The impact of Sarawak Distribution of Gas Ordinance (DGO) to the Federal Government, businesses and fellow Malaysians should not be estimated. In the recent announcement made by the State Sarawak, this move is deemed against the formation and spirit of the Federation of Malaysia which is a big loss to Malaysians and the country as a whole.
Sarawak produces more than 60% of natural gas for the country. With the Distribution of Gas Ordinance, 2016 (DGO 2016) in place, the state has now the autonomy over the distribution and sales of natural gas harvested from the sea. This move may significantly impact the national oil company PETRONAS’ bottom line, impacting other Malaysian O&G operators such as Shell.
“Sarawak now has the authority to regulate and charge companies utilising the gas distribution lines, not just for household cooking gas, but also for the vast industrial gas flow from the shores to factories.”
Whether Sarawak will continue to sell natural gas to Japan and other countries to gain more profit vis-à-vis the nation’s interest remain a question mark that is best left to the late Taib’s close associate, Deputy Premier, Datuk Seri Awang Tengah who advises the Premier of Sarawak, Tan Sri Abang Johari Openg.
The Ministry of Utilities and Telecommunication of Sarawak approves 437 handling permits and 355 Natural Gas (NG) and Liquefied Petroleum Gas (LPG) licences in Sarawak. According to the state law, activities related to the commercial use and distribution of NG and LPG must be registered for licenses or handling permits as stipulated in the Distribution of Gas Ordinance, 2016 (DGO 2016).
Based on market prices and production output in the last 3 years, the estimated that Sarawak’s natural gas is worth more than RM 20 billion annually. And this could affect the country’s dividend income and future fiscal policies.
If the Premier and Deputy Premier are both agreeable to control the gas distribution, it means the stated-owned Petroleum Sarawak will be Malaysia’s largest natural gas supplier, with RM 20 billion under its monopolistic control, displacing the national oil and gas company PETRONAS in the near future.
Here are some implications if Sarawak takes full control of the distribution of gas in Malaysia.
State control equals more corruption and leakages
And lest we forget, Sarawak is known for his long history of corruption since the ruling of former premier Tun Taib Mahmud due to autonomy and economic control of natural resources such as logging, mining, etc. The same pattern can be seen in the future should Sarawak exercise its full control on the gas distribution.
“Sarawak is a state seen as untouchable by many, with power brokers paving ways to maintain a safe distance from authorities such as MACC – hiding away behind the autonomy granted as part the Federation agreement and other political negotiations.”
Shell’s recent planned divestment to exit its downstream operations in Malaysia sets the tone for Shell’s upstream focus to capitalize Sarawak’s control of natural gas via the Distribution of Gas Ordinance (DGO) in Malaysia.
The monopolistic approach and centralizing the decision to sell natural gas to any company by Petroleum Sarawak (PETROS) lies in the power of present leaders, namely Deputy Premier of Sarawak, Datuk Seri Awang Tengah, an influential person who is a close associate of the late Taib.
In an interview by the Edge, Shell Chairman said Petroleum Sarawak (PETROS) remains an important key stakeholder for Shell. As the Dutch company is aligning its global business to more profitable upstream activities, the fact that 60% of natural gas is produced in Sarawak is viewed as a strategic importance to Shell, fostering stronger relationship with the political elite amidst downward production of oil crude in the state.
With nepotism and rampant kickbacks in Sarawak, the state is not sparred from long battle of corruption scandals, deforestation and native-land grabs which expose endless power abuse from companies that are close to the political elite such as Samling, as reported in Sarawak Report.
Whilst the growing presence of companies in Sarawak are normalizing corrupt practices without a hint of threat by MACC, this pose a high risk to the present prime Minister Datuk Seri Anwar Ibrahim, who fought hard to clean up Malaysia from corruptions, leakages, abuse of power and graft.
After its existence in Sarawak for more than 100 years, could Shell be cushioned from corruption practices, favours, scandals, nepotism and kickbacks in Sarawak?
The inherent deep-rooted corruption practices in Sarawak means giving power to the state to decide what is good for Malaysia when it comes to natural gas pose a huge risk for investors, businesses and the people.
Dividend Contribution to the Federal Government
Multinational Companies (MNCs) are known to send a large portion of their income to their headquarters. The same can be said with Shell, who has been operating in Malaysia for 100 years.
According to Chairman of Shell Siti Hurairah, Shell Malaysia paid approximately close to RM 20 billion to the Malaysian government for production entitlement, taxes, royalties and fees in 2022.
As a comparison, PETRONAS paid RM 50 billion of dividend to the Federal Government in 2022. And including taxes and other fees, the amount could be more if one take into account the jobs creation and CSR activities that have undertaken since the 1980s.
Notably, University of PETRONAS (UTP) and PETRONAS’ involvement in conservation, green energy, motorsports and climate change have benefitted the many Malaysians, and positioned the country on the global map.
“Should the natural gas be sold to Shell instead of PETRONAS, it means less revenue for the national oil and gas company, and in turn lower dividends that can be used by the Malaysian Government for rakyat.”
The fact that is PETROS will be controlling the Gas Distribution rights in Sarawak, or DGO, selling it to foreign companies without national interest may have significant negative effect to the local economy.
Between a Multi-National Company (MNC) and a National Oil Company(NOC), the choice remains clear. A Government of Malaysia requires a consistent income from oil dividend, and of course being a nation builder brings a lot of benefit to Malaysians.
Paving way to political instability
Malaysia is dependent on oil and gas revenue, taxes, royalties and other fees. As most of these go into the Federal coffers to spur economic development in capital cities in western part of Peninsular Malaysia, state-producing states such as Sarawak and Sabah are seen not benefitting from it.
“The control of the distribution of gas in Sarawak means the state leaders and political elite including Deputy Premier, Datuk Seri Awang Tengah have now the power to negotiate on other terms with the Federal Government.”
And this goes against the principles of Federation of Malaysia.
The truth is, Sarawak will not be a developed state by virtue of the size of its population of 2.56 million people, despite recording the 4th highest GDP amongst other 15 states in Malaysia.
However, controlling the gas distribution under the Distribution Gas Ordinance 2016 is seen as the ace card by power brokers to demand more contribution from the Federal, which is detrimental to the political stability. At this juncture, this is bad for present Prime Minister, Datuk Seri Dr. Anwar Ibrahim.
In fact, selling natural gas to Shell by PETROS or the State Government of Sarawak is a losing game. The fact Shell long-planned exit in Malaysia by selling its 950 retail stations to Aramco speaks highly of its loyalty and commitment to Malaysia. In addition to the Shell’s sale of its Port Dickson refinery to a China company at USD 66.3 million and closing down of 35 fuel retail stations in Sabah, the company is no longer viewed by Sarawakians as the state’s preferred oil company despite being in existence for more than 100 years.
Going against the Federation of Malaysia
Sarwak’s control of natural gas means PETRONAS is no longer viewed as of strategic importance to Sarawak, paving ways to the preference towards foreign oil and gas companies such as Shell. This going against the spirit of Federation of Malaysia, as Sarawak’s new approach will not benefit the country as a whole.
“What was most often conveniently overlooked was the important fact that the establishment of PETRONAS was partly driven by the desires of the Sarawakians to manage their petroleum industry."
In a recent book launch in May 2024, Tan Sri Tengku Razaleigh, or known as Ku Li, shed light to this piece of information while reflecting on his years as part of PETRONAS’ founding members.
While noting that the change in oil and gas authority from PETRONAS to Petros seems controversial as it implied that Sarawak no longer wanted PETRONAS to continue management of oil and gas resources, he stressed that PETRONAS’ creation was based on a proposal by Sarawak’s former Chief Minister, the late Tun Rahman Ya’kub, who advocated for PETRONAS to be owned by Malaysians.
Parting Thoughts
As Malaysia’s economy is struggling to diversify income away from oil and gas, and as the pie gets even smaller by the day, the tussle between states and federal are causing two giant oil companies to be at stake.
Whilst there are merits of Foreign Direct Investments (FDI) into Malaysia, it is the long-term commitment and quality investments that benefit Malaysians. In the case of the oil and gas landscape in Malaysia, the creation of PETRONAS backed by the PDA 1974 was indeed a noble effort that requires a revisit by present policy makers to ensure that it is not a victim of political greed by oil-producing states.
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