Politics of oil royalty
Instead of demanding higher royalty, Sarawak and Sabah should perhaps form a partnership with Petronas to develop the states
Firdausi Suffian, Free Malaysia Today
In Malaysia, the politics of oil royalty has always hogged the limelight. It has always been a useful agenda to seek public attention. Thus, the recent bill introduced by newly-appointed Sarawak Chief Minister Adenan Satem in the State Legislative Assembly to increase oil royalty from 5% to 20% has caught public attention.
The fact that the federal government has also agreed to seriously consider the proposal has given the people in the state new-found hope.
Demanding higher royalty is not a new political agenda for both Sabah and Sarawak. In fact, it is a long overdue issue. Let’s take a brief glance at history. Before the formation of Malaysia, the United Kingdom had declared rights over the Malaysian continental shelf for Sabah and Sarawak. Basically this meant ownership rights over offshore resources including petroleum.
But this has been superseded by the Petroleum Development Act 1974, which stipulated that both Sabah and Sarawak will be paid no more than 5% royalty and the management of petroleum resources will be vested in the state-owned company, Petroliam Nasional Bhd (Petronas). Petronas will pay taxes and royalties to the federal government. This is where the royalty issue begins.
Claiming higher oil royalty is good for the state coffers as it will help the state government further develop new infrastructure and generally improve the country’s socio-economic development.
As far as development is concerned, funds for state development are not solely dependent on oil royalty. It is stipulated under the Federal Constitution that the federal government will transfer grants to state governments for development purposes, this being one of the states’ right to receive grants due to their limited financial power.
The grants are tax-sharing grants, capitation grants, state reserve fund grants, contingency fund grants, state advanced grants and special grants.
Sabah and Sarawak have obtained billions of ringgit from such grants to develop their economy. It has been proven that for the past decade, with the grants received, coupled with political stability, Sabah’s economy has undergone positive transformation.
Sabah gross domestic product (GDP) has recorded positive growth for the past 10 years and it is expected to grow to 5% in 2014. Of course, people would argue that if the Federal Government increases the oil royalty, this can further boost Sabah’s GDP.
This may be an appealing argument, but by demanding higher oil royalty, to what extent will this have a negative implication on Petronas income? Increase in royalty will somehow reduce federal government revenue, so will this affect the transfer of grants from the federal government to the states?
