KUALA LUMPUR (Reuters) – Malaysian national oil firm Petronas has agreed to withdraw legal proceedings against Sarawak state and make full payment of a sales tax imposed by the state government on petroleum products for 2019 of 2 billion ringgit ($462 million), at 5% of the value of products, Petronas said in a statement on Friday.

Petronas agreed to withdraw an appeal of the Sarawak High Court’s decision on the application for a judicial review in March, while Sarawak will also drop all civil litigation against Petronas for payment of sales tax on petroleum products, the statement added.

The energy giant said both have agreed to mutually resolve negotiations on the sector through commercial solutions for a more stable business and investment environment.

“It is a sustainable approach to enable the survival of the country’s oil and gas industry, especially in the current volatile oil and gas markets,” Petronas said.

The energy-rich state of Sarawak dropped a demand for quadrupling royalties paid by Petronas last year but pushed for production-sharing and other agreements, a key negotiator told Reuters last year.

The longstanding royalty demand would cost government-owned Petronas up to $7 billion a year.

Petronas retains full authority over regulating the entire development of Malaysia’s oil and gas industry in accordance with the Federal Constitution, it said.

It will, however, continue negotiations with Sarawak to enable more active state government involvement in investment opportunities in the state’s oil and gas industry on commercial terms, including joint venture opportunities at the operating company level in Sarawak.

The finance minister and senior works minister will chair a joint committee to implement the commercial solutions.

($1 = 4.3310 ringgit)

(Reporting by Liz Lee; editing by David Evans)