Malaysia may sell Petronas stakes to two states

KUALA LUMPUR • Malaysia is considering selling stakes in energy giant Petronas to two of its 13 states where the company's oil and gas fields are, Prime Minister Mahathir Mohamad told Reuters, in a bid to raise funds for the debt-laden government.

The move may also give states such as Sarawak and Sabah a say in the running of Petronas, the world's third-largest exporter of liquefied natural gas.

Tun Dr Mahathir said on Tuesday in an interview that the government could not meet a demand made by the states for a quadrupling of the royalties paid by the government-owned company to 20 per cent of its profit.

"It's fully owned by the government, it's up to the government to sell the shares privately, not in the market, to states like Sabah and Sarawak," Dr Mahathir said. "Petronas is a very big company, it depends on how much (the states) can pay also."

Sarawak and Sabah have Malaysia's most extensive oil and gas reserves in their waters in the South China Sea.

Their longstanding demand to increase royalties could cost Petronas up to US$7 billion (S$9.5 billion) a year.

The Pakatan Harapan (PH) government in its 2018 election manifesto promised to raise petroleum royalties paid to the oil and gas producing states to 20 per cent, up from 5 per cent paid by the previous government.

The other two petroleum producing states are Terengganu and Kelantan.

The Sarawak state government, which is ruled by opposition alliance Gabungan Parti Sarawak, has been pushing for PH to raise the royalties.

But Petronas president and chief executive Wan Zulkiflee Wan Ariffin said last week that increasing the royalties paid to 20 per cent was not possible, as production costs are high and profit margins are low.

He was quoted by Malay Mail online news as saying the company makes a profit margin of only 3.7 per cent from oil production locally, after accounting for matters such as production costs, oil royalties and tax.

Petronas is the federal government's biggest money-spinner.

Dr Mahathir said the government could also cut stakes in smaller listed or unlisted units of Petronas.

"We need to reduce our involvement, the number of shares that we hold, to raise some funds for ourselves," he said.

The company's main listed units are petrochemicals-maker Petronas Chemicals Group, retail arm Petronas Dagangan, and gas infrastructure and utilities arm Petronas Gas. Petronas Carigali is its exploration unit.

On Monday, Petronas said it has completed block trades of its shares in Petronas Dagangan, Petronas Gas and shipping line MISC Berhad.


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A version of this article appeared in the print edition of The Straits Times on December 12, 2019, with the headline Malaysia may sell Petronas stakes to two states. Subscribe