Sarawak puts on hold oil royalty hike talks

KUCHING: The Sarawak government, pledging to pursue its request for higher oil and gas royalty, has put on hold further talks with Putrajaya until global crude oil prices recover, Chief Minister Abang Johari Openg said today.


“I have to take cognisance of the fact that we are negotiating during an unfavourable environment when the price of oil is low and the cost of production is competitive,” he told the state assembly.

However, he pledged the state would continue the negotiations, which were started by his predecessor with Petronas.

In 2014, the state BN, led by the late Adenan Satem, had supported a motion, originally tabled by Sarawak DAP leader Chong Chieng Jen, calling for the oil royalty paid by Petronas to the state to be increased from the existing 5% to 20%.

Last year, Adenan eased up on his demand following the slump in world oil prices, saying the state government would pursue the matter later. However, Adenan died in January from heart failure.

Abang Johari assured the assembly that under the present situation, the request for a 20% royalty, though still on the state’s agenda, had to be managed with care.

“It does not mean the Sarawak government is abandoning the request but only when the global oil situation improves significantly will it be meaningful for a meeting between Petronas and the Sarawak government to be resumed on the issue of the oil royalty.”

Abang Johari said that, in the meantime, the Sarawak government would pursue the development of the oil and gas industry in other areas.

The state will form a commercial entity to operate alongside Petronas to explore and produce oil and gas in marginal or brown fields in Sarawak that have feasible potential to produce oil and gas.

Sarawak will also take part in downstream activities. As a pilot project, Sarawak has embarked on the manufacture of methanol and its derivatives with gas from Petronas.

Based on a pre-feasibility study for a proposed methanol and methanol derivatives plant project in Bintulu, an agreement was signed last April 22 for Petronas to supply natural gas to the project and buy methanol from it.

Petronas has also been directed by the state to consult it beforehand on the utilisation of gas from any new fields. This is to ensure Sarawak has the first right of refusal in using the new sources of gas for the development of its oil and gas industries as well as the development of other industries.

“In fact, as a result of the several agreements recently signed, Petronas has committed to supplying 450 million standard cubic feet per day of natural gas for the power and non-power sectors development in Sarawak.”

Furthermore, he said, Petronas has committed to a baseline value of RM2.1 billion worth of contracts to be awarded to Sarawak companies each year.

Since 2013, Petronas has given RM15.8 billion worth of contracts to Sarawak companies. The number of Sarawak licensed or registered companies with Petronas has also increased from 314 in 2013 to 420 in 2016.

Abang Johari also announced that state-owned Brooke Dockyard has been awarded the Bokor and Anjung offshore projects worth a total RM490 million.

The scope of the contracts includes design, construction, offshore installation, hook up and commissioning — the entire value chain of an offshore development project.

“This confidence paves the way for further involvement in marginal fields offshore Sarawak which we can capitalise on.”

Abang Johari also said the Sarawak government was negotiating with Petronas on the details of a shareholders agreement on the 10% equity in the Malaysia Liquefied Natural Gas (MLNG) plant train 9.

“We are also working with Petronas for a larger equity in the MLNG 2 plant. Let me emphasise here that Sarawak’s equity in the MLNG projects is our privilege,” he said.

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