Pemandu CEO Idris Jala said the output from the oil and gas sector had declined by 5.7 per cen last year. — File picKUALA LUMPUR, Feb 28 — Malaysia's declining oil production has hit economic growth by as much as a full percentage point or more, said Datuk Seri Idris Jala.

The Pemandu CEO said however that the fact the economy managed to grow by 5.1 per cent last year showed that other sectors were still growing.

This comes as the World Bank warned last November that Malaysia is too dependent on fossil fuel revenues with its non-oil primary deficit having doubled in the last five years to almost 20 per cent of GDP.

The windfall from petroleum has also bolstered government coffers to the point that the World Bank noted in 2009 that non-oil revenues are insufficient to finance government operational expenditure.

Jala said that the output from the oil and gas (O&G) sector had declined by 5.7 per cent last year.

"The fact that we are growing at 5.1 per cent despite a decline in production it shows other sectors are doing well," said Jala when asked if Malaysia was at risk of being over-dependent on O&G. "Our services sector is still growing."

Jala said that O&G is still Malaysia's single largest sector and the country had relied a lot on hydrocarbons in the past.

"If there was no decline, the GDP growth could have been six per cent or maybe 6.5 per cent," he said.

The decline in oil production was largely attributed to problems in the Kikeh oil field off Sabah and maturing oil fields off Peninsular Malaysia.

Jala said that Murphy Oil had encountered "a serious problem" with sand in Kikeh which had impaired production levels and would take two years or more to fix.

Jala said that under the Economic Transformation Programme, some RM132 billion worth of commitments to O&G projects had been announced so far which would make it possible to arrest the decline of production over the next 10 years.

"The decline will begin to be arrested and it will take a while," he said. "Investments are pouring in and in the next couple of years we will see an upswing in production."

Investment in the mining sector - of which 95 per cent consists of the oil and gas industry - more than doubled from RM3.14 billion in 2010 to RM7.3 billion in 2011.

This contrasted sharply with investment in services which shrank from RM10 billion in 2010 to RM9 billion in 2011 while manufacturing investment barely registered any growth, rising only 2.5 per cent from RM16.11 billion to RM16.51 billion.

"Oil and gas will attract a lot of investment," said Minister of International Trade and Industry Datuk Seri Mustapa Mohamed at the same press conference.

The minister also said that while national oil company Petronas contributes nearly half of all government revenue, it also derived nearly 50 per cent of its income from overseas which gave it a buffer against declines in local production.

Many petroleum rich countries fail to graduate to developed status despite their oil derived wealth and there is concern that the reliance on government spending funded by oil revenues threatens to dull the urgency to develop Malaysia's competitiveness through gains in productivity and innovation.

Former Finance Minister Tengku Razaleigh Hamzah who helped establish Petronas said in a speech in 2009 that Malaysia was now an "oil cursed" country where petro- dollars were being used to fund government operational expenditure,  and "bail out failing companies, buy arms and build grandiose cities...".

Tengku Razaleigh said that the country's oil bounty was originally intended to be an "ace up its sleeve" to create a modern and diverse economy based on high income jobs.

The Najib administration in an effort to lift Malaysia to high-income status introduced the Economic Transformation Programme (ETP)  although it is too early to say how successful the ETP initiatives and reforms will turn out to be.