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Petronas chief quit over plan to pay US$470m to Sarawak

Kuala Lumpur

THE chief of Malaysian energy giant Petronas quit this month after a 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 US$470 million in sales tax to Sarawak state, five sources close to the government and the company said.

Wholly state-owned Petronas is the world's fourth-largest exporter of liquefied natural gas and had revenue of US$56 billion in 2019, but profit fell 68 per cent in the first quarter of 2020.

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It 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.

"The new government is open to giving more to the states that produce oil."

Mr 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.

He had said that increasing royalties could make operating in Sabah and Sarawak unfeasible. By some estimates, quadrupling the royalties from the current 5 per cent would cost Petronas US$7 billion a year.

"Domestically, it's a necessary evil to hold the government together," said Adib Zalkapli, Malaysia director, BowerGroupAsia, referring to the payments.

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

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