Sabah CM to meet Petronas over 20% royalty next week

Petronas has said its profit margins are low and production costs are high. (Bernama pic)

KOTA KINABALU: Sabah Chief Minister Mohd Shafie Apdal has taken no notice of an explanation by Petronas that it was not possible for the national oil company to meet Sabah’s demand for 20% royalty on petroleum and gas extracted from the state.

Shafie said he is likely to hear from Petronas officials at a meeting here next week. He reiterated that these matters had already been discussed with Prime Minister Dr Mahathir Mohamad on Sept 16.

“Well, I will meet them (Petronas officials) next week. We will see how it goes,” he told reporters after closing the Lami Lami Regatta in Pulau Gaya here today.

Yesterday, Petronas chief executive Wan Zulkiflee Wan Ariffin had said that a 20% royalty to oil-and-gas producing states was not possible as production costs are high and profit margins low.

He said Petronas makes only 3.7% profit from local oil production, with 70% of oil revenue going towards production costs, which are higher when ultra-deep-water production is involved.

Petronas is the biggest source of income for the debt-ridden Federal Government.

When asked about his meeting with Mahathir in September, Shafie said talks on raising the oil royalty to 20% and on revenue entitlement were progressing well.

In 2018, Pakatan Harapan had promised in its general election manifesto to increase the royalties paid to Sabah and Sarawak from 5% to 20%.

Mahathir later said it was impossible to raise the royalty as the higher payout would “kill” the oil company.

Sabah and Sarawak hold more than 60% of Malaysia’s oil reserves.

Shafie recently proposed that the 20% oil royalty can be converted into shares in Petronas, allowing the state to benefit from a yearly dividend.

However, there was no response from Petronas.