Petronas buys more time to review Sarawak deal

Court of Appeal awards an adjournment on appeal against a High Court decision and sets Aug 3 as next mention date

by ALIFAH ZAINUDDIN & RAHIMI YUNUS/ pic by MUHD AMIN NAHARUL

PETROLIAM Nasional Bhd (Petronas) has won time to review the terms of a settlement over the payment of a sales tax to Sarawak, further delaying a deal that was made public last month.

The Court of Appeal awarded the state oil company an adjournment on its appeal against a High Court decision to award Sarawak payment of backdated sales tax on oil products. The court yesterday fixed Aug 3 as the next mention date.

Petronas informed the court yesterday that it was finalising an agreement with the Sarawak government and the comptroller of state sales tax on the payment of a sales tax imposed on the firm last year. It is claimed that Petronas owes an estimated RM2.8 billion in backdated sales tax to the state.

Petronas yesterday requested the adjournment pending an agreement between the two parties. Sarawak legal counsel Datuk Seri JC Fong said the state government had no objection to Petronas’ request following an undertaking by Petronas to withdraw the appeal, according to a lawyer’s letter submitted to the court.

Petronas legal counsel Datuk Malik Imtiaz Sarwar told the media that the adjournment is to allow the national oil company to finalise the terms of the settlement and fulfil internal processes.

“We give an undertaking that we will withdraw the appeal by Aug 3,” Malik Imtiaz said at the Court of Appeal in Putrajaya yesterday.

Last month, Petronas and Sarawak said in a joint statement that both parties have agreed to resolve the issue. It said Petronas agreed to pay in full the petroleum products sales tax imposed by Sarawak for 2019 amounting to RM2 billion, or 5% of the products’ sales value. The two also agreed that future petroleum products sales tax will be lower and staggered based on negotiations.

Uncertainties abound, however, as speculations swirled following the recent resignation of then Petronas CEO Tan Sri Wan Zulkiflee Wan Ariffin. Wan Zulkiflee was said to have left the company for sticking to his principles.

Reuters reported, citing sources, that Wan Zulkiflee quit Petronas after a disagreement with Prime Minister Tan Sri Muhyiddin Yassin over a plan to pay the billions in sales tax to Sarawak.

Current CFO Tengku Muhammad Taufik Tengku Aziz has been named to take the helm of the company from July 1.

Petronas’ request for more time was a logical move given the recent change in government and leadership at the oil corporation, observers said.

Asia School of Business Assistant Prof Dr Renato Lima de Oliveira said following the recent change in leadership at Petronas, it was logical for the oil company to buy time and evaluate its options, given the technical and political constraints of the matter.

“The issue of sales taxes and the demand for royalty increase are political battles and there have been signs that the government will lean towards the claim by Sarawak.

“However, changing fiscal terms of contracts affect current and future profitability of resource extraction, so there are technical issues involved and many details have to be worked out in order to minimise the financial impact of such possible changes,” de Oliviera told The Malaysian Reserve.

“Such changes will, for sure, cost Petronas and all potential investors a lot, particularly in a time of low oil prices and energy transition.”

It is argued that Petronas is taxed twice under Sarawak’s sales tax on petroleum products as the company is already charged with a similar tax at the federal level.

Additionally, Petronas has committed to paying an annual 5% oil royalty to Sarawak and neighbouring state Sabah. Both Sarawak and Sabah have been pushing for more royalty payments in recent years by seeking to raise the quantum to 20%. The higher royalty could cost Petronas RM30 billion a year.

The two states produce much of the nation’s petroleum wealth. Petronas is believed to have some 60 oilfields in Sarawak alone, producing 850,000 barrels of oil a day.

Data from the Energy Commission showed that Sarawak accounted for 27.3% of national crude oil and condensates reserves at 1.29 billion barrels in 2017. The state also accounted for 54% of Malaysia’s known gas reserves at 44.69 trillion standard cu ft in the same year.

Sarawak’s relentless pursuit for oil money has put industry players on guard as fears that other oil-producing states like Sabah, Kelantan and Terengganu may follow suit.