20% oil royalty for Sabah and Sarawak will “kill” Petronas

Granting 20% oil royalty to Sabah and Sarawak from Petroliam Nasional Bhd’s (Petronas) profit is impossible.


The statement was made by Prime Minister Tun Dr Mahathir Mohamad on September 27, during a dialogue session with fund managers at the JP Morgan headquarters in New York, United States of America.


He said an increase of oil royalty to 20% from the current 5% is not workable as Petronas will cease from being an international oil company.



Interestingly, the Prime Minister had said the same thing about a year ago. In September 2018, Tun Mahathir informed the public that granting the East Malaysian states 20% oil royalty each will increase Petronas’ operating cost by 40%. Eventually, the national oil and gas company will go bankrupt for giving Sabah and Sarawak 20% oil royalty.


Consequently, Economic Affairs Minister Datuk Seri Azmin Ali announced that a study will be conducted for oil royalty payment within the next six months. The study will not only focus on oil royalty for Sabah and Sarawak, but also for Terengganu and Kelantan. The announcement was made in September last year.



However, six months later, in March 2019, there was no news on the oil royalty payment study. Instead, the Malaysia Agreement 1963 (MA63) was a hot national issue at that time. The motion to amend the Federal Constitution to make Sabah and Sarawak as equal partners was not passed by the Dewan Rakyat.



The oil royalty issue for Sabah and Sarawak started to resurface in the media two weeks prior to Tun Mahathir’s comment on September 27.


According to media intelligence, a surge on the media exposure for Sabah and Sarawak oil royalty happened on September 13. Then, Finance Minister Lim Guan Eng said the Federal Government could not afford to pay 20% oil royalty to Sabah and Sarawak.


But the reason stated by the Finance Minister differs from the one given by the Prime Minister. Lim said it was due to a “legacy issue”, further elaborating that the numerous scandals occurred during Barisan Nasional’s administration, including the infamous 1MDB scandal, have cost the country RM150 billion.


The increment of oil royalty from 5% to 20% for Sabah and Sarawak was written in the manifesto of Pakatan Harapan under Pillar 1, Promise 3. Regardless, Tun Mahathir had said it before that the manifesto is just a guideline, not a bible.