Sabah Chief Minister Musa Aman gives Scharlene Zaveller, 7, who is deaf, duit raya (festive gift of money) at his Hari Raya Open house in Kota Kinabalu.

Giving Sabah a fair share of oil money

Insight Sabah says a stake in Petronas is better than higher oil royalty

Sabah Chief Minister Musa Aman is right. After 36 years, it is certainly time to review the oil revenue- or profit-sharing agreement between Sabah, Sarawak, the federal government and Petronas, the national oil company. And it is opportune since Najib Razak, the prime minister, is reviewing cash payments, deemed as royalties, from petroleum revenue to oil-producing peninsular Malaysian states of Kelantan, Pahang and Terengganu. Sabah, like the others, has been receiving 5% oil royalty. And this has been a source of unhappiness of Sabahans who feel shortchanged. But it would be naïve to think that increasing it will placate Sabahans suffering from a sense of loss of what is theirs. They don’t see oil and gas as a national asset despite having been Malaysians for almost 50 years.

Sabah in fact has never been shortchanged by Kuala Lumpur of its oil and gas. It receives about four times more than its 5% oil royalty from the federal government for its social and infrastructure development under each succeeding five-year Malaysia plan. The state problem has been in spending the money quickly enough.

Sabah expects about 800m ($258m) ringgit in petroleum royalties this year. Federal grants are estimated at about 350m ringgit. The state has got slightly more than 10 billion ringgit to carry out 424 projects under the first phase of a rolling plan of the 10th Malaysia plan which started last year.

The Borneo island state contributes a little more than a quarter of Malaysia’s crude oil production of about 635,000 barrels a day. The bulk of it comes largely off the peninsular coast of Trengganu. Sarawak’s makes up the rest. Petronas last year paid 5.4 billion ringgit in “petroleum proceeds” to the federal and state governments. (Petronas has never referred to these cash payments as “royalties” in its financial statements.)

Najib RazakNajib speaks of a “fair” distribution of cash payments from petroleum revenue. And this is what the Petroleum Development Act of 1974 has set out to achieve after Petronas signed the first production sharing contracts with Shell, Exxon and other foreign oil companies in 1976. Under a complex mechanism, Petronas sets aside 10% of gross revenue from oil and gas production for cash payments to the federal government and oil-producing states. Out of this money, the federal takes half and the states keep the balance.

The only sore point is that the federal government is the sole shareholder of Petronas. It gets a flat annual dividend of 28 billion ringgit. Last year it got 30 billion ringgit out of a profit of 63 billion ringgit.

It would thus be pertinent then for Najib and Petronas to consider converting Sabah’s and other oil-producing states' share of oil and gas revenue into equity. This would certainly help to diminish Sabahans’ sense of loss of their natural resources. Surely, they will be proud to own a piece of Malaysia’s only Fortune 500 company that will heighten their sense of belonging to the 13-state federation where they are separated from the peninsula by the South China Sea.

Rather than “cash payments” or “royalties”, Sabah and the other oil-producing states would be receiving dividends as long as Petronas continues to be profitable. Whether dividends will pay more is a moot point even though Petronas is trying to plough back more profit into its operations and limit dividends to 30% against 61% now. So is the question of whether it would reduce federal funding of the country’s social and infrastructure development should payment of oil and gas dividends to the federal government fall. Sooner or later Kuala Lumpur will have to cut its dependence on oil and gas money which now accounts for 45% of the national budget.

Giving Sabahans and Sarawakians a stake in Petronas will surely help their integration in Malaysia. After almost 50 years, it is still not too late to start. – Insight Sabah

Weathering the storms ►

Posted on August 24, 2012

Malay 中文 Kadazan
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  • give back to Sabah 100%

    By Joshua on 12-09-2012 05:05 am

    Now it is the lost cause in Oil and Gas in Sabah.

    Sabah has been so generous to give spaces to the Project IC in millions of foreigners.
    Sabah has been so generous too to give all the wealth away and retain only 5%.
      I want the leaders in 1976 to search their conscience as to why they had been
    so generous to give almost everything away despite 20 points and the Malaysia Agreement
    under the watchful eyes of the British colonialists.
    If you own some land and houses, do you allow others to occupy 95% of the
    property and you use only 5% of the said asset?
    Nincompoops are so clever now as they play up again in the mass media.  Who do you think they fool?
    The foolishness statement is about how much we in Sabah must get back? 10%, 15%,
    20% and some 25% and better still 30%?  Are those percentages reality with the
    present scenario when long terms contracts already signed  away with foreigners
    (non Sabahans and foreigners)?  We Sabahans had been cheated since 1976.
    So why not after 30 years, we take it back 100%.  Even some land tenure was reduced to
     30 years and then subject to new terms and conditions.  So why not the Petroleum
    Development Acr be repealed after 30 years and all those contracts to be declared
    null and void.  All we need is to amend the Act of Parliament with a fixed term
     and let others complain.  The poor rakyat had been complaining about the Oil and Gas but nobody is listening.
    Now as the GE 13 is looming, some fools want to fool others with some listening
    devices which would be switched off after GE13. There we go again.
    The reality is 5% is already locked up.  Any change in that rate would mean the overall fund (the low one) would be the same and only play with some figures to fool themselves.
    Any sincere parliamentarian to bring an amendment to the Petroleum Development Act 144? 
     Act now or forever ‘dead’.
    That would be "Janji Ditepati" - promise fulfilled for 50 years of Sabah in Malaysia that Sabahans would be fools and poor.
    Time for a total change under the acronym “PUTERA”  AMEN.          
    To know more of IGGG go to
    Joshua Y. C. Kong
    PM for IGGG Malaysia for the good of all.
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