Tengku Muhammad Taufik is expected to resolve the sales tax dispute by adopting a more conciliatory approach

by ALIFAH ZAINUDDIN/ pic by BERNAMA

INCOMING Petroliam Nasional Bhd (Petronas) president and group CEO Tengku Muhammad Taufik Tengku Aziz (picture) is widely expected to defuse tensions between the national oil giant and the Sarawak state government, as lengthy disputes will only add further uncertainty that would upset investors.

Tengku Muhammad Taufik, who will be Petronas’ third president in a decade, is anticipated to adopt a more conciliatory approach to the issue, a sentiment that is shared by Prime Minister Tan Sri Muhyiddin Yassin as he looks to strengthen his position in Parliament.

The 47-year-old will assume the top role from July 1 after his predecessor Tan Sri Wan Zulkiflee Wan Ariffin steps down, having served the company for 37 years. Wan Zulkiflee’s opposition to any notion of Petronas’ ceding ground has made it difficult for both parties to attain an amicable settlement.

A change of guard at the state-owned oil firm promises hope that a resolution would soon be reached. However, if recent events are of any indication, Petronas’ deferment to withdraw its appeal over a High Court decision, which ruled in favour of Sarawak’s sales tax rule, points to a step backward.

“It is a tall order to resolve the Petronas-Sarawak dispute,” constitutional lawyer Lim Wei Jiet told The Malaysian Reserve, referring to deep political undercurrents that could impede settlement discussions moving forward. He said Perikatan Nasional’s (PN) survival depends on the support of Sarawakian parties.

“I believe any final decision will not be made by Tengku Muhammad Taufik, but Putrajaya ultimately. It remains to be seen whether such a decision would put Petronas at the short end of the stick.”

Sarawak filed a lawsuit against Petronas in November last year for unpaid fuel sales tax amounting to some RM2 billion. The state said Petronas was the only energy company operating in the state that had not paid a 5% sales tax imposed on Jan 1, 2019.

Petronas contested Sarawak’s right to impose the tax, asserting that the Petroleum Development Act 1974 superseded the state’s Oil Mining Ordinance 1958 — an order which has since been amended and used to assert Sarawak’s authority over oil and gas (O&G) activities in its waters.

The Kuching High Court later ruled that the state had acted within its purview by imposing the sales tax on Petronas. Judge Azhahari Kamal Ramli said he found that the power of the state to make law for imposing sales tax was derived from Article 95B(3) of the Federal Constitution.

Petronas then filed an appeal against the decision. Lim said Petronas only has two options to consider now — namely, to settle the matter amicably or to continue fighting the case all up to the apex court.

“In my view, the best option for Petronas is to strike a deal with Sarawak whereby there are terms in the settlement agreement which still guarantees Petronas’ right to exploration and exploitation of petroleum in Sarawakian territory, albeit the sales tax imposition.

“Given the political makeup where Gabungan Parti Sarawak forms an integral part of the PN government, I believe it is likely a settlement will be reached between Petronas and Sarawak instead of an all-out fight in the courts,” he said.

Fitch Solutions Country Risk and Industry Research, in a report published yesterday, said a key task for Tengku Muhammad Taufik will be to defuse rising tensions with Sarawak and Sabah.

“Early signs are positive,” it said, noting that the two sides appear to be working towards a coexistence arrangement, which would allow Petronas to retain regulatory rights over resources, but allow Sarawak and Petroleum Sarawak Bhd to reap benefits from any in-state O&G developments.