State of the Nation: Petronas–Petros affair goes to the apex court – Zainul Arifin

Petronas has recently filed a motion at the Federal Court in Putrajaya to seek clarification on the regulatory framework governing petroleum operations in Sarawak. - Scoop pic, January 13, 2026


State of the Nation: Petronas–Petros affair goes to the apex court – Zainul Arifin


Petronas’ move to seek clarity from the Federal Court over its dispute with Sarawak’s Petros is more than a corporate legal battle — it is a defining test of federal–state relations, constitutional supremacy, and the future structure of Malaysia’s oil and gas industry



Zainul Arifin
Updated 6 seconds ago
13 January, 2026
5:50 PM MYT

IT may be an act of desperation that Petronas filed a motion at the Federal Court on Monday, seeking a definitive ruling on an issue that has long troubled it — the future of its business in Sarawak, with the state now demanding a greater share of the oil and gas exploited there.

The motion is also seen as an attempt to seek a universal solution to the long-term outlook of the national oil and gas industry, as deliberation by the Apex court could potentially affect other states that may attempt to emulate Sarawak.

Ultimately, an added by-product of this motion is a deliberation on a basic constitutional issue: does federal law supersede those enacted by state legislatures?

At the core of this issue is the Malaysia Agreement 1963 (MA63), which formed the basis of Sarawak, Sabah, Singapore, and the Federation of Malaya coming together to form Malaysia. MA63 provided its parties with certain inalienable rights, but Sarawak and Sabah claim that many of these have not been honoured. Sarawak’s decision to assert greater control over the exploitation of oil and gas in the state is part of its claim for a fairer share of the spoils, as envisaged under MA63.

Incidentally, Sarawak may not look kindly upon Monday’s filing at the Federal Court, likely arguing that the motion is a hostile move and that Petronas is acting in bad faith ahead of an expected decision by the Kuching High Court at the end of the month.

The Kuching High Court is expected to rule on a bank guarantee dispute between Petronas and Petroleum Sarawak Bhd (Petros), which many suggest could have far-reaching implications for the broader relationship between the two companies, their operations, and their respective jurisdictions. Some see the dispute as a proxy for the wider state–federal quagmire that the court will have to deliberate on. Most importantly for Petronas, the judgment is expected to indicate how it will be allowed to operate in Sarawak going forward.

If the Federal Court accepts the motion, the Kuching High Court would be required to stay its judgment until the apex court reaches a decision.

There is a great deal of legal nuance to be argued and presented by the legal teams representing the companies, the state, and possibly the Attorney General as well. The issue is already complex even before the emotive Federal–Sarawak relationship is factored into the equation.

The crux of the matter lies in the inability of Putrajaya and Kuching to resolve the grey areas surrounding Sarawak’s quest to develop its own gas industry. The existence of Petros and its appointment as the exclusive sole gas aggregator in the state has created uncertainty over Petronas’ operations there.

Positive public statements about “near resolutions” and the “finalisation of details” by Prime Minister Datuk Seri Anwar Ibrahim and Sarawak Premier Abang Johari Openg for more than a year have yet to yield tangible outcomes and have, if anything, resulted in more confusion.

They announced a “policy-level agreement” in which Petronas recognises Petros as the gas aggregator for Sarawak’s domestic use, while liquefied natural gas (LNG) exports remain under the national oil company. A formal declaration was signed by both governments to ensure that federal and state laws would “co-exist”.

Yet, more than a year on, ambiguity still surrounds these arrangements, offering little clarity for Petronas or its business operations. While some may see Sarawak as playing hardball to assert its rights, the longer this uncertainty persists, the more damaging it could be for Petronas.

Sarawak’s insistence on certain issues could compel Petronas to unwind previous business arrangements with the state as well as with clients at home and abroad. It could also undermine investments in the state reported to exceed RM90 billion over the past 10 years.

There are many bug bears in Sarawak and Sabah regarding the federation, but the prevailing perception is that the Bornean states have been on the receiving end of an unfavourable deal — particularly concerning the exploitation of petroleum reserves and, more broadly, MA63 itself.

This sentiment is heightened when the gleaming Petronas Twin Towers are contrasted with the wanting interiors of Sabah and Sarawak. Yet, both states have received substantial oil and gas revenues over the years — while the exact amounts remain contested — running into billions of ringgit. Sarawak alone, for instance, has collected an additional RM20 billion in gas sales tax in recent years. How these funds are spent, of course, is a matter for the state.

Changes in the national political landscape, where Sabah and Sarawak now wield significant influence in the formation of federal governments, have given Sarawak the leverage to press its MA63 claims. At present, the state wants a larger share of revenue and greater influence over the development and exploitation of its petroleum reserves.

Sarawak argues that its Oil Mining Ordinance (OMO) 1958, which predates the formation of Malaysia, as well as its Distribution of Gas Ordinance 2016, give it the right to do so. These, Sarawak contends, supersede the Petroleum Development Act 1974 (PDA 1974), which vested ownership and control of Malaysia’s oil and gas reserves to Petronas.

Hence, the case before the learned bench of the Federal Court is more than a proverbial Petros–Petronas Mexican standoff — it is a constitutional question of national importance.

From the early 1900s, the exploitation of oil and gas in Sarawak and Sabah was largely a Mat Salleh affair, with overseas companies developing the resources and little benefit accruing to the states or their people, save for a select few.

The PDA 1974 was, in effect, a form of ‘nationalisation’ of the oil and gas industry, without expelling foreign players or tearing up their contracts. Foreign companies wishing to participate in new ventures would simply have to play by new rules.

In a way, the Sarawak government is now doing what the PDA once did — enacting its own laws to secure greater control and a larger share in the development of its resources.

Petronas, as the flag-bearer of the national oil and gas industry — a role it has performed admirably — likely sees the uncertainty surrounding its position and tye inability for a ‘diplomatic” resolution as necessitating this last-ditch, and potentially antagonistic, move to the apex court.

Beyond protecting its investments in Sarawak, Petronas also needs to send a message of continuity and certainty to investors and clients. Analysts estimate that losing the gas aggregator role in Sarawak could result in a 30 per cent drop in revenue. Putrajaya is already budgeting for a lower contribution from Petronas this year, perhaps reflecting this risk.

It does no good for the company, the country, or Sarawak if these issues remain unresolved. While there appears to be little willingness among some parties to compromise, something must give for the greater good.

While we can appreciate and respect Sarawak’s desire to reclaim what it believes is rightfully its own, this cannot come at the expense of Petronas — a national oil company that ultimately serves all Malaysians. – January 13, 2026

Datuk Zainul Arifin is the Chief Executive Officer of Big Boom Media, publisher of Scoop.my