Malaysia’s Petronas: Federal vs. Sarawak State Control
Malaysia’s crown jewel, Petronas, faces a high-stakes battle with the Sarawak state government over control of liquefied natural gas (LNG) production. This fight could cost Petronas up to 90% of its gas revenue. The dispute holds profound implications for the company, Malaysia’s economy. Furthermore, it may significantly impact the delicate balance of federal-state relations.
Building a Legacy: The Birth of Petronas
Petronas represents Malaysia’s economic sovereignty. In 1974, then Prime Minister Tun Abdul Razak directed the enactment of the Petroleum Development Act (PDA). This move centralized oil and gas resources under Petronas. It ensured the nation benefited from its petroleum wealth.
Tengku Razaleigh Hamzah, Malaysia’s Minister of Finance, led the creation of the PDA. Sarawak leaders Abdul Rahman Ya’kub and Abdul Taib Mahmud negotiated their state’s role in the framework. Before the PDA, foreign giants like Shell and Esso controlled Malaysia’s oil fields. Establishing Petronas reclaimed national control and fueled development. However, centralization sparked tensions, especially in resource-rich states like Sarawak and Sabah.
Setting the Record Straight
Recent claims wrongly credited the late billionaire Ananda Krishnan as a founding director of Petronas. Ananda joined the board from 1984 to 1986. The true architects were Razaleigh, Rahman, and Taib. Misattributions obscure the historical significance of the company’s creation and its foundational role in Malaysia’s federal framework. Perhaps it was due to this involvement that led to rumors stating him as a founding director, which simple investigative journalism could have helped disclose.
Ananda Krishnan’s connection to the iconic Petronas Twin Towers adds an interesting chapter to the project’s history. The land on which the towers were built was originally acquired by Ananda in the early 1990s when he purchased the Selangor Turf Club site. He paid RM110 million for the land and an additional RM320 million to convert its status for development. To facilitate the Kuala Lumpur City Centre (KLCC) project, Ananda sold a 51% stake in his company, Sri Kuda Sdn Bhd, to Petronas for RM681 million. This company was later renamed KLCC Holdings Sdn Bhd.
In 2002, Ananda divested his remaining 49% stake in KLCC Holdings to Petronas for an estimated RM1.2 billion. This marked the complete transfer of the land and the KLCC project to Petronas, which now fully owns the property through its subsidiary KLCC Property Holdings Berhad. Despite the divestment, Ananda’s early role in acquiring and developing the site remains a pivotal moment in the project’s history. Today, KLCC Property Holdings and its associated REIT manage the Petronas Twin Towers, with Petronas as both the primary tenant and parent company.
Sarawak’s Fight for Control
Sarawak’s push for LNG control stems from historical agreements. Before joining Malaysia in 1963, Sarawak passed the Oil Mining Ordinance (OMO) to regulate its petroleum resources. The 1954 British decision granting Sarawak control over its continental shelf strengthens its claims. However, the PDA’s centralization of resources under Petronas sparked decades of discontent.
Since the 2018 general election, Sarawak and Sabah have accused the federal government of breaking autonomy and revenue-sharing promises. Sarawak now demands full control of LNG operations through its state-owned company, Petros. Petros was established in 2017. If Sarawak succeeds, Petronas’ contributions to the federal budget—RM32 billion in 2024 alone—could plummet. This disruption would severely impact national finances.
The Domino Effect
Sarawak’s fight could inspire other resource-rich states to follow. Sabah, Kelantan, and Terengganu, long dissatisfied with federal development neglect, may take similar steps. The federal government’s failure to fulfill election promises since 2018 has deepened their resentment. Promised reforms, including enhanced autonomy and revenue-sharing, remain unfulfilled.
Najib Razak’s administration launched projects to address these gaps. The Pan Borneo Highway aimed to improve East Malaysia’s connectivity. The East Coast Rail Link (ECRL) sought to uplift Kelantan and Terengganu. However, many of these projects faced cancellations or delays after the 2018 elections. Disillusioned, these states may demand greater control over their resources. Moreover, this shift risks fragmenting Malaysia’s resource management and undermining national unity.
Petronas: A Giant in Peril
Petronas dominates the energy landscape. It became ASEAN’s most valuable brand in 2012, surpassing Singapore’s DBS Bank. Petronas has consistently retained this title. Its contributions underpin Malaysia’s infrastructure and retirement funds, such as the Employees Provident Fund (EPF).
However, Sarawak’s autonomy push threatens this legacy. Petros, with only seven years of operations, lacks Petronas’ expertise and global reach. Transitioning control could disrupt operations and weaken Malaysia’s energy standing. Decentralizing resource management may also fuel competition among states. This could erode national cohesion.
The Road Ahead for the Federal Government
Petronas faces a pivotal moment. The company has long served as a cornerstone of Malaysia’s growth. The Sarawak dispute highlights deep tensions between federal authority and state rights. Furthermore, its resolution could reshape Malaysia’s energy sector, economic priorities, and federal-state relations.
Petronas embodies Malaysia’s ambition and resilience. As the nation navigates these challenges, the company’s founding principle—serving all Malaysians—must guide the way. It is also the federal government’s responsibility to ensure that all states, not just Kuala Lumpur or those governed by the political incumbent party, receive equitable attention and development. By addressing the needs of resource-rich but underdeveloped states, the government can foster unity and prevent further discontent. Whether this conflict strengthens Malaysia’s unity or exposes deeper fractures remains to be seen.
