Petronas vs Petros: a corporate feud that endangers the rakyat

The public could see reduced subsidies, rising inflation, and possible unemployment.

From Mazli Noor

The dispute between Petronas and Petroleum Sarawak Bhd (Petros) remains unresolved. While Prime Minister Anwar Ibrahim has expressed confidence that a fair resolution is achievable, recent developments offer little cause for optimism.

What began as a jurisdictional disagreement over resource rights now carries consequences that reach well beyond the parties involved, and it is the rakyat who stands most exposed.

The state of play

Both parties currently await a ruling from the Federal Court on questions of law filed by each side. At the heart of the matter is the Petroleum Development Act (PDA) 1974 – specifically, whether it validly confers upon Petronas a monopoly over the country’s hydrocarbon resources, and if not, whether Petronas is subject to Sarawak’s state mining enactments when operating within the state.

In a related development, the High Court in Kuching has dismissed Petros’s bid to challenge Petronas’s claim over RM7.95 million in bank guarantees tied to gas supply arrangements, affirming that the guarantees are valid and enforceable.

There is also a separate dispute involving Shell MDS, which has withheld payments to Petronas pending the Federal Court’s determination on the PDA’s validity.

Of particular significance is Petros’s claim to exclusive gas aggregation rights in Sarawak. If upheld, this would remove Petronas’s mandate to manage gas revenues in the state, effectively splitting what has been a unified national gas market into smaller separate segments.

The wider economic consequences

While this is ostensibly a dispute between two commercial entities, the implications for the nation’s economy are far-reaching.

The uncertainty it generates is particularly damaging to investor confidence. Investors at home and abroad need clarity on who holds regulatory authority, who issues contracts, and who is responsible for payments before committing.

For now, there are no definitive answers to any of these questions.

The consequences are already tangible. ConocoPhillips, a major international oil company, recently withdrew from a planned investment in Sarawak, citing precisely this legal uncertainty.

The stable framework that the PDA provided for 50 years is now under serious strain, and other prospective investors are watching closely.

The financial stakes are also significant. Gas contributes over 40% of Petronas’s revenue – more than RM119 billion in 2025 – and accounts for 22% of its capital expenditure.

Any structural disruption to its gas business would compound existing pressures. Petronas already reported an 18% decline in net profit to RM45.4 billion for the financial year ended December 2025, partly attributable to the increasingly challenging economic environment.

Crucially, this also translates directly into significantly reduced government revenue.

Petronas’s dividend to the government for 2026 stands at RM20 billion – the lowest since 2017, and 38% less than the RM32 billion it paid the year before. Analysts estimate that each RM5 billion reduction in the dividend widens the fiscal deficit by approximately 0.24% of GDP.

A prolonged deterioration in Petronas’s financial position could also place pressure on sovereign and corporate credit ratings. Both Malaysia and Petronas are currently rated AAA under MARC.

Any downward revision of these ratings will see the cost of government borrowings rising accordingly, with some analysts estimating the change could increase annual debt interest payments from the current RM48 billion to RM60 billion.

What the rakyat stand to lose

Macroeconomic pressures will inevitably find their way into every household. If government revenues are jeopardised and debt servicing costs rise, the fiscal space available for public programmes will be the first to narrow.

Among the most vulnerable are fuel and electricity subsidies, which provide meaningful relief to households across the income spectrum.

A reduction in these subsidies would raise the cost of living and notably erode purchasing power, with knock-on effects on inflation. Producers facing higher input costs may find it difficult to sustain current levels of output, which in turn carries implications for employment.

Should Petros’s exclusive aggregation rights be confirmed, the subsequent fragmentation of the gas market will raise operational costs for both entities even further, reducing the country’s economies of scale in energy, weakening the nation’s competitiveness and jeopardising the security of national gas supply.

A call for resolution and reform

The present trajectory of this dispute does not serve the national interest. The most constructive path forward is for all parties to return to the negotiating table and pursue a settlement that is viable and fair – one that does not sacrifice the country’s long-term economic stability for the sake of competing institutional claims.

There is also an opportunity here that should not be squandered. This dispute has exposed genuine ambiguities in the legislative framework – the Petroleum Development Act (PDA) 1974, the Oil Mining Ordinance (OMO) 1958 of Sarawak, and related statutes.

A measured, objective review of these provisions, with a view to modernising and clarifying them, would serve the interests of all parties and provide the legal certainty that investors require.

Beyond that, the federal government would do well to consider a broader review of how natural resource revenues are shared between the federal and state governments – particularly for hydrocarbon-producing states.

Whatever the Federal Court ultimately decides will set a very clear tone for them. A proactive, harmonised approach to revenue-sharing would be far preferable to managing a series of state-by-state disputes in the years ahead.

At the end of this dispute – however it is resolved – it will be the rakyat who bears the residual costs. That is reason enough to demand that any settlement places the welfare of the people, and the long-term health of the nation, at the very centre of every decision to be made.

Mazli Noor serves on the boards of several public and private companies and is an FMT reader.

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