Malaysia is a country blessed with abundant natural resources. In particular, we are thankful that the country is rich in oil and gas, which created Malaysia’s sole representative in the Fortune 500, Petroliam Nasional Berhad (Petronas).

In the most recent financial year ending March 2007, Petronas achieved record profits before tax of RM76.3 billion thanks to record high crude oil prices which increased from under US$25 per barrel to above US$70 all within four years.

Of greatest importance, was the fact that Petronas contributed RM53.7 billion to our national coffers in taxes, royalties, dividends and export duties last year.

Contribution from Petronas and other oil and gas companies operating in Malaysia was budgeted to make up some 46.8% of the government revenue for 2007.

This represents a steep increase from approximately 30% in 2006 and 25% in 2004. These statistics marks Malaysia’s heavy reliance on oil and gas industry today.

Malaysia’s abundance of oil & gas resources is akin to striking lottery. It is a once-off affair, and at some point of time, our reserves will run dry.

According to Oil & Gas Journal, Malaysia held proven oil reserves of 3.0 billion barrels as of January 2007, down from a peak of 4.6 billion barrels in 1996. These reserves will last us for only another 20 years or so.

In addition, Malaysia is expected to become a net oil importer by 2010 assuming a conservative growth of 4% in petroleum products consumption. Our trade current account surplus has also been boosted significantly by oil and gas related products which constitutes more than 11% of our exports.

The frightful acceleration of dependence on our limited oil and gas resources places the country’s economy at great risks.

Malaysia must not fall into the trap of what economists call the “resource curse”, that is countries devoid of natural resources fare better than countries better endowed. Countries such as Hong Kong, Singapore and Switzerland contrasted against the oil-rich but poorly developed Middle East countries immediately come to mind. This appears to be closely related to the phenomenon known as the Dutch disease. The Netherlands in the 1960s, after its discovery and depletion of oil and gas in the North Sea, was plagued with unemployment and an unproductive manufacturing sector due to the negative side effects of such a discovery.

What is perhaps most worrying for Malaysia, with the reliance on natural resource overshadowing the other productive sectors of the economy, is the resulting “rent-seeking economy” where influential parties within the government together with external parties focus their efforts in securing a larger share of the economic pie, instead of creating a bigger pie.

Therefore the DAP proposes that the Government legislate that 50% of our windfall from oil and gas is kept under lock and key, with the sole purpose for investment in human capital as well as research & development, over and beyond our typical expenditure on education and training.

In addition, 25% shall be legislated for use in our social security system while the balance may be used for development expenditure of the national budget.

This way, the funds will be prevented from being expensed to an unproductive and wasteful rent-driven economy. All unutilised allocation from revenue derived from the oil and gas sector shall be maintained in a stabilisation fund for future investments in the legislated segments.

To quote Economics Nobel Prize winner, Joseph Stiglitz, “abundant natural resources can and should be a blessing, not a curse. We know what must be done. What is missing is the political will to make it so.”

(Speech 7 on 2008 Budget in Parliament on Monday, September 10, 2007)