Petronas-Petros deal still up in the air, says analyst

 Harridon Suffian says earlier political understandings have not fully settled the legal, commercial and regulatory issues behind the dispute.

The existence of pending cases in the Federal Court shows that Petronas and Petros have yet to resolve several underlying legal and commercial issues, an economist said.

PETALING JAYA:

Recent indications that Petronas and Petroleum Sarawak Bhd (Petros) may be edging closer to resolving their long-running dispute should be treated with caution, says economist Harridon Suffian.

Last month, The Edge reported that the feud would likely be settled soon, citing sources familiar with the matter.

However, Harridon, of Universiti Kuala Lumpur, said the core issues, namely the extent of Sarawak’s control over oil and gas resources and the financial returns due to the state, have yet to be resolved.

He said that over the past two years, repeated claims have surfaced suggesting the dispute was either resolved or that a resolution was imminent.

Harridon Suffian.

“The current issue has not moved far from the previous contention. It still revolves around the degree of control over the rights, privileges, fields and production of oil and gas offshore East Malaysia,” he told FMT.

Harridon said the dispute also involved the financial returns sought by Sarawak, with the state seeking a substantial increase based on the reserves and production.

However, he said Petronas had rejected the numerical value proposed, arguing that it would significantly affect the company’s revenue structure.

Sarawak has sought greater control over oil and gas resources through Petros, appointing the state-owned company as the gas aggregator for its domestic market, while Petronas maintains that its national role covers upstream management under the Petroleum Development Act 1974 and the preservation of Malaysia’s LNG value chain, including existing export arrangements.

In November 2024, Sarawak announced that negotiations had effectively concluded, with formal confirmation from Petronas expected. Despite this, talks have continued.

In early 2025, Prime Minister Anwar Ibrahim asserted that the matter had been resolved, with Petronas retaining its national role and Petros designated as Sarawak’s gas aggregator.

That understanding ultimately paved the way for a joint declaration, signed in May 2025 between Putrajaya and Kuching, formally naming Petros as Sarawak’s gas aggregator while reaffirming Petronas’s continued role under the PDA.

It also said relevant federal and Sarawak laws on gas distribution would coexist, with both sides to work out the framework in greater detail.

“But even that did not end the dispute. It was merely a broad political framework to move both sides towards resolving the predicament,” he said.

In January, Petronas turned to the Federal Court seeking clarity over which laws govern its operations in Sarawak, saying differences remained over its regulatory obligations.

The following month, Sarawak filed its own petition to the apex court challenging the validity and continued application to the state of several federal petroleum laws, including the PDA, the Continental Shelf Act 1966 and the Petroleum Mining Act 1966.

In March, the Federal Court granted Petronas leave to proceed with its constitutional challenge.

By June, Anwar announced that several important issues had been ironed out and that a final agreement was expected soon.

Commenting on the prime minister’s statement, Harridon said any concrete agreement would likely need to specify the gas distribution volumes allocated to both Petronas and Petros.

He added that the final stage of negotiations would be expected to clearly spell out the royalty or financial value to be received by Sarawak.

According to Harridon, the fact that both sides eventually went to the Federal Court showed that political agreements had not resolved the underlying legal and commercial issues.

However, he said this did not mean previous negotiations had achieved nothing.

“There has clearly been progress, but the rate of progress was not optimum as numerous key issues were not settled amicably, as shown by the existence of the court cases,” he said.

“The political agreements are substantially directions and instructions for both parties, Petronas and Petros, to move forward towards an agreement.

“However, the detailed terms and conditions of the agreement are intricate and complex, with several numerical values still needing to be agreed upon.”

For that reason, Harridon said recent reports do not point to a more definitive settlement than those previously announced. - FMT