Petroliam Nasional Berhad: A Critical Evaluation Of The Likely Impact On Its Competitive Position Through Sustainable Development

“The moral issues of distributive justice are unlikely to be realised if biophysical limits to

growth are ignored” - Philip A. Lawn, 2001.

Introduction

This paper evaluates the likely impact on the competitive position of PETRONAS if it were to

strengthen its business strategy based on Sustainable Development.

PETRONAS, acronym for Petroliam Nasional Berhad, is a Malaysian owned oil and gas

company that was founded on 17 August 1974. Wholly owned by the Government, the

corporation is vested with the entire oil and gas resources in Malaysia and is entrusted with

the responsibility of developing and adding value to these resources. PETRONAS is ranked

among Fortune Global 500’s largest corporations in the world. In 2007, its revenue was in

excess of US$51 billion.

Source: Wikipedia and Fortune Global 500

Since its incorporation it has grown to be an integrated international oil and gas company with

business interests in 31 countries. As of the end of March 2005, the Petronas Group

comprised 103 wholly owned subsidiaries, 19 partly-owned outfits and 57 associated

companies. Together, these companies make the Petronas Group, which is involved in various

oil and gas based activities. The Financial Times has identified PETRONAS as one of the

“new seven sisters”: the most influential and mainly state-owned national oil and gas

companies from countries outside the OECD.

Source: FT.com, 11 March 2007

The Group is engaged in a wide spectrum of petroleum activities, including upstream

exploration and production of oil and gas to downstream oil refining; marketing and

distribution of petroleum products; trading; gas processing and liquefaction; gas transmission

pipeline network operations; marketing of liquefied natural gas; petrochemical

manufacturing and marketing; shipping; automotive engineering; and property investment.

PETRONAS built the Petronas Twin Towers (opened 1998), the tallest twin towers and once

the world’s tallest buildings, as its headquarters.

Source: PETRONAS

The Reality

The looming growth of globalisation and continuous development have resulted in a negative

impact on the environment, which will be detriment to the survival of mankind and other

living things on this planet if we do not take the necessary steps to reduce this impact. As for

our planet, it has all the time in the world to regenerate itself, but we don’t.

The threat to our survival has become more apparent with the increasing number of

environmental catastrophe such as earthquakes, flooding, drought, water shortage, depleting

natural resources and ultimately the increase in Greenhouse Gases fueled by rapid

development to meet the current population demands, which contributes to Global Warming.

Global warming is the result of the constant increase in the level of carbon dioxide (CO2) in

the atmosphere measured in parts per million (PPM). Scientists has revealed that if this

measure reaches 450PPM, the world will be at the tipping point of its own survival, and this

number is climbing fast.

Source: The 11th Hour, 16 June 2008 & InterGovernment Panel for Climate Change.

However, this can be mitigated through increasing awareness of how real the problem is, by

the adoption of Environmental and Ecological Economics, alongside mainstream/neo-

classical economics which takes into account the environmental impacts that economic

growth promotes as well. One way of addressing this issue is through Sustainable

Development (“SD”).

According to The Brundtland Report (1987), Sustainable Development is the development

that meets the needs of the present without compromising the ability of future generations to

meet their economic needs (intergenerational equity). Mainstream economics measure a

country’s development through demand and supply expressed in Gross Domestic Product. However, it does not take into account the depletion of natural, inadequate

treatment of defensive expenditures i.e. pollution abatement and health protection costs, and fails to take into account the effects of environmental degradation. At the same time, we

cannot forget or ignore the needs of the present (intragenerational equity).

Oil and Gas (“O&G”) companies such as PETRONAS are often seen as one of the major

contributors to the world’s polluters, directly and indirectly right down from exploration

activities i.e. upstream activities, through to its downstream services or the refining, selling

and distribution of oil and gas products. Conservationist and environmental activist will

highly unlikely stop rallying against O&G companies even though some might prove, in the