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A DECADE after opening, the Petronas Twin Towers in Kuala Lumpur are no longer the world�s tallest. But Petroliam Nasional, the company that built them, continues to grow. It exports lots of liquefied natural gas (LNG) to booming Asian neighbours and owns the world�s largest fleet of LNG tankers. It is also expanding abroad: last year operations outside Malaysia brought in 42% of its M$264 billion ($77 billion) revenue, up from 35% in 2005. Foreign oil giants are keen to team up with it in risky places like Iraq. In short, Petronas is a successful example of a national oil company, the government-owned entities that collectively hold some three-quarters of the world�s proven reserves but are prone to waste and mismanagement. Yet it still faces a peculiar set of problems tied to its state-owned status.

Like oilmen everywhere, Hassan Marican, Petronas�s boss, is busy trying to pare costs in a global slump. From his perch on the 80th floor of Tower 1, he sees little sign of a sustained recovery in demand. He has asked contractors to cut costs by 30% after profits fell by 14% last year, the first drop in seven years. �Everyone knows how much we�re being squeezed,� he says.

But the squeeze comes not just from falling oil prices. Malaysia�s federal government is a needy owner: last year Petronas paid out 45% of its revenues in dividends, royalties and taxes. A yawning budget deficit this year will require further generosity. The firm also sells cheap gas to local industries and manages to keep petrol prices in Malaysia affordable.

Mr Hassan insists that this is not a drag on investment. Petronas plans capital expenditure of around $12 billion this year, mostly on exploration and development�a similar level to last year. Investors seem happy to stump up. In August they snapped up $4.5 billion in Petronas bonds, its first issuance since 2002. Moody�s, a rating agency, considers them more secure than Malaysia�s sovereign debt.

Until 1974 all Malaysia�s oil was pumped by foreigners. That year Petronas was given exclusive rights to the nation�s hydrocarbons; it forced the foreigners to switch to production-sharing contracts while it learned the ropes from them. Although it now competes with multinationals for drilling rights in Malaysia, it also awards them�since it doubles as the industry regulator.

Petronas is often compared to Petrobras, Brazil�s partly state-owned oil firm, which has also built an enviable reputation in competition with the titans of the industry. But unlike Petrobras, which has discovered huge new offshore reserves at home recently, Petronas faces declining domestic output. Malaysia will probably be a net oil importer by 2014 (gas is more abundant). In the 1990s Petronas began expanding abroad, mostly in Africa. It has invested in 66 upstream projects in 22 countries. No other Malaysian company has such a global presence, least of all those in the inefficient public sector.

Mr Hassan says state ownership does Petronas no harm abroad, and its experience as a regulator is a selling point. He describes the firm as a �nationally owned international oil company�. Roughly a fifth of its 39,000 employees are non-Malaysians. As domestic output tapers off, this ratio is bound to rise. But Petronas cannot match the salaries dangled by rivals, since it sticks to Malaysian pay scales.

In part, that is a political decision. Petronas�s sole shareholder is the office of the prime minister, and the firm, says Mr Hassan, is �aligned to nation-building�. Critics say this leads to spending on prestige projects popular with politicians, like the towers, which were slow to fill up, and Putrajaya, Malaysia�s flashy new capital. But Mr Hassan points out that the towers are now fully rented. All investments, he says, are judged on their commercial merits.

Petronas�s board has no independent directors to bear him out. Mr Hassan, already chief executive, became the acting chairman in 2004 after his predecessor died. His contract expires in February. That will give the prime minister, Najib Razak, an opportunity to make an appointment that proves that the firm really is run on a completely commercial basis.

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