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May 11, 2020

Petronas agrees new sales tax and involvement with state government

Malaysian national oil company Petronas and the state government of Sarawak have reached agreements on the management of oil and gas and sales tax there.

By Himaja Ganta

Malaysian national oil company Petronas has reached an agreement with the government of a Malaysian state on the management of oil and gas and sales tax on petroleum products.

Under the agreements, the Malaysian oil firm agreed to withdraw legal proceedings against the state of Sarawak. It will also make full payment of a sales tax imposed by the state government on petroleum products for 2019.

This amounts to $462m (MYR2bn), which Reuters reported to be 5% of the products’ sales value.

In a press statement, Petronas said: “This is a sustainable approach to enable the survival of the country’s oil and gas industry, especially in the current volatile oil and gas markets.

“In this regard, Petronas has agreed to withdraw the appeal of the Sarawak High Court’s decision on the Judicial Review application on 13 March 2020 and the Sarawak State Government will also drop all civil litigation claims against Petronas for payment of sales tax on petroleum products.”

Petronas said that it retains full authority over regulating the entire development of the country’s oil and gas industry in line with the Federal Constitution.

However, it will continue negotiations with Sarawak to involve the state more in investment opportunities. This will be based on commercial terms, including collaborative opportunities at the operating company level in Sarawak. The Minister of Finance and the Senior Minister of Works will chair a joint committee in order to implement the commercial solutions.

In November 2012, Petronas made two major gas discoveries at the Kuang North and Tukau Timur fields, offshore of Sarawak.

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