If the Federal government, for instance, is to accede to demands for a 20% royalty, this time-tested formula that’s been working very well with foreign investors like Shell, which has been drilling oil for over 100 years in Malaysia, will be in jeopardy!”

themselves.

In other words, acceding to their demands would backfire economically especially with world oil prices no longer hovering around US$100 per barrel like in the good old days of the oil boom.

We all have to remember that about 30% of Malaysia’s gross domestic product comes from Petronas’s output and it contributes over 40% of federal government revenue.

Strictly speaking, according to a former senior minister, it would be impossible for Putrajaya to raise the royalty to 20%.

“Perhaps a few percentage points might be okay but certainly not a 15% hike,” he told me.

And even with 5% royalty, these three states are getting a cool few billion ringgit annually while the states that don’t sit on oil reserves get none.

More clarity and transparency on the oil royalty poser was revealed in Parliament on Wednesday by Economic Affairs Minister Datuk Seri Mohamed Azmin Ali.

He warned that Petronas might “cease operations” if it acceded to the 20% royalty based on gross production as demanded by the states, instead of net profit.

“Our position is, if you want 20% based on gross value, then we have to cease the operations of Petronas,” he said, warning of the serious implications on the financial position of both the oil company and the federal government.

Azmin has promised to engage the oil producing states on this crucial issue.

As for these states, it’s time for them to get to the bottom of how the distribution of income in the industry works out instead of pursuing demands that are beyond what the industry itself could afford.

Comment: letters@thesundaily.com