KUALA LUMPUR: The oil and gas sector remains one of the country’s key driving sectors.
Prime Minister Datuk Seri Najib Razak, when announcing the 2016 Budget yesterday, said despite the challenging crude oil prices and extensive cost-cutting measures by oil and gas players, the government had allocated RM18 billion for the Refinery and Petrochemical Integrated Development project (Rapid) in Pengerang, Johor.
He also announced Goods and Services Tax (GST) relief on the reimportation of equipment related to oil and floating platforms.
MIDF Research oil and gas analyst Aaron Tan said it was apparent that the oil and gas sector, especially the downstream business in Pengerang, remained one of the country’s key drivers of growth.
“There will be many oil and gas companies importing and exporting machines and they will be slapped with the GST. Although it can be claimed back, the problem now is that cash is tight.
“The GST relief can help, especially for the smaller oil and gas players... as well as facilitate the ease of doing business,” he told Business Times yesterday.
But Tan added that the announcement, however, had no big impact and was more accentuated for the smaller players rather than the bigger ones.
“One of the companies that will benefit the most is KNM Group, as it is one of the main beneficiaries for the Pengerang project.
“Rather than looking at the amount, it is more important to look at the government’s seriousness in ensuring that the Rapid project goes through until completion,” he said.
KNM Group’s core business is in processing plants, modules and OEM equipment, process technologies and engineering, plant services and turnkey systems provider for the oil, gas, petrochemicals, minerals processing, desalination, renewable energy, chemicals, steam generation, power and environment industries.
Meanwhile, oil and gas contractors are expected to welcome the GST relief as it would definitely lower the operating cost in the sector.
“The GST waiver is actually quite significant, especially for an immensely big project such as the RM60 billion Rapid project and such relief may provide an avenue of big savings for Petroliam Nasional Bhd (Petronas),” said a contractor.
In the budget announcement, Najib said the oil-related revenue was expected to decline to RM71.7 billion as oil prices were expected to remain low for the whole of next year.
“The fact is, Petronas contributes a certain amount of dividend to Treasury every year and the amount of dividend is dependent on global crude oil prices.
“When crude oil prices averaged US$100 per barrel, revenue
from Petronas dividend and petroleum tax revenue totalled RM62 billion.
“The scenario, however, changed when crude oil prices declined to around US$50 per barrel. The contribution from Petronas and oil-related sectors will be RM44 billion in 2015,” said Najib.