Rafizi cautions against hasty Petronas–Petros deal

New Straits Times

3 days ago

KUALA LUMPUR: Talks on gas resource rights between Petroliam Nasional Bhd and Petroleum Sarawak Bhd (Petros) should be conducted meticulously, former economy minister Rafizi Ramli said.
Rafizi said any oversight in the negotiations could have serious repercussions on the overall economy.
He said if Sarawak's claims to gas resources are accepted without considering the existing overall financial structure, Petronas risks losing between RM15 billion and RM20 billion annually.
"It is not a paltry sum," he said in the latest episode of his podcast "Yang Berhenti Menteri".
Rafizi said Petronas contributed between RM30 billion and RM35 billion annually to the government's coffers. "If this sum drops, it would have an impact on the nation's ability to fund basic services."
Petronas is the main contributor to national revenue, with its annual dividends supporting a wide range of public services.
This including schools, hospitals, infrastructure development, pensions and the salaries of civil servants, both in Sarawak and across the country.
Rafizi said even if the revenue doesn't directly enter the state government's coffers, the schools, hospitals and roads in Sarawak have been developed using federal funds from Petronas' dividends.
"So, if Petronas loses RM20 billion, the company will be unable to pay the RM35 billion in dividends to the federal government," he said.
Rafizi added that Petronas' inability to do so could result in a downgrade of the country's credit rating, which would significantly increase the government's borrowing costs.
He said Malaysia currently pays RM48 billion annually on interest alone and the figure could increase to RM60 billion if credit ratings were to drop due to uncertainty in the oil and gas sector.
Legal Grey Areas and Investor Risks
The overlapping provisions of the Petroleum Development Act and the Oil Mining Ordinance have compounded the issue.
Sarawak claims sole rights to energy resources located up to 200 nautical miles from its territorial waters, citing maps and entitlements that predate its entry into Malaysia in 1963.
However, federal laws such as the Continental Shelf Act 2012 state that rights over oil and gas resources located beyond three nautical miles fall under federal jurisdiction, and therefore, belong to Petronas.
Rafizi said Sarawakians deserved more revenue from their resources, but there was a need for prudence when demanding it.
"If investors feel that our country is unstable when it comes to oil and gas policies, they will pull out. This industry needs billions of ringgit upfront, and if investors feel that there is political uncertainty, they will head to Indonesia, Surinam or other places," he said.
In April, US oil company ConocoPhillips confirmed its exit from the Salam-Patawali deepwater oil and gas field, also known as Block WL4-00, off Sarawak's coast, believed to be because of uncertainty over policies and law.
Earlier this year, Shell MDS was granted an injunction allowing the company to continue its operations without disruption until legal proceedings between Petronas and Petros have been resolved.
Contract and Confidence
Rafizi said investments are based on long-term agreements and investors could pull out if the original contract was amended unilaterally, which would impact investor confidence as a whole.
He said the Distribution of Gas Ordinance 2016 in Sarawak accorded the state full control of the commodity through Petros, although the original agreement to buy and sell gas was made between Petronas and buyers from Japan and China.
He added that investors took into account profit projections for these long-term contracts, which generally last 30 years, before deciding to pour in as much as RM6 billion to build the necessary infrastructure.
However, there were risks if the contract was unexpectedly amended, especially when it comes to additional demands being made.
"Imagine, what if one side were to ask for an additional RM15 billion on top of the original agreement. Where will the money be sourced from? And if Petronas would have to bear it, the international buyers would protest," he said.
Rafizi said any sudden changes made without prior negotiations could prompt investors to pull out or discourage new investments.
He added that uncertainty surrounding Petronas would not only affect the company itself but also ripple across the broader financial ecosystem of the country.
Politics Must Not Ignore Economic Realities
Rafizi, who was previously with Petronas, said any negotiation must result in a win-win solution.
"I agree that Sarawak should get more, but we need to find a way that will not impact the industry, Petronas's sustainability and the country."
He said any restructuring of oil and gas revenue must prioritise investment in development, rather than undermining the country's already strained economic framework.