Malaysiakini KiniGuide

Oil royalty: Was it 20pct of production or profit?

KiniGuide  |  Published:  |  Modified:

KINIGUIDE | In its election manifesto, Pakatan Harapan had promised to pay 20 percent royalty to oil-producing states so that states could fund more of their own development.

But was it 20 percent of net production or net profit? That was the question that arose in Parliament this week.

In this instalment of KiniGuide, we look into oil-royalty payments and what the law says about it.

Who pays oil royalty and why?

Under the Petroleum Development Act 1974, Petronas is supposed to pay the federal government and any relevant state government “cash payments as may be agreed between the parties concerned.”

This is in exchange for having the states surrender its oil and gas rights over to Petronas, which is otherwise the state’s prerogative under the Federal Constitution.

Under agreements signed with each state, the rate was set at five percent of the value of the petroleum (defined as both oil and gas) “won and saved” onshore and offshore of the relevant state, and is payable annually.

“Won and saved” is a technical term, but essentially refers to gross oil and gas production...

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