Petroliam Nasional Bhd (Petronas), Malaysia’s state oil firm, will focus this year on increasing domestic production after posting a 45 percent year-on-year drop in fourth quarter net profit.

That fall was a result of higher operating costs and impairment losses on property, plant and equipment, the company said today, while lower crude oil trading volume and a local currency which has strengthened versus the dollar trimmed revenue.

Unlisted Petronas finances nearly half of Malaysia’s government budget and tension is growing between the firm and the state.

The company wants to link its government payments to profit rather than pay its current flat fee and to use more of its income for investment in production. For Prime Minister Najib Abdul Razak, who must call an election by April, a much smaller contribution would mean unpopular choices of higher taxes or lower spending.

Petronas’ president and chief executive, Shamsul Azhar Abbas, said the firm would pay a dividend of RM27 billion (US$8.70 billion) to the government in 2013, versus RM28 billion last year.

“We hope production will increase from the domestic discoveries we made recently,” he told reporters. “And the production from the three fields in Iraq we started will come on board by the fourth quarter.”

As part of its efforts to secure more overseas reserves to stay profitable and offset falling domestic output, it recently completed a C$5.2 billion (US$5.3 billion) takeover of Canada’s Progress Energy Resources Corp.

Petronas’ net profit for the three months ended Dec 31, 2012 fell to RM8.722 billion from RM15.85 billion a year ago.

Revenue in the quarter slipped marginally, to RM76.77 billion from RM78.05 billion in the fourth quarter of 2011.

The ringgit traded at 3.0605 to the dollar in late December last year, versus 3.1595 at the end of December 2011.

- Reuters