[COLUMNIST] When PETRONAS falters, the nation feels It

Malaysia’s budgetary structure rests on two essential pillars: tax revenue and non-tax revenue. When PETRONAS weakens, both tremble.

Few Malaysians realise just how deeply the national balance sheet is tied to the performance of this single state oil and gas company. The Federal Government doesn’t just tax PETRONAS—it relies on it. In 2025, petroleum-related revenue is projected to deliver RM62 billion to Putrajaya’s coffers, accounting for a substantial 18% of total federal revenue. Of this, RM32 billion comes from dividends and another RM20 billion or so from Petroleum Income Tax (PITA). These are not abstract figures. They are oxygen lines to the Treasury.

Yet, when that source begins to dry up, the knock-on effects can be felt across the entire fiscal landscape. The first half of 2025 already tells a cautionary tale: PETRONAS’ profit after tax fell by 19% year-on-year to RM26.2 billion. Lower global oil prices, narrowing downstream margins, currency pressures, and the sale of legacy assets such as Engen all contributed to the decline. Still, the Government is holding to the RM32 billion dividend commitment for the year.

This is fiscally convenient—but structurally dangerous. Forcing a high dividend in the face of falling earnings props up short-term cashflow but hollows out medium-term resilience. If PETRONAS earns less but pays the same, then something else must give: future investment, debt repayments, or cash buffers. It’s financial cannibalism, disguised as prudence.

Beyond the Federal Budget, PETRONAS plays a larger macroeconomic role in Malaysia’s Consolidated Public Sector (CPS) accounts. The CPS consists of two broad components: the General Government (federal, state, and local governments, plus statutory bodies), and the Non-Financial Public Corporations (NFPCs)—of which PETRONAS is the dominant player.

Historically, PETRONAS’ surpluses helped to offset the deficits run by the General Government, creating an internal buffer that stabilised Malaysia’s broader fiscal position. When PETRONAS performs well, the public sector breathes easier. When it stumbles, that cushioning effect evaporates. The result? A widening CPS deficit, increased government borrowing, and upward pressure on the debt-to-GDP ratio.

And the other NFPCs? Sadly, they offer little help. Prasarana bleeds from low fares and high operating costs. MRT Corp and KTMB are loss-making by design. Even infrastructure-focused entities such as Jambatan Kedua Sdn Bhd (JKSB) struggle with debt servicing. These entities do not generate surpluses—they burn cash. Unlike Singapore’s Temasek-linked companies, which provide regular dividends to the public purse, many Malaysian NFPCs are structured to subsidise rather than sustain.

This leaves PETRONAS performing double duty: national champion and fiscal backstop. But how long can one institution carry the weight of a system?

In the best-case outlook, PETRONAS stabilises its profitability, global energy markets recover, and dividends remain generous without sacrificing its capital investment or balance sheet health. This would allow the Government to maintain fiscal momentum while pursuing subsidy rationalisation and tax reform.

But a second, more probable scenario is less forgiving: PETRONAS’ profits plateau or fall further, squeezed by global oil price volatility, the energy transition, and intensifying competition from state and private producers alike. In that case, two dilemmas arise.

First, the Government may insist on maintaining high dividends, undermining PETRONAS’ long-term viability as an investor and debt manager. Second, if PETRONAS chooses to protect its own health and cut dividends, the resulting revenue shortfall would need to be covered by new borrowing or fresh taxes—potentially revisiting unpopular options like GST, carbon taxes, or global minimum tax rules (GloBE). Either way, the pressure mounts.

Fiscal planners and market observers alike should now focus on four critical indicators:

1. PETRONAS’ quarterly results and forward guidance, especially on dividend policy and capital expenditure.

2. Oil and gas price movements against Budget assumptions (widely benchmarked at USD75–80/barrel).

3. Budget 2026 revisions, especially updated projections for PITA and non-tax revenue.

4. The performance of non-PETRONAS NFPCs—which remain mostly structurally weak and unable to support the CPS.

In Singapore, we learnt early that no country should depend excessively on any one commodity, company, or tax base. Diversification is not an economic luxury—it is a survival imperative.

Malaysia must internalise this lesson fast. As PETRONAS’ fortunes fluctuate, so too will the fiscal room in which national priorities—from health and education to infrastructure and social spending—are pursued. A revenue system balanced on one pillar is inherently vulnerable. If PETRONAS continues to weaken, it won’t just be a corporate challenge. It will be a national reckoning.

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*Samirul Ariff Othman is a public policy analyst, economist, and international relations commentator. He is an adjunct lecturer at Universiti Teknologi Petronas and a senior consultant with Global Asia Consulting. The views expressed in this op-ed are entirely his own.

**The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.