Sarawak, a Malaysian state rich in natural resources, is at the center of a heated dispute with the federal government over control of its oil and gas sector. This conflict has escalated following Sarawak’s attempt to assert greater autonomy, compounded by the state’s recent acquisition of a significant stake in Affin Bank Bhd. Petronas, Malaysia's national oil and gas company, finds itself in a precarious position as Sarawak enforces licensing requirements that complicate operations for private sector entities and international investors.
In September 2023, the Sarawak government acquired a controlling 31.25% equity interest in Affin Bank Bhd for RM1.78 billion (US$399 million). This move underscores Sarawak's ambition to strengthen its economic independence. However, the Malaysian government has rejected Sarawak's demands for greater control over its liquified natural gas resources, maintaining that Petronas will continue its dominant role as outlined in the 1974 Petroleum Development Act (PDA).
Petronas officials have expressed concerns about the untenable situation created by Sarawak's enforcement of new laws. These legal enactments have introduced significant uncertainty among international investors and complicated operations within Malaysia’s oil-rich state. A government official commented, “The enactments of laws by the state (Sarawak) government have complicated the situation.”
Negotiations between Petronas and the Sarawak government have reached an impasse, according to sources from CNA. Petronas retains a monopoly on the oil and gas sector, which contributes significantly to Malaysia’s financial landscape. In the first half of 2024 alone, Petronas paid RM12 billion to the government, indicating a full-year payment estimate of RM32 billion. Despite this, Petronas recorded a 19% decline in profit before tax for the six months ending June 2024 compared to the previous year.
Sarawak contributes almost 90% of Malaysia's LNG exports and holds about 60% of the country’s gas reserves. The state's leadership has been vocal about seeking greater autonomy over its resources and other affairs such as education and economy management. The agreement between Prime Minister Anwar Ibrahim and Sarawak Chief Minister Abang Johari recognizes Sabah and Sarawak as equal partners with West Malaysia, yet tensions remain high.
Chong Chien Jen, a prominent political figure, criticized the handling of the situation, stating, “We are being exploited as a state, and I consider this the second sellout of Sarawak after the PDA.” His remarks reflect widespread dissatisfaction within Sarawak regarding federal control over its resources.
The Sarawak government has asserted its rights over the state's oil and gas resources using a pre-independence Oil Mining Ordinance. This ordinance is at odds with federal laws, leading to further legal ambiguity. Abdul Karim Rahman Hamzah expressed his confusion, stating, “The whole situation is very puzzling.”
The annual allocation for oil-and-gas-related development expenditure stands at RM25.7 billion, underscoring the sector's significance to Malaysia's national budget. Despite this substantial expenditure, the conflict between state and federal authorities threatens to disrupt economic stability.
Zaid Ibrahim, a legal expert, highlighted the challenges posed by dual legal frameworks: “There can’t be two sets of laws, such as the PDA and the Sarawak Distribution of Gas Ordinance, because it will only lead to more conflict, and foreign investors want certainty.” He suggested that both parties turn to the courts to resolve these issues: “The best will be to have a holding pattern with Petronas operating as before and both parties turning to the courts to settle the issue.”
Petronas officials have acknowledged challenges arising from Sarawak’s legal maneuvers. A government official remarked on the difficulties faced by companies: “What went through Petronas in the state (under the PDA) before, now must go through Petros and that is making things difficult not only for us (Petronas) but also the foreign independent contractors.”
The Sarawak government's silence on current negotiations adds another layer of complexity. A senior official from the state's Attorney General's Office stated that they have no comments to make at this time, leaving many questions unanswered.
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