Come 2020, Oil and Gas Royalty Still Remains a Thorny Issue

In the Sarawak’s Oil and Gas issue, the promise for 20% Petroleum Royalty is yet to be fulfilled; and Sarawak is extremely zealous in pursuing it, now that the state government is no longer burdened by the Barisan Nasional yoke that used to sweep the issue under the carpet for past four decades. This new vigour of the state government has awakened Sarawakians from their slumber over their rights and exploitation of resources they have endured in the past. Now, it is coming into the fourth year since the late Pehin Sri Adenan Satem started to pursue it in earnest.

The Sarawak’s case, and to an extant Sabah’s too, is an extremely difficult challenge for the Federal Government. The unfair deals and exploitation are obviously a serious breach of the Malaysia Agreement 1963, followed by bulldozing of the Petroleum Development Act 1974, the Continental Shelf Act 1966, Exclusive Economic Zone Act 1984 and the most recent, the Territorial Sea Act 2012. None of these acts have been consented to by the Sarawak State Government.

Tun Mahathir’s modus operandi in confronting the issue looks familiar. In fact, this is how Tun Mahathir normally approaches overwhelming challenges where he had less than an even chance of winning, the most notable being how he dealt with Najib during the last few years of Najib’s reign. What I mean is how he made use of the press, foreign press included, in shaping public opinion to be on his side. It was obvious he did it to prop up his case on critical issues.

Actually, it does not help the Federal Government in trying to rationalize its current case before the public opinion, definitely not in the Borneo States. The case is so defenseless. For instance, in saying that the paying of 20% Petroleum Royalty will bankrupt PETRONAS sounds lame. PETRONAS, though not listed publicly, has published its financial statements for years and years. Anybody who has a little knowledge of accounting can easily read those figures. Indeed, all these years PETRONAS had made tonnes of money and ever made it up to the list of most profitable companies under the Fortune Global Ranking.

Below are financial data obtained from PETRONAS Financial Statements:

The above chart shows PETRONAS contributions to the Federal and State governments of Malaysia. For instance in 2014, when the petroleum price was at its highest, a total of RM 75.3 bil was contributed of which RM 69.0 bil went to the Federal Government and only RM 6.3 bil shared by governments of the producing states.

For the year 2018, with an extra dividend of RM 30 bil., PETRONAS contribution to the Federal Budget would have been RM 73.2 bil. amounting to 27.2% of the total Federal Budget Revenue. Such is the level of financial dependence of the Federal Government on PETRONAS and without this source, the Federal Finances would be in deep trouble.

With the above data, nobody in the Borneo States would believe the PETRONAS President when he said, as reported by The Malay Mail on 7 December, that PETRONAS could not afford to pay the promised 20% Royalty – the reason being the low margin that PETRONAS gets from domestic petroleum production. Well, what an excuse it was, when the whole country knows that it is not PETRONAS which could not pay, but rather it is the Federal Government that takes away its money. So, PETRONAS and the Federal Government, why not just admit it. People are not that ignorant.

Further, if it is true that PETRONAS makes very little profit on domestic production, then why not just go global, and just hand over the domestic production to Sarawak and the other producing states.

Early this month in its 16-22 December issue, the Edge Malaysia Weekly reported that PETRONAS have sold part of its shares in Petronas Gas Bhd, PETRONAS Dagangan Sdn Bhd and MISC Bhd for a whopping RM 6 bil. This sounds a huge sum for a small stake in these subsidiaries. As expected, this sent a huge shockwave in Sarawak and other producing states. The question raised was how much it would then cost Sarawak, if it were to buy PETRONAS Sarawak upstream operation. Actually, what was overlooked was that this very well written article has answered part of the question.

The article analysed correctly that the above transaction did not involve upstream transactions of PETRONAS under Carigali Bhd, then it put a value of approximately RM 829.65 bil. for the entire PETRONAS Group. If so, it is also right to say that none of the Petroleum producing states could afford a meaningful stake. Strangely, only Trengganu expressed their interest, probably out of ignorance.

The article went on to say that no one would likely buy a sizeable stake in the entire PETRONAS Group in the current scenario where the producing state, particularly Sarawak, lay legal claims of rights over the petroleum resources. There you are, Sarawak should not overlook that we actually have the upper hand, or a least a strong say in determining the price of stakes in PETRONAS Group.

In spite of the above, I have anticipated the issue over PETROLEUM RIGHTS as a very tough nut to crack. On the one hand, Sarawak claims for full and exclusive rights over these resources while on the other hand, acceptance of the above will not make PETRONAS bankrupt, but will certainly disrupt the Federal Government finances.

Even then, there could be a way out of this situation without jeopardising the claims for Sarawak Rights, while at the same time giving a leeway or a reasonable time period for the Federal Government to free itself from substantial dependence on Oil and Gas revenue to finance its operations. Whatever it is, the solution must be found sooner, rather than later. Otherwise, the distrust will deepen.

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DAH IKHWAN.