Petroleum Nasional Bhd (Petronas) is committed to supporting Sarawak’s aspiration to become a major player in the petroleum industry and has so far invested RM183 billion in the upstream sector in the state alone via production sharing contracts (PSCs).

According to infographics released to Bernama, the national oil company, since 1976 and up to last year, made cash payments worth RM33 billion to Sarawak. In addition, through the state government’s equity in Petronas’ liquefied natural gas (LNG) complex in Bintulu, the state also received RM18 billion in dividends. Through the Sarawak Joint Working Committee, Petronas also works closely with the state government to ensure Sarawakians and local companies get priority in career and businessopportunities in both upstream and downstream activities in the region. Petronas also spent RM411 million on scholarships and aid programmes for over 6,000 Sarawakian students while 5,000 Sarawakian professionals are working in Petronas operations, worldwide.

The Sarawak government, in March this year, launched state-owned Petroleum Sarawak Bhd (Petros) to boost its own participation in the industry.The infographics also explained in detail the Petroleum Development Act 1974 , a Federal law enacted by Parliament, having the legislative competence under the Federal Constitution to promulgate laws relating to petroleum. The PDA 1974 gives Petronas exclusive ownership to oil and and resources in Malaysia and makes it the sole regulatory body for upstream oil and gas activities through PSCs. The PSC system addresses the need for a greater centralised management of the petroleum industry for the benefit of the nation and the states. This has allowed Petronas to create significant value for the nation, hence contributing to the well-being and development of the nation and the respective states.

“The PDA 1974 serves to protect the interest of all Malaysians, ensuring that the nation will benefit the most from its petroleum resources.” Petronas said in the infographics.

Under the Act, profit share is split between Petronas, contractors and income tax payment to the government with the states and Federal government getting five per cent royalty each from the Profit Oil, Petronas and the contractors sharing 12.5% each from the 1985-type PSC and 15% for income tax. From two other types of PSC, Profit Oil is only 10% with 3% each for both parties and 4% for income tax (under Deepwater/Ultra Water PSC) and for Revenue/Cost PSC, Profit Oil is at 20% of which 6% each is for Petronas and contractors and 8% for income tax.

The infographics also highlighted the fact that PSCs are risky, highly capital intensive and take a long time to provide returns while exploration took between three and five years with no income and the probability to discover oil rated at only between 20% and 25%. The risks is extended to the development period of between four and six years’ spending to monetise the discovery, a period when still no income is made. Once production commences, the 10% cash payment to the federal government and the states starts while both Petronas and the contractors pay 38% income tax from the profits made. The national oil company also pays annual dividends to the federal government.Contrary to general perception, these cash payments are paid, twice a year, irrespective of whether the production from the field is profitable or not.

According to the infographics, an increase of the royalty payment from 5% to 20% as demanded by producing states will have an adverse impact on the industry.Such an increase in cash payment would also reduce the attractiveness of Malaysia as an oil and gas investment destination for many players.There are currently over 40 investors in PSCs of which about 80% are foreign companies which view the Malaysian petroleum sector as stable and favourable based on current PSC arrangements.