The sustainability of Petroliam Nasional Bhd (Petronas)'s ability to contribute to the nation will come into question
should royalty payments to the states be increased from the present rate of five per cent to 20 per cent.

Petronas, in a statement here today said this increase will result in lower petroleum income tax payments.

It said the company's profits will also be reduced, thereby potentially affecting its ability to pay dividends to its shareholders.

Petronas said the increase in royalty payments will also reduce the profitability and economic viability of all current and future oil and gas projects under development.

This in turn will deter Petronas and production sharing contract (PSC) contractors from further investing in these projects.

"Over the next five years, planned projects with a total capital expenditure worth about RM170 billion are at risk of being cancelled. Coupled with declining production from maturing domestic fields, this will actually result in lower royalty payments to the states over time," said the state-owned oil company.

It said a reduction in the oil and gas production will also threaten the energy security of the nation.

Apart from this direct impact, the resulting slowdown will have an adverse multiplier effect on the domestic oil and gas industries such as service companies as well as spin-off industries, leading to a reduction in employment opportunities for the people residing in those states. -- Bernama