KUALA LUMPUR (Sept 5): While negotiations on the supervision of oil and gas (O&G) trading in Sarawak are still ongoing, Petroliam Nasional Bhd (Petronas) president Tan Sri Tengku Muhammad Taufik cautioned that dividends paid to the government may be affected if the new arrangement results in a drop in the national oil firm’s revenue.

Taufik explained that the dividend payout is determined by the cash flow in Petronas, which may experience earnings contraction.

"If there is a change in arrangement, which sees a value transfer at the topline, inevitably it will be trickled down to our cash flows. And the cash flows at Petronas, not Petronas group [of companies], is what ultimately determines the affordability of our dividend payout," he told a media briefing in conjunction with Petronas' mid-year financial result briefing. 

"I think in so far as the implications thereof, the jury is still out because we are still negotiating, whether it's something that is going to cost a material dent or not, that is still something that is going to be resolved through these discussions," said Taufik, who is also the group chief executive officer.  

Taufik explained that under the current arrangement, Petronas is responsible for purchasing natural gas from upstream producers, and then selling them to eventual buyers, such as liquefied natural gas (LNG) plants and other industries including the power sector. 

This duty, Taufik stressed, is prescribed by the law under the Petroleum Development Act (PDA) 1974, which grants ownership and exclusive rights to Petronas to explore, develop and manage petroleum resources for Malaysia. 

"This involves not only collecting, packaging and remitting [the hydrocarbon], this involves investment. This involves laying foundations for an integrated value chain. 

"It is critical in the analysis of what is unfolding before us today, that this integrator or aggregator role involves the management of infrastructure, be it pipelines, receiving facilities, development of a workforce to support this duty, quality assurance quality control, to ensure that gas is delivered on time reliably, safely without interruption.

"We understand Sarawak's aspirations, and this is evident. We've also got to put on record here, we have invested heavily in Sarawak. We have invested over the years, in support of Sarawak's economic growth," Taufik added. 

Sarawak state-owned oil and gas company Petroleum Sarawak Bhd (Petros) in July signed gas sale agreements (GSAs) with Sarawak Petchem Sdn Bhd and Sarawak Energy Bhd, marking a step forward for Petros to take over the role of the sole gas aggregator from Petronas to buy and sell all natural gas in the state. 

However, negotiations are still ongoing between the federal government, Sarawak state government, Petros and Petronas to execute the details of the new arrangement. 

It is worth noting that 90% of all Petronas' LNG cargo in the country are sourced from or through Sarawak. 

Although he admitted that negotiations have been difficult, Taufik denied that there have been clashes between Petronas and Petros in reaching a new arrangement, maintaining that discussions have been undertaken professionally between all parties. 

"So I know some people are spreading either malinformed, misinformed, or viciously-informed articles about confrontations between ourselves and Petros. Yes, the discussions and negotiations are difficult, but we have done so in a constructive, professional, and engaging manner. Channels of communications remain open," said Taufik, who has been at the helm since June 2020. 

"We want to build a win-win partnership. We want to help each other grow based on the understanding of each others' strengths -- but most importantly the constraints — because ultimately Petronas has a role not only as a company but for the country. We always act in the country's best interest at heart and I cannot negotiate without considering the implications to the country," Taufik added.