Sarawak’s growing assertiveness in managing its natural gas resources through its state-owned entity, PETROS (Petroleum Sarawak Berhad), has sparked a contentious debate that threatens to disrupt the delicate balance between the state and the Federation of Malaysia.
Sarawak Premier Tan Sri Abang Johari Openg is now prepared to take legal action if Sarawak’s rights “are not respected” by the Federation or any entities owned by the Federation of Malaysia.
While Sarawak’s pursuit of economic autonomy aligns with its constitutional rights and the Malaysia Agreement 1963 (MA63), experts caution that escalating disputes over oil and gas (O&G) resources could result in significant losses for both PETROS and Malaysia.
As the natural gas aggregator for Sarawak, PETROS faces immense domestic capital investment challenges, and capital raising exercise or luring foreign direct investment may be akin to selling stakes of your well-guarded national assets too early in the game.
Lest we forget, we should be running a business fueled by escalating debt and centralized unity is key in managing the country’s natural resources under the Petroleum Development Act (PDA74).
In view that PETROS is playing a high-stakes role, industry experts viewed that a collaborative resolution is imperative to safeguard both parties’ interests and maintain Malaysia’s economic stability of its strategic national assets.
High-Stakes Role of PETROS
Established in 2017, PETROS was envisioned as the cornerstone of Sarawak’s ambition to reclaim greater control over its natural resources. However, the company’s mandate as a natural gas aggregator is both an opportunity and a burden.
PETROS is tasked with monetizing Sarawak’s vast natural gas reserves, developing infrastructure, and creating value-added downstream industries.
However, this role requires massive capital investments, mostly are currently underwritten by PETRONAS – an entity which has long been investing billions of ringgits in developing the natural resources in Sarawak.
Being a sole natural aggregator, the burden is shifted to PETROS to develop natural gas fields, liquefied natural gas (LNG) plants, and expanding distribution networks which involve billions of ringgit.
With no clear agreement between these two entities, PETROS also faces competition from its own backyard – a more established national players like PETRONAS, which has decades of experience and global expertise.
“The financial risks for PETROS are monumental for investors” an energy sector analyst explained.
“They are venturing into a capital-intensive industry with little room for error. A single misstep in project execution or market forecasting could lead to crippling losses.”
Economic Implications for Malaysia
The economic implication of this oil-and-gas dispute between Sarawak and Malaysia is a huge one.
Experts warn that Malaysia risks a dual blow: reduced contributions from Sarawak due to inability for PETROS to operate as efficiently as PETRONAS and diminished investor confidence in its energy sector.
Foreign investors might hesitate to commit to projects in Malaysia, fearing regulatory uncertainties and state-federal disputes.
“These conflicts send the wrong signal to the global market,” said a senior economist based on Kuala Lumpur
“Investors has built long term confidence over PETRONAS as an international brand for decades and the dispute over control by PETROS is not good for the country” he added
“If Malaysia is perceived as a fragmented market with inconsistent policies, it could deter long-term investments in its oil and gas sector.”
The Federation of Malaysia, through PETRONAS, has long relied on revenue from Sarawak’s oil and gas to fund nationwide development projects. Sarawak contributes approximately 60% of Malaysia’s natural gas output, making it a vital player in the country’s energy sector.
However, as Sarawak asserts more control over its resources through PETROS, federal revenues are likely to diminish, sending waves of investor confidence from the vibrant O&G sector.
This akin to Rob-Peter-to-Pay-Paul but this time PETROS is more highly exposed to financial long term risks, whilst PETRONAS shares equal financial impact due to the direct loss of revenue from the state.
With both entities are on a lose-lose situation, the signals a downward investor confidence for both PETRONAS, PETROS – and more crucially, Malaysia’s overall investment landscape.
The Work Permit Imposed on Malaysians from Peninsular Continue to Affect the Sarawak Economic Growth
Sarawak is heavily dependent on O&G experts, with majority of them coming from peninsular Malaysia. Notably, PETRONAS provides the highest number of O&G engineers and industry specialists – but most of this work permit is held by the State.
According to Section 66(2) of the Sarawak Immigration Act, Malaysians from Peninsular Malaysia or Sabah who want to work in Sarawak need an “Employment Pass” or “Work Permit” even though they are Malaysian citizens.
“This archaic rule behind the Sarawak’s Immigration Act is not business friendly, even Malaysians” says an industry observer.
Rising complaints that this restriction hampers Sarawak’s economic growth, as imposing state-owned work permit policies to Malaysian citizens is relatively bad to the O&G industry.
“In the event of emergencies such as energy black out in hospitals etc, this policy should be changed drastically in view of Malaysia as a country” said an engineer from Peninsular Malaysia who has been working in Sarawak in the last 30 years.
Does the role of the Sarawak as the sole gas aggregator means the work permit approval and process to Peninsular Malaysians will be affected too?
Time will tell as the Sarawak state exercise more control over time.
The Federal Position: Unity Through Centralization
The federal government, on the other hand, views the centralization of oil and gas management as a necessity for national development.
Since the implementation of the PDA in 1974, PETRONAS has acted as the custodian of Malaysia’s petroleum resources, enabling the country to leverage these assets for nationwide prosperity. The revenues generated have funded infrastructure, healthcare, education, and poverty alleviation programs that benefit all Malaysians, including Sarawakians.
Prime Minister Datuk Seri Anwar Ibrahim has emphasized this perspective, highlighting the importance of shared prosperity. In his speeches over the past year, he has consistently called for unity and cooperation between Peninsular Malaysia, Sabah, and Sarawak. For example, during the Malaysia Day celebrations in September 2024, Anwar reiterated his government’s commitment to fulfilling the Malaysia Agreement 1963 (MA63), which recognizes Sarawak’s unique position and rights within the federation.
Moreover, he announced a doubling of the special annual grant for Sarawak and Sabah to RM600 million starting in 2025, signaling federal recognition of their contributions and needs.
Taking into account direct contributions from the Federal and investment from national owned entities such as PETRONAS to Sarawak, the figure may exceed trillions of ringgit over the last 50 years.
PETROS’ Challenges as a Natural Gas Aggregator
PETROS’ role as the natural gas aggregator in Sarawak places it at the heart of the state’s energy strategy. This involves negotiating with international buyers, managing gas supply agreements, and ensuring competitive pricing.
However, PETROS faces fierce market competition, infrastructure gaps with high capital and price volatility.
For instance, the stiff market competition means PETROS must compete with global LNG suppliers, many of whom have economies of scale and established customer bases. Pricing strategy alone may not work and this signals the weakness of PETROS to compete in the global scale.
PETROS’ have inherent infrastructure gaps as the initial capital was mainly underwritten by PETRONAS. Experts warned that developing the infrastructure such as pipelines and LNG facilities, requires substantial investment, will strain PETROS’ finances.
There are still regulatory overlaps that need to be ironed out should Sarawak be the natural gas aggregator – overlapping jurisdictions between state and federal regulations and interpretation of the laws could create legal and operational hurdles, delaying critical projects.
Another hurdle that PETROS has to pay its navigating price volatility as natural gas prices are subject to global market fluctuations, which could affect PETROS’ revenue forecasts and investment planning.
Malaysia Risks more Revenue Losses and Investor Confidence
The Federation of Malaysia, through PETRONAS, has historically benefitted from centralized control over petroleum resources. This centralized model enabled PETRONAS to reinvest revenues into nationwide development projects, from infrastructure to social programs.
Sarawak’s push for autonomy in being the natural gas aggregator will disrupt the essence of Federation of Malaysia. With PETROS taking over natural gas aggregation and the state retaining more revenues, federal coffers could see a significant shortfall in the next coming years.
This comes at a time when the Madani Government is grappling with budgetary pressures and economic recovery post-pandemic. It may not be healthy competition nor it is good for the country’s revenue collection.
Moreover, the disputes between Sarawak and the federal government have created an air of uncertainty – particulary in the investment community.
Investors, particularly in the energy sector, value stability and clarity in policies. Investors take a long-term view on the O&G investments and prolonged conflicts over O&G rights risk undermining Malaysia’s reputation as a reliable investment destination.
Experts Warn of Mutual Losses
Energy policy experts argue that the ongoing state-federal disputes over O&G are a lose-lose situation.
Sarawak, despite its rightful claims under the MA63, cannot afford to alienate the Federation, which remains its largest partner in terms of development funding and market access.
There are billions of trillions of investments that have poured into the O&G industry – including infrastructure investments in Sarawak to make Malaysia to where it is.
Given the demands and disptues, Malaysia cannot sustain a scenario where one of its richest states becomes increasingly estranged.
“A balance must be struck,” said an industry consultant.
“Sarawak’s autonomy should be respected, but it should also recognize the importance of contributing to the Federation’s overall stability. On the other hand, the federal government must find ways to equitably share revenues and reduce the bureaucratic hurdles for Sarawak.”
The on going dispute by Sarawak politicians and leaders showing clear signs of anger, desperation and growing hate. Shouldering this O&G challenge may require a balanced approach by the Prime Minister Dr. Seri Anwar Ibrahim – a charismatic leader that is known to inject a fair equitable economic balance between the state and the federation.
National Unity and Equal Rights
To be fair to both, Prime Minister Anwar Ibrahim’s administration has taken steps to address Sarawak’s longstanding grievances. In the last 12 months, significant progress has been made on fulfilling MA63 demands, including the devolution of powers over electricity regulation and the transfer of land rights.
In view of Sarawak’s growing demand to exercise more control of the natural resources, current actions reflect the federal government’s willingness to recognize Sarawak’s autonomy while fostering unity.
Anwar’s speeches have underscored the importance of unity over division. During his Budget 2025 announcement, he called for an end to the “us versus them” mentality, urging Malaysians to see Sarawak and Sabah not as resource banks but as equal partners in nation-building.
His emphasis on shared prosperity resonates with the aspirations of Sarawakians who seek fair treatment without undermining the federation.
Parting Thoughts: An amicable collaboration to end the dispute.
Sarawak’s ambition to control its natural gas resources through PETROS is a bold and justifiable step, but it comes with high stakes to the country.
The financial risks for PETROS and the broader economic implications for Malaysia cannot be ignored. Both parties stand to lose more if these disputes escalate.
The path forward lies in collaboration rather than sparking a media war frenzy between the state and the federal Government.
By respecting Sarawak’s constitutional rights while ensuring that Malaysia’s unity and economic stability are preserved, the state and federal governments can turn a potential crisis into an opportunity.
Beyond legal argument, a balanced approach will not only resolve the current disputes but also set a precedent for harmonious state-federal relations in the years to come.
