Petronas justifies Formula-1 spending

PETALING JAYA - For the first time, Petroliam Nasional Bhd (Petronas) has come out with numbers to justify its involvement in the high-profile Formula One (F1) World Drivers' Championship.

According to Petronas, the partnership with Mercedes-Benz earned it US$901.08 million (S$1.2 billion) in global media exposure (GME) last year.

The GME is a measure of the value derived from the brand exposure arising from the live and repeated telecast of the various races in the highly competitive championship.

Petronas said that the media impact for the company through its involvement in the F1 championship was almost four times higher compared to the average media impact enjoyed by oil and gas (O&G) companies that was estimated at US$200mil.

It said that between 2012 and last year, Petronas' media exposure grew by 400 per cent, making it the number one O&G brand in F1.

Petronas president and group chief executive Datuk Wan Zulkiflee Wan Ariffin said that its partnership with Mercedes-Benz and involvement in the F1 championship has given the brand extensive global awareness and visibility, and has accelerated the technology of Petronas in the areas of fuel and lubricants.

"The notion that we pay to put our sticker on the car is very wrong. The race is all about efficiency and Petronas is the technical partner that supplies the lubricants to the cars that have won races," said Wan Zulkiflee to a select group of media recently.

He explained that beyond branding, Petronas' involvement with Mercedes-Benz has accelerated the technological advances and capabilities in the research and development (R&D) of fuel and lubricants, leading to the production of quality end products.

"The race today is all about efficiency. It's all about gaining traction to our technology. The quality of fuel and lubricants can make a difference to the performance of the cars.

"It's not about two cars running around the track. It is an effort involving more than 1,500 people to produce two cars that are able to win the race by a mere few seconds," he said.

Petronas has been involved with the F1 championship since the 1980s. Its technical partnership with Mercedes-Benz started in 2010. Before Mercedes-Benz, Petronas had tied up with Sauber.

However, of late, with the decline in oil prices, there are some quarters who have raised questions on whether Petronas should continue to be involved in the F1 championship, as the national oil company has embarked on a cost-cutting regime.

Wan Zulkiflee had in the past stated clearly that Petronas would continue to be involved with the F1 because it allowed for brand presence and enhanced the company's technical know-how.

There are no official numbers on how much Petronas has paid to be a sponsor for the F1 racing team.

However, it was reported in 2009 that Petronas' sponsorship of the Mercedes-Benz F1 championship team was £30mil per year and that the partnership was for the long term.

The partnership with Mercedes-Benz had propelled Petronas to the top in the F1 championship in 2014 and 2015.

The Mercedes AMG Petronas F1 team has won the Constructors' title as well as the Drivers' Championship for two years running, and is on track to lift both titles this year as well.

Petronas executive vice-president and chief executive of the downstream business, Md Arif Mahmood, said that Petronas' involvement in the F1 allowed its products to be subjected to the harshest of conditions in driving.

"The F1 is the pinnacle for the testing of any car. We subject our products to the harsh conditions subjected to the vehicles in F1. The technology is eventually used to develop lubricants for ordinary cars on the road," he said.

The lubricants for the vehicles used by Mercedes AMG Petronas in the F1 championship are developed by a specialised R&D team under a wholly owned subsidiary, Petronas Lubricants International (PLI).

PLI is among the top-10 lubricant producers in the world and has a strong presence in Europe. It has 11 blending plants worldwide with a production capacity of 615,000 tonnes per year.

Thanks to its association with Mercedes-Benz and the F1, PLI has been growing market share. It was among the top-15 a few years ago, and going forward, the target is for PLI to triple its capacity and be among the top-five lubricant producers in the world.

Md Arif said it hoped to see a bigger market share for Petronas' lubricants in the home market of Malaysia.

He said that although PLI contributes to about 10 per cent of the total revenue in the downstream business currently, it has the biggest exposure in terms of brand awareness.