By Joseph Sipalan, Krishna N. Das and Matthew Tostevin
KUALA LUMPUR (Reuters) - Malaysia is considering selling stakes in energy giant Petronas to provinces where the company's oil and gas fields are, Prime Minister Mahathir Mohamad told Reuters on Tuesday, in a bid to raise funds for the debt-laden government.
Such a move may also give states such as Sarawak and Sabah a say in the running of Petronas, the world's third-largest exporter of liquefied natural gas. Mahathir said the government could not meet a demand made by the states for a quadrupling of the royalties paid by the company to 20% of its profit.
"It's fully owned by the government, it's up to the government to sell the shares privately not in the market, to states like Sabah and Sarawak," Mahathir said in an interview in his office.
"Petronas is a very big company, it depends on how much (the states) can pay also."
Sarawak and neighboring Sabah have Malaysia's most prolific oil and gas reserves in their waters in the South China Sea. Their longstanding demand to increase royalties could cost Petronas up to $7 billion a year.
Petronas, formally known as Petroliam Nasional Bhd (PETR.UL), is the biggest money-spinner for the federal government.
Mahathir said the government could also cut stakes in smaller listed or unlisted units of Petronas.
"What we need is to reduce our involvement, the number of shares that we hold, in order to raise some funds for ourselves." he said.
The company's main listed units are petrochemicals maker Petronas Chemicals Group (KL:PCGB), retail arm Petronas Dagangan (KL:PETR), and gas infrastructure and utilities arm Petronas Gas (KL:PGAS). Petronas Carigali is its exploration unit.
On Monday, Petronas said it has completed block trades of its shares in Petronas Dagangan, Petronas Gas and Misc Berhad (KL:MISC).