By P PREM KUMAR & DASHVEENJIT KAUR / Pic By ISMAIL CHE RUS
The government will form a special committee to study on the mechanism of petroleum royalty payment to oil-producing states nationwide, said Datuk Seri Mohamed Azmin Ali (picture).
The economic affairs minister said the government has yet to decide whether the 20% will be based on production revenue of respective states, gross profit or net profit derived from a particular state.
Mohamed Azmin noted that a production- based 20% royalty payment would deeply hurt financials of Petroliam Nasional Bhd (Petronas).
“The special Cabinet committee will be formed based on six terms of reference to be reviewed,” Mohamed Azmin told the Dewan Rakyat yesterday. Among the terms subject for review are the rights of Sabah and Sarawak towards its natural resources and its oil and gas revenues.
“The special committee is given six months from the date of its formation to present its report to the government with proposals to ensure the rights and interests of the people of Sabah and Sarawak are guaranteed through the 1963 Malaysia agreement.
“The committee is responsible to provide recommendations for the government to look into and implement it,” Mohamed Azmin said.
He was responding to MP Datuk Seri Wilfred Madius Tangau (Upko-Tuaran) who asked the government to state when the federal government plans to implement the 20% royalty grant for the oil-producing states. Tangau is also Sabah’s deputy chief minister.
He noted that the proposal of higher royalty payment cannot be implemented immediately as it would be contrary to the Petroleum Development Act 1974 (PDA), as the law allows royalty calculations based on gross profit and not based on net profit.
“Therefore, if the addition of petroleum royalty to 20% is to be implemented, it will require amendments to the PDA. In addition, if Petronas is required to increase the amount of petroleum royalty to 20% of the total gross production of petroleum to oil-producing states, there will be serious implications on the financial position of Petronas and the federal government. Mohamed Azmin acknowledged that the government is now aware of the complex cost structure of petroleum production by Petronas.
“When we drew up our election manifesto, we said there should be distributive justice, hence, our suggestion for the 20% is based on profit after tax and not gross production.
“We did a cost structure analysis on the production of Petronas with scant data, but this plan cannot be expedited quickly as it goes against the PDA, which states that the current calculation is based on gross profit, and not net profit,” he said.
According to Mohamed Azmin, the Economic Affairs Ministry is discussing the issue with Petronas besides the Finance Ministry, and International Trade and Industry Ministry to ensure the division of oil royalty is fair and transparent.
The Economic Affairs Ministry is also fine-tuning the payment mechanism and will further discuss with oil-producing states that have existing agreements with Petronas to reach a consensus on the matter.