The chief of Malaysian energy giant Petronas quit this month after disagreement with the prime minister over giving more oil money to one of the country's states run by a government ally, sources close to the government and the company said.
Extra payments would hit Petronas and the national budget at a time the novel coronavirus has dampened oil prices but could also raise questions over the management of state finances as Malaysia seeks to rebuild its reputation after the international scandal over state fund 1MDB.
Petronas Chief Executive Wan Zulkiflee Wan Ariffin resigned after a disagreement with Prime Minister Muhyiddin Yassin over a plan to pay $470 million in sales tax to Sarawak state, five sources close to the government and the company said.
Wholly state-owned Petronas is the Southeast Asian country's only Fortune 500 company. It is the world's fourth-largest exporter of liquefied natural gas and had revenue of $56 billion in 2019, but profit fell 68% in the first quarter of 2020.
Petronas had been fighting Sarawak's demand for the sales tax in court before the two parties announced a settlement last month - although Sarawak later said it would continue its legal action until an agreement is final.
"Wan Zul resigned because of principles, that he is not agreeable to the Sarawak deal," said a source close to the government, referring to Wan Zulkiflee.
"The new government is open to giving more to the states that produce oil."
Wan Zulkiflee declined to comment. The prime minister's office and Petronas did not immediately respond to requests for comment.
Last week, the Bernama state news agency quoted a Sarawak official as saying Petronas had yet to pay the tax as the state had decided to continue with the court action.
Wan Zulkiflee had said in public that Sarawak had "no legal competence" to demand the sales tax and had also opposed demands from Sarawak and neighbouring Sabah states - both on Borneo island - for bigger royalty payments.
Muhyiddin took office after the resignation of 94-year-old Mahathir Mohamad, who opposed giving more oil revenue to the states that hold two-thirds of Malaysia's oil and gas reserves.
'NECESSARY EVIL'
The sources said Muhyiddin was in no position to decline requests from Sarawak because the state's main party - Gabungan Parti Sarawak - has 18 out the 222 elected seats in parliament and is key to keeping him in power given his single-digit majority.
In addition to agreeing to the sales tax, Muhyiddin had shown that he was open to demands from Sarawak and Sabah for more royalty payments, the sources said.
Wan Zulkiflee had said that increasing royalties could make operating in Sabah and Sarawak unfeasible. By some estimates, quadrupling the royalties from the current 5% would cost Petronas $7 billion a year.
The sources did not say how much Muhyiddin would be willing to increase royalty payments or whether any figure had been discussed.
Muhyiddin is in a shaky political position three months after emerging as prime minister by forging an alliance with the former ruling party that was voted out in 2018 after the multi-billion dollar 1MDB scandal.
"Domestically, it’s a necessary evil to hold the government together," said Adib Zalkapli, Malaysia director, BowerGroupAsia, referring to the payments.
"Internationally, there will be serious questions about the financial viability of offering greater concessions to the oil producing states."
The opposition has called for a vote of no-confidence as it tries to build an alliance against Muhyiddin.
A minister in the Sarawak government said the state was "able to see light at the end of the tunnel" in its talks with the government on the energy demands, though nothing had been agreed.
"What is more important is that both parties are able to see eye to eye," said the source.
The chief executive role at Petronas is a prime ministerial appointment. Its chief financial officer, Tengku Muhammad Taufik Tengku Aziz, is due to take over from July 1.
Reuters
Fri Jun 19 2020
Former Petronas CEO Wan Zulkiflee Wan Ariffin speaking during the opening ceremony of the 20th Asia Oil & Gas Conference in Kuala Lumpur, Malaysia June 24, 2019 - REUTERS/Lai Seng Sin
Who is Prabowo Subianto, incoming president of Indonesia?
A wealthy ex-general with ties to Indonesia's popular outgoing president and its dictatorial past, looks set to be its next leader.
Iran's supreme leader says Hamas leader's death will not halt 'Axis of Resistance'
The "Axis of Resistance", built up with years of Iranian support, includes Hamas, the Lebanese Hezbollah group, the Houthi movement in Yemen, and various Shi'ite groups in Iraq and Syria.
Putin says Russia willing to seek compromises between Iran and Israel
Russia is ready to help seek compromises between arch-foes Israel and Iran, President Vladimir Putin said on Friday, saying these would be difficult but possible.
What proposals will Russia push at the BRICS summit?
The proposal is also to establish a BRICS reinsurance company to allow uninterrupted shipment of goods and key commodities between members.
Indonesia's free meals plan in the spotlight as Prabowo readies for office
Prabowo calls the programme one of the main drivers of economic growth, eventually set to add an estimated 2.5 million jobs.
Astro AWANI's revamped English news website, AWANI International, launches on Oct 21
Astro AWANI's revamped English platform delivers in-depth global news and expert analysis to keep you informed on key developments.
Israeli strikes kill 33 people in Jabalia refugee camp in Gaza, medics say
Residents of Jabalia said Israeli tanks had reached the heart of the camp after pushing through suburbs and residential districts.
Liam Payne's ex-partner calls for media restraint after 'painful' death
Cheryl Tweedy used her statement to urge the media to remember they had a seven-year-old son, Bear, who could read the reports.
Analysts: Indonesia's strong MoF leadership team to boost investor confidence
Sri Mulyani Indrawati as head of Indonesia's Ministry of Finance is expected to instil confidence among investors.
Biden offers both a carrot and a stick to Israel as his term nears an end
Israel has frequently resisted US advice and has caused political difficulties for the Biden administration.
Putin says BRICS will generate most of global economic growth
Russian President Vladimir Putin will host a summit of the group in the city of Kazan on Oct. 22-24.
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.