KUALA LUMPUR: Petroliam Nasional Berhad (Petronas), Malaysia’s state oil giant and custodian of the nation’s hydrocarbon reserves, is confronting one of the most serious challenges in its history — a political and regulatory battle with Sarawak that could reshape the country’s oil and gas sector.
Already pressured by weak global oil prices, costlier extraction from lower-quality fields, and uneven overseas ventures, Petronas now faces a direct challenge to its authority under the 1974 Petroleum Development Act (PDA). The Sarawak state government is demanding that its wholly owned Petroleum Sarawak Berhad (Petros) take over as regulator of hydrocarbon reserves in the state, a move that would strip Petronas of its nationwide monopoly.
Analysts warn that such a shift could undermine Petronas’ financial position, unsettle bond markets — which hold more than US$56 billion in its debt — and slash federal revenue. The government has long relied on Petronas for annual dividends, taxes, and other payments, which in 2024 amounted to over RM70 billion.
Prime Minister Anwar Ibrahim has repeatedly sought to present the dispute as manageable, citing a May agreement for Petronas and Petros to jointly develop Malaysia’s oil and gas resources. However, insiders say little has changed on the ground, with Sarawak introducing new rules, restricting work permits for Petronas staff, and continuing to assert authority under its colonial-era Oil Mining Ordinance.
The political stakes are high. Sarawak’s ruling coalition, Gabungan Parti Sarawak (GPS), holds 23 parliamentary seats and is a key pillar in Anwar’s fragile unity government. Any deterioration in relations could destabilise the coalition.
Petronas’ importance to Malaysia extends beyond politics. Once the sole regulator, it has evolved into a global energy player with assets of RM766.7 billion, operations in over 30 countries, and a profit of RM55 billion in 2024. Its partnerships with international oil companies have brought in technology and investment, helping Malaysia retain a large share of oil profits.
Yet, its history is also marked by political interference. Petronas has been used to fund government projects and bailouts, from rescuing politically linked companies to financing the construction of Putrajaya. Under the PDA, it operates under the prime minister’s direction and is exempt from publishing annual accounts, reinforcing its role as the government’s chief financial backstop.
Globally, Petronas is facing shrinking margins — now between 25% and 38%, compared with 35–40% in the past — and higher operating costs. Its overseas ventures have also hit obstacles, including asset seizures linked to the Sulu Sultanate dispute and nationalisation moves in South Sudan.
Despite these pressures, the Sarawak conflict remains its most immediate threat. Industry players say Petros lacks the technical capacity and resources of Petronas, and any pullback from Sarawak could hurt both state and national economies.
Possible solutions — such as court arbitration or profit-sharing arrangements — have been suggested, but neither side appears willing to compromise. As one Petronas insider put it: “Petros wants what Petronas has, and Petronas is not going to give it up.”
