Calendar An icon of a desk calendar. Cancel An icon of a circle with a diagonal line across. Caret An icon of a block arrow pointing to the right. Email An icon of a paper envelope. Facebook An icon of the Facebook "f" mark. Google An icon of the Google "G" mark. Linked In An icon of the Linked In "in" mark. Logout An icon representing logout. Profile An icon that resembles human head and shoulders. Telephone An icon of a traditional telephone receiver. Tick An icon of a tick mark. Is Public An icon of a human eye and eyelashes. Is Not Public An icon of a human eye and eyelashes with a diagonal line through it. Pause Icon A two-lined pause icon for stopping interactions. Quote Mark A opening quote mark. Quote Mark A closing quote mark. Arrow An icon of an arrow. Folder An icon of a paper folder. Breaking An icon of an exclamation mark on a circular background. Camera An icon of a digital camera. Caret An icon of a caret arrow. Clock An icon of a clock face. Close An icon of the an X shape. Close Icon An icon used to represent where to interact to collapse or dismiss a component Comment An icon of a speech bubble. Comments An icon of a speech bubble, denoting user comments. Ellipsis An icon of 3 horizontal dots. Envelope An icon of a paper envelope. Facebook An icon of a facebook f logo. Camera An icon of a digital camera. Home An icon of a house. Instagram An icon of the Instagram logo. LinkedIn An icon of the LinkedIn logo. Magnifying Glass An icon of a magnifying glass. Search Icon A magnifying glass icon that is used to represent the function of searching. Menu An icon of 3 horizontal lines. Hamburger Menu Icon An icon used to represent a collapsed menu. Next An icon of an arrow pointing to the right. Notice An explanation mark centred inside a circle. Previous An icon of an arrow pointing to the left. Rating An icon of a star. Tag An icon of a tag. Twitter An icon of the Twitter logo. Video Camera An icon of a video camera shape. Speech Bubble Icon A icon displaying a speech bubble WhatsApp An icon of the WhatsApp logo. Information An icon of an information logo. Plus A mathematical 'plus' symbol. Duration An icon indicating Time. Success Tick An icon of a green tick. Success Tick Timeout An icon of a greyed out success tick. Loading Spinner An icon of a loading spinner.

Petronas surrenders to Sarawak tax demands as CEO walks

Wan Zulkiflee Wan Ariffin Former head of Petronas and ExxonMobil board member
Former head of Petronas and ExxonMobil board member: Wan Zulkiflee Wan Ariffin

Petronas’ new CEO is expected to take a more conciliatory approach to a dispute with Sarawak, as well as prepare the Malaysian NOC for a potential public listing

There are signs that an intense political battle for control of hydrocarbon resources in the Malaysian state of Sarawak could soon be resolved following the resignation of Petronas chief executive Tan Sri Wan Zulkiflee, commonly known as Wan Zul.

Wan Zul, who resisted all attempts to amicably resolve the dispute with Sarawak, will be replaced by Tengku Muhammad Taufik, currently the Malaysian NOC’s chief financial officer, effective 1 July 2020. Wan Zul had led the NOC since early 2015 and his current contract was due to expire next April.

Taufik is expected to take a more conciliatory approach to the spat, that has already slowed upstream developments and led to a loss of investor confidence in Malaysia. The country has traditionally been the most successful nation in Southeast Asia in creating a stable and predictable environment for exploration and production companies of all sizes. But the dispute with Sarawak has created a lot of uncertainty for investors.

In eastern Malaysia there is widespread resentment over how the region’s natural resource wealth has been managed and distributed. Although the area produces much of the nation’s petroleum wealth, Sarawak and the neighbouring state of Sabah remain much less economically developed than Peninsular Malaysia, home to the federal government.

Two years ago, the federal government promised Sarawak a greater share of petroleum royalties, but this has not been forthcoming. As a result, Sarawak has been pushing hard to assert ownership of its onshore and offshore resources.

Sarawak introduced a sales tax – which covers crude oil, gas and LNG – on 1 January 2019 despite attempts by Petronas to block it through legal channels. The tax is a straight deduction from revenue, effectively an additional 5% royalty on top of the actual royalty rate of 10%. Petronas, one of the top hydrocarbon producers in Sarawak, is the only operator that has failed to pay the tax.

However, following news of Wan Zul’s departure, Petronas, which owes an estimated MYR2.8 billion ($655 million) in backdated sales taxes, has reportedly withdrawn its appeal against a high court judgement which favoured Sarawak.

The tax – estimated to generate at least $930 million per year – has been designed as a new source of revenue to support Sarawak’s development agenda. But the levy has created uncertainty in the oil and gas sector, particularly as Sarawak claims there is no legal cap to the tax rate. This means the rate could be reviewed at any time and may rise above the current 5%.

Significantly, the battle with Sarawak is fundamentally a finance and tax matter so Taufik’s appointment makes sense given his financial background. The sooner the issues with eastern Malaysia are resolved the better it will be for everyone. Hopes are high, both within the industry and the federal government, that Taufik will agree an amicable compromise with local governments.

If he is unsuccessful, new upstream projects waiting to take FID and already delayed by the struggle could face further hold-ups. This is significant because Sarawak is the only Malaysian province that could expand its hydrocarbon output by 2025.

Crucially, further delays will also limit the expansion in production needed to help maintain LNG exports. Sarawak is home to the 29.3 mtpa Bintulu LNG export complex, which is already facing a short-term supply crunch. This looks set to persist until at least 2025, although it will probably last longer if the spat cannot be resolved soon.

Nearly one-third of the federal government’s revenues came from petroleum related sources last year. Less production equals less revenue. Therefore Sarawak’s resource nationalism drive is directly threatening the federal government’s coffers. Kuala Lumpur will be pushing for a resolution as soon as possible. With a change of guard at Petronas this is increasingly possible.

Meanwhile, Wan Zul had also resisted the federal government’s push to publicly list a chunk of Petronas’ upstream business to raise money for the government. Wan Zul believed that these assets should only be divested as a last resort in desperate times.

Appointing Taufik, the group financial officer, to lead Petronas as chief executive through a big listing makes sense. The government is likely frustrated that they missed the IPO window last year as global oil prices are now significantly weaker. As a result, an IPO looks almost impossible for the time being. However, if it eventually happens, perhaps Sarawak, which is determined to boost its resource wealth, could get an equity stake in the listed entity.




Recommended for you

More from Energy Voice

Latest Posts