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Sarawak loyalty consolidated by oil and gas rights
March 8th 2018 | Malaysia | Oil and gas | Petroliam Nasional Berhad (Petronas)
On March 6th the eastern Malaysian state of Sarawak formally launched Petroleum Sarawak (Petros), its state-owned oil and gas company, after the prime minister, Najib Razak, agreed to grant the state control over its oil and gas resources.
Amid speculation that the general election might be held in a matter of weeks rather than months, Mr Najib appears to be moving to consolidate the electoral base of the ruling Barisan Nasional (BN) coalition. At present Sarawak, one of Malaysia's poorest states, accounts for 25 of the BN's 132 seats in parliament, leading the opposition Pakatan Harapan alliance to propose restoring full control over oil and gas rights to Sarawak as a means of prising the state away from the BN.
Mr Najib has moved to neutralise the issue by granting Sarawak control over its oil and gas resources from July 2018. Sarawak has long complained about erosion of its control over mineral resources since the foundation of Malaysia in 1963. Currently, state-owned Petronas has nationwide rights over minerals and remits 5% royalty payments to Sarawak, a figure viewed in the state as too low.
Sarawak will gain licensing and approval authority over upstream and downstream developments in the oil and gas industry, but the agreement between Mr Najib and Sarawak states that Petronas's existing rights in the state (where there are 60 producing oil- and gasfields) will not be jeopardised. The agreement will allow Petros to launch new oil and gas developments, over which Sarawak will have full financial control.
The move reinforces our view that the BN is likely to retain all its parliamentary seats in Sarawak. We also continue to expect that the United Malays National Organisation will retain, if not improve on, its current tally of 86 seats, ensuring that it remains the single-largest party in the BN after the next general election.