Tuesday, September 5

Malaysia takes control of multi-million payments to opposition state

KUALA LUMPUR, Sept 5 (AFP) -

The Malaysian government said Tuesday it was taking control over payments worth tens of millions of dollars which previously went directly to an opposition-ruled state.

The state government in northeastern Terengganu says it is entitled to the annual payment as royalties on offshore oil production.

But in June Prime Minister Mahathir Mohamad said the goverment was studying whether Terengganu was entitled to royalties.

This year's payment would be worth an estimated 810 million ringgitmillion dollars), almost twice as much as last year following a rise in world oil prices.

The Parti Islam SeMalaysia (PAS) won control of the state assembly from Mahathir's coalition in elections last November.

The finance ministry described the payments made since 1978 to the state as "goodwill contributions."

It said in a statement the payments would still be made but did not specify whether they would equal five percent of the value of the state's oil and gas production, as was the case previously.

The ministry said a new central committee, headed by the treasury secretary-general, was finalising the allocation mechanism.

The funds will be largely targetted at infrastructure development in rural areas, cheap housing for the poor, religious schools and loans for fishermen, it said.

"The committee will prepare and determine the list of projects, the criteria for the choice of projects and the schedule of implementation for the federal government's consideration," it said.

"The federal government is confident that this new method will benefit the people of Terengganu who need assistance."

The finance ministry said the government made "goodwill contribution" to Terengganu since 1978 through national oil company Petronas. The state was now no longer poor as a result of the development programs.

It said accountability was factored into the new payment method, as the federal government was not confident that the PAS-led state authority would cooperate to protect the interests of Terengganu residents.

The finance ministry said the state government received a "goodwill payment" of 432 million ringgit (114 million dollars) in February but had given no information to the federal government on how the money was used.

The federal government promised to consider any additional needs that may crop up in the future, the ministry added.

A government official told AFX-Asia, the financial news agency subsidiary of AFP, that the allocation to Terengganu used to be known as "oil royalty" but should be called a "goodwill contribution."

He said that it was later found that Terenganu is not eligible for oil royalty payment.