DECEMBER 16 — Recent commentary has suggested that Petronas is dragging its feet in negotiations with Petroleum Sarawak Berhad (Petros), or that it has chosen to prioritise foreign partnerships over its obligations to Sarawak. Such claims may be politically attractive, but they misdiagnose the real problem. The issue is not a lack of goodwill, nor a disregard for Sarawak’s development ambitions. Rather, the difficulty lies in the substance of the demands currently placed before Petronas — demands which, if accepted in their present form, would undermine Malaysia’s fiscal foundations, weaken the national energy framework, and strain the federation at a time when stability and predictability are critically needed.

Sarawak’s aspiration to secure a greater role in managing and monetising its natural gas resources is legitimate. Few would dispute the state’s right to pursue industrialisation, deepen local participation in the energy value chain, and ensure that its resource endowment translates into long-term development. The federal government has acknowledged this aspiration in principle, and Petronas itself has indicated its openness to accommodating a more substantive role for Petros within the domestic gas ecosystem. However, cooperation of this nature must be grounded in practical realities and structured within a legal and commercial framework that preserves the coherence of Malaysia’s national energy system.

Understanding the structural barriers behind the Petronas–Petros deadlock

The core obstacle, therefore, is not one of timing or prioritisation, but of structure. Certain interpretations of the Distribution of Gas Ordinance (DGO) and the Oil Mining Ordinance (OMO) would effectively subject Petronas to a state-level licensing regime that supersedes the Petroleum Development Act (PDA). Acceptance of such an interpretation would do more than alter future arrangements. It would retrospectively cast decades of Petronas’ operations into legal ambiguity and, more critically, confer upon the state government a de facto veto over the national oil company’s ability to operate. No responsible custodian of a sovereign nation’s most strategic commercial institution could accept such a precedent lightly.

Equally problematic is the proposal to position Petros as a mandatory intermediary in existing commercial arrangements, or to define its role as a “sole aggregator” in a manner that extends into LNG exports and integrated upstream-downstream operations. Petronas’ business model is built around value-chain integration. Aggregator margins are not peripheral gains; they are a central pillar supporting the company’s balance sheet, investment capacity, and dividend-paying ability. To displace these margins, or to reallocate them through arrangements that impose fixed obligations on Petronas while shielding Petros from commercial risk, would hollow out the financial base of the national oil company.

This distinction matters because Petronas is not merely another corporate entity negotiating a commercial contract. It is the fiscal anchor of the federation. Its export earnings, dividends, and cash flows underpin subsidies, social spending, and Malaysia’s credit standing. To weaken Petronas’ financial position is to constrain the federal government’s ability to govern effectively—particularly in the years ahead, when political cohesion and economic cushioning will be essential. If Malaysia erodes the strength of its most reliable revenue engine, the consequences will extend beyond Putrajaya’s balance sheet, affecting the federation’s political equilibrium and even its strategic posture in an increasingly contested regional environment.

Why the federation cannot afford a deal that weakens its most strategic institution

Seen from this perspective, Petronas’s caution should not be mistaken for obstruction or indifference. It reflects prudent stewardship. The national oil company must balance Sarawak’s legitimate aspirations against its responsibility to safeguard national interests that transcend any single state. A rushed agreement—particularly one concluded under political pressure and ahead of ongoing judicial clarification—risks locking in structural weaknesses that would be difficult to reverse. Such an outcome would serve neither Sarawak nor the federation in the long run.

The more sustainable path, as both sides have acknowledged in principle, lies in a hybrid arrangement. Under such a model, Petros would play a meaningful role in domestic gas distribution and industrial development, while Petronas would retain responsibility for LNG exports and the integrated operations essential to national energy security and fiscal stability. This approach does not deny Sarawak a greater stake in its resources; it recognises that autonomy and interdependence must be carefully balanced within a federal system.

Ultimately, a durable settlement will require both sides to move toward the centre, guided by legal clarity, commercial realism, and an appreciation of the national stakes involved. It would not be accurate — or fair — to characterise Petronas as deprioritising Sarawak. The truth is simpler and less political: the current terms, as framed, are not commercially or institutionally sustainable. Compromise will be necessary, not because it is convenient, but because it is the only path consistent with Malaysia’s long-term stability and cohesion.

* Samirul Ariff Othman is an analyst of global politics, business and economics. He is an adjunct lecturer at Universiti Teknologi Petronas (UTP) and a senior consultant with Global Asia Consulting. He writes on global perspectives, strategy and statecraft, offering strategic insights for a complex world. The views expressed here are entirely his own.

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.