PM: 20% oil royalty will ‘kill’ Petronas


The petroleum royalty quantum to be distributed to the respective states must not lead to the demise of the country’s energy company, Petroliam Nasional Bhd (Petronas), said Tun Dr Mahathir Mohamad.

The prime minister (PM) yesterday said Petronas’ strength must be maintained before deciding to pay Sabah a 20% royalty.

“We don’t want to kill Petronas. Petronas is a unique company in the world because it is the only national company that goes into exploration, development, production and petrochemical, and people all over the world are asking Petronas to do work in their country.

“So, (if) we reduce Petronas to just collecting royalty, then we will lose a lot of things,” he said, according to national news agency Bernama.

The petroleum royalty has become a controversial issue with states like Sabah, which is demanding the 20% royalty payment. Pakatan Harapan, in its election manifesto, promised a 20% royalty payment for the resource producing states. Previously, oil and gas producing states were allocated 5%.

High oil revenues had helped to shift the balance of power, especially in Sabah, to the Opposition during the general election in May. Local issues, high cost of living and foreign immigrants have also helped the Opposition to secure the seats to rule Sabah.

Dr Mahathir said the government will relook the current royalty rate of 5% given to Sabah.

There is confusion now whether the royalty payment should be based on profit or total revenue. Certain quarters have said sticking to the proposed 20% royalty payment from revenue would hurt Petronas as the state-owned company’s cost per barrel is already high.

Petronas is one of Malaysia’s best conglomerate, registering in the Forbes list of the world’s largest companies based on profitability and among the highest based on net profit against staff count.

The government is already forming a special committee to study the mechanism of petroleum royalty payment to oilproducing states.

The committee will help the government decide whether the 20% will be based on production revenue, gross profit or net profit derived from a particular state.

The committee is given six months from the date of its formation to present its report to the government.

The Petroleum Development Act 1974, which governs the country’s oil producing sector, denotes that the royalty calculation is based on gross profit and not based on net profit.