petroleum wealth will benefit the future generation as well as to shield the country from the effect of short-term petroleum price fluctuations. 

One of the most important elements in transparent and accountable governance of petroleum sector is the Freedom of Information (FOI) Act, which allows the public to seek information made by government ministries and department as well as government-linked companies (GLCs) like Petronas. With that, the public can ask for information from Petronas such as the award of contracts and license grants, which in turn lessen leakages and corruption in the process.
Selangor and Penang has passed FOI law on 1 April 2011 and 4 November 2011 respectively, making Pakatan Rakyat-led states the first states in Malaysia to have passed such law. I hope that the BN lawmakers will walk the talk of transparency and accountability by supporting FOI when the state assemblies and parliaments sessions start in the next few months. Accompanying the introduction of FOI, there should also be a review of Official Secrets Act (OSA), which restricts the disclosure of information deemed crucial to national security. With greater transparency through reform in Malaysia disclosure policies, there will be greater accountability and efficiency in the management of petroleum sector.

Furthermore, another concern from the RWI report on Malaysia is that Malaysia performed poorly in subnational transfers category, i.e the transfer a portion of resource revenues to regional or local governments. The four petroleum-producing states (Sabah, Sarawak, Terengganu and Kelantan) are entitled 5% of the profits from local oil and gas production according to the agreements signed by the state government and Petronas. However, the agreements are not published. If Southern American country such as Peru can regularly update its online reporting system of transfers to local governments, I do not see the reason why we cannot disclose more subnational transfer information in Malaysia. Beside that, the oil royalty payment is unfair among the oil-producing states - Pakatan Rakyat-led state Kelantan has been continuously denied its oil royalty payment.

As it is clearly shown in the RWI report, the BN government has shown herself to be ineffective in governing the natural resources in Malaysia, denying the Rakyat and our next generation from enjoying the full benefits of the abundance of this land.