Business

Twenty per cent royalty to states will cripple Petronas

Zaidi Azmi
Written by Zaidi Azmi

KUALA LUMPUR – Sept 27, 2016: It is financially impossible for Petronas to sustain itself if the national oil company pays up to 20 per cent oil royalty to all oil-rich states as demanded by certain quarters, according to economists who spoke to The Mole.

Independent macro-economic analysts Dr Hoo Ke Ping argued that if Petronas simply nodded to all of the recent demands of a Terengganu assemblyman, then the company risks losing a great deal of its income, thus inhibiting future investments.

“Petronas is already in bad shape and it will continue to be so for a few more years.

“Complying to all 10 points of the demand will eventually lead to the company not having enough capital to pay the salary of its staff,” Hoo explained.

The so-called Terengganu’s “ten amicable agreements” to Petronas was laid out by Pas’ Batu Burok assemblyman Dr Syed Azman Syed Ahmad who was ‘inspired’ to do so after the Sarawak government came out with its “seven amicable agreements” last month.

What Dr Syed Azman listed last week were mostly the same demands made by the Sarawak government to the national oil company, including an increment of royalty payment from five to 20 per cent.

He also demanded the federal government to return RM1.5 billion of Terengganu’s supposed oil royalty that the federal government had used to develop other states.

Both demands were claimed to be based on Petronas’ supposed unfairness in its hiring scheme and the “inadequate” five per cent royalty payment to the two states despite their greater oil-related contributions to the company.

Hoo, however questioned the timing of such demands, especially the one by the Terengganu assemblyman, adding that the demands would look more reasonable if they were brought up earlier.

“Why now?” he questioned Dr Syed Azman’s motives whom he deemed to be using the ten-point demands for his own political mileage.

“Petronas is bound by the Petroleum Development Act, therefore any deviation must be negotiated by the state government and the Federal government.

“And this Pas assemblyman does not represent the state,” Hoo wrote to The Mole.

Another economist who spoke under the condition of anonymity said that it is selfish for state governments to think that their state deserves more than others just because they gave greater contribution in a certain sector.

“Agricultural states like Kedah produce half of the country’s rice but you don’t hear the Kedah government demanding a larger share of the Federal pie to the tune of billions despite their contribution to our food security.

“If every state keeps on making these parochialisitc demands then it will eventually cripple the country’s economy.

“What is the point in being a part of a federation if everyone thinks they are entitled for more,” he argued.

The economist added that Petronas “may even go kaput” if it gives the demanded percentage of royalty to Sarawak and Terengganu, especially so during times of tepid global oil price.

“Petronas is already suffering and had been downsizing and restructuring for several times in the past couple of years.

“Now we have two states demanding for a total of 40 per cent royalty. Do people not realise that it would be a lose-lose situation for all if Petronas shuts down,” he said.

However, both he and Hoo agreed that the Terengganu and Sarawak state governments are not solely to be blamed as their actions stems from a seemingly weak federal government.

But Hoo nonetheless, insisted that the “noises” will be silenced if Barisan Nasional (BN) wins with better results in the next general election.

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About the author

Zaidi Azmi

Zaidi Azmi

If Zaidi Azmi isn’t busy finding his way in the city, this 26-year-old northern kampung boy can be found struggling to make sense of the Malaysian political scene. Zaidi can be reached at zaidiazmi91@gmail.com.