Expand special grant to break federal-S’wak O&G impasse

Direct federal payments can meet Sarawak’s needs without weakening a critical national institution.

From Syed Farhan Syed Feizal

Prime Minister Anwar Ibrahim’s call for Petronas and Petros to work as a team and resolve their dispute quickly is understandable, given the stakes involved.

The problem is that Malaysia has heard variations of “almost settled” before. While broad principles may have moved closer, the unresolved commercial terms, operating authority and pending court cases show that the impasse has not truly closed.

That is why Putrajaya and Kuching should stop trying to resolve every part of the problem solely through the two companies. The RM1.5 billion interim special grant offers a promising route: expand it into a bigger, permanent and transparent direct-payment formula for Sarawak.

It may not settle every question of law, control and distribution, but it could separate Sarawak’s legitimate demand for a better return from the fight over Petronas’s commercial ecosystem.

At the Malaysia Day celebration in Kuching on Sept 16, Anwar announced the grant “in the spirit of solidarity, friendship and Malaysia”. He has agreed in principle to Sarawak’s proposal for a formula linked to 5% to 10% of federal revenue.

A clear formula is better than haggling. Sarawak would know what it can expect, Putrajaya what it must provide, and both sides how and when the arrangement is reviewed.

The payment could rise and fall with national revenue, making Sarawak a partner in Malaysia’s fiscal success without making Petronas the vehicle for political demands.

Putrajaya’s fiscal room is undoubtedly tight, and a permanent formula would carry a real cost.

But that is precisely the point: settling the federal-Sarawak relationship is the federal government’s responsibility, not a problem to be shifted onto Petronas’s balance sheet and business model.

If Malaysia believes Sarawak deserves a larger, more durable return, Putrajaya must find the money and own the decision – even if it is politically and fiscally difficult.

The Hormuz crisis has shown how a disruption at a strategic sea lane can affect supply, shipping, prices, contractual commitments and confidence.

Energy security is not about having oil and gas in the ground. It is about delivering reliably, maintaining infrastructure, honouring contracts and absorbing shocks when the market turns volatile.

Petronas sits at the centre of that system. It develops fields, funds infrastructure, maintains production-sharing relationships, secures buyers and fulfils LNG commitments. The company’s scale, balance sheet and integrated model are what allow Malaysia to remain a dependable energy supplier while protecting domestic needs.

Sarawak’s pursuit of a fairer return and a stronger role in development is understandable. Its people should benefit from resources off its shores, and Petros should have space to build capability in the domestic gas market.

But Sarawak is seeking more than cash. A figure of RM10 billion has been associated with its demands, alongside a gas-aggregator role for Petros. This is where a revenue dispute becomes a national energy-security question.

An aggregator is not just a distributor. It buys gas from producers and resells it to users. Whoever controls that position controls pricing, cash flows and the margin between purchase and resale.

A wider aggregator role would therefore remove an important component from Petronas’s ecosystem and business model. That may generate a new stream of revenue for Petros, but it can also weaken the integrated chain that supports Petronas’s investment capacity, LNG obligations and national role.

Malaysia should not resolve an intergovernmental question of revenue-sharing by unpicking the company that carries these responsibilities.

The broad contours of a workable arrangement are visible.

Petros can play an important role in Sarawak’s domestic gas market and in the state’s industrial ambitions.

Petronas, however, should retain its nationwide role under the Petroleum Development Act 1974, including upstream stewardship, production-sharing contracts, international LNG sales and existing delivery obligations.

The principle is simple: give Sarawak participation without creating overlapping authority that leaves businesses unsure about who they must pay, which rules apply, or whether an investment will be protected.

The Shell MDS dispute, which saw the company receive competing bills from Petronas and Petros, is a warning of what happens when lines are blurred. Uncertainty is not merely an inconvenience. It delays decisions, raises costs and makes Malaysia look less reliable to investors.

A permanent direct-payment formula will not make legal questions vanish. Nor should it prevent Petros from growing. It does, however, remove the most politically charged issue – how much Sarawak receives – from corporate negotiation.

Instead of seeking a fixed RM10 billion through Petronas and a slice of its commercial chain, Sarawak can receive a fair, predictable federal transfer through an arrangement negotiated openly between governments.

That would give Sarawak a steadier return, Petros room to develop and Putrajaya a credible answer to MA63 expectations.

It would also allow Petronas to remain financially and operationally strong enough to reinvest, meet its commitments and defend Malaysia’s energy security.

Anwar wants a quick resolution. The record suggests goodwill alone will not deliver one.

Expanding the special-grant approach could: settle the money question directly, preserve the national energy system, and give both Sarawak and Malaysia something more durable than another near-settlement.

Syed Farhan Syed Feizal is an oil & gas analyst, Global Asia Consulting, and an FMT reader.

The views expressed are those of the writer and do not necessarily reflect those of FMT.