The former PM’s remarks come amid renewed attention over Sabah’s 40% net revenue entitlement and Sarawak’s increasingly assertive push, through Petros, for greater upstream control — developments that have intensified pressure on Putrajaya to re-examine federal–state financial arrangements.
Mahathir acknowledged that Sarawak’s request for a larger share of oil and gas revenue reflects its changing expectations.
“There is a need for us to reassess the allocation to the state government.
“They feel that they should get more from their own resources and not just the 5% that was agreed upon. We have to study how much is the contribution of Sarawak to the federation,” he said.
Once that is established, the government can decide the appropriate allocation, he added.
“Economically, it probably needs to be corrected, to increase their share.”
Mahathir said the sentiment in East Malaysia has shifted, with both Sabah and Sarawak now more aware of their economic strength.
“They (East Malaysians) may not feel satisfied because they see Sabah and Sarawak have great potential,” he said.
“They want to be free to exploit the potential — the assets of Sabah and Sarawak — without having to refer to the federal government. So for them, the federal government is a hindrance, a block to their rapid development.”
However, Mahathir cautioned that any push by Sabah and Sarawak for autonomy must not erode national cohesion “to the point of total separation”.
Don’t drag Petronas into federal-state politics
The larger allocations both states are seeking stem primarily from oil and gas revenues generated off their shores within Malaysia’s exclusive economic zone — a sector under Petronas’ jurisdiction. Consequently, any debate over increasing funds inevitably draws Petronas into the equation.
Mahathir stressed that while revenue sharing arrangements can be reviewed, the national oil company’s operations must not be compromised or become the subject matter of political negotiations.
He said the company must be allowed to operate based on commercial logic, not political pressure, whether foreign or domestic.
“Petronas should work as a public company and be affected by the market.
“(If) there is a demand from the market then Petronas should meet the demand,” he said.
As Sabah and Sarawak renew their claims, Mahathir said Putrajaya must distinguish between fair negotiations and interference that weakens national institutions.
Review revenue-sharing, not Petronas ops, says economist
Economic analyst Jamil Ghani said any move to accommodate Sabah and Sarawak should be handled through federal finances rather than by altering Petronas’ operational structure.
He said the revenue-sharing debate is legitimate, especially given long-standing concerns in both states over how much federal revenue is collected from their economies compared with what is channelled back into local development.
“Putrajaya can review direct grants, refine the transfer formula or even adjust the dividends it draws from Petronas. What it should avoid is allowing fiscal disputes to spill over into Petronas’ commercial decisions,” he said.
Jamil said federal–state negotiations should focus on clearer rules and more transparent accounting without intervening in the national oil company’s core operations.
He said Sarawak’s push to take on the sole gas aggregator role illustrates how fiscal claims risk crossing into structural changes.
The proposal would place a state-owned intermediary between Petronas’s upstream and downstream activities, fragmenting a system that is currently integrated across production, processing and delivery.
“Once you break that chain, you weaken pricing coordination, supply planning and long-term LNG commitments. It creates parallel regimes and undermines the efficiency and national coherence that the gas system relies on,” he said.
Jamil recognises that the demands made by Sabah and Sarawak stem from genuine frustrations over revenue distribution, but said those issues must be resolved at the governmental level.
“Reforming the fiscal framework is one thing — restructuring Petronas to satisfy state demands is another. Blurring the two would introduce more uncertainty into the energy sector without actually fixing the underlying revenue imbalance.”
US gas purchases may harm Petronas, says Mahathir
Mahathir also highlighted a specific instance in which political decisions, rather than commercial needs, were imposed on Petronas — referring to the government’s agreement to buy gas from the United States.
“In this case, what has happened is that the government has accepted that Petronas should purchase gas from America, a very big amount of gas from America,” he said.
“We don’t need to import from America. We can get the gas from other places,” he said. “But the government has decided that we should buy gas from America.”
He added that such directives distort Petronas’ ability to make rational business decisions.
“That means that in a way, we are put under pressure by the US to support the economy of the US.”
Mahathir said Petronas “should not be blocked” from responding to actual market demand and must not be forced into purchases it “may not need”.