Azmin: 20% oil royalty will take time to implement

KUALA LUMPUR: Pakatan Harapan's (PH) promise of offering a 20% royalty to oil-producing states will take time to be realised, as the law needs to be amended and the states have to be consulted.
Economic Affairs Minister Datuk Seri Mohamed Azmin Ali confirmed that the royalty would be based on the net profit and not gross production as is practised presently.
He said the government does not foresee encountering constraints in its effort to increase the royalty when drafting up its election manifesto.
"This proposal could not be implemented immediately as it contradicts the Petroleum Development Act (PDA) 1974, as the current calculation is based on the gross profit and not the net profit," he said in the Dewan Rakyat, here today.
"If Petroliam Nasional Bhd were to increase this royalty to the state governments based on the gross profit, it will have grave implications on Petronas and the federal government's financial states.
"The mechanism for royalty payment will have to be ironed out between the federal government and Petronas. This matter will also have to be discussed with the state governments as such matters need their agreement."
He was responding to a question by Datuk Seri Wilfred Madius Tangau (Upko-Tuaran) on when the government intends to implement the 20% royalty for the four states - Kelantan, Terengganu, Sabah and Sarawak – as promised in the election manifesto.
On a supplementary question on the amendments to be made to the PDA 1974, Mohamed Azmin said it needed to go through the Attorney-General's Chambers.
"We are now tied to the act, which states that petroleum royalty must be based on gross value on not the net profit. If we want maintain this practice and increase the royalty to 20%, it will have implications," he said.
Mohamed Azmin explained that at present, Petronas needed to pay 10% royalty twice a year from its gross production to the government, of which 5% each would be given to the federal and respective states.
Prime Minister Tun Dr Mahathir Mohamad had last week clarified that the 20% proposed royalty would be based on profit and not revenue.
This, however, did not bode down well with certain quarters, who claimed that it was supposed to be based on the revenue of oil and gas extracted from the state, rather than profits obtained after subtracting expenses.
Meanwhile, Mohamed Azmin said a special Cabinet committee to address issues of oil royalty based on the Malaysia Agreement 1963 would be established soon.
"Among its tasks would be to study and suggest corrective steps in several issues, including Sabah and Sarawak's rights on natural resources such as oil and gas.
"However, our manifesto did not specify a specific timeframe on when this effort would be undertaken as its implementation is subjected to the law and regulations that must be abided.
"This include the clauses in the agreement between Petronas and the federal government, and Petronas and the state governments," he added.