Constitutional limits and state resistance are hurdles—not obstructions—to be solved through a formula that guarantees shared benefit and national coordination
By Dr Mohd Safar Hasim
In 1974, Malaysia made a sovereign leap into industrial modernity. The creation of Petroliam Nasional Berhad—Petronas—was not merely a corporate manoeuvre, but a declaration of national intent.
It unified fragmented oil concessions, asserted control over petroleum resources, and built a vertically integrated supply chain that would fund education, diplomacy, and development for generations. Petronas became a symbol of Malaysia’s capacity to govern its own strategic assets.
Today, Malaysia stands at another inflection point. Beneath its soil lies an estimated 16.2 million tonnes of rare earth oxides (REO), concentrated in ionic clay deposits across Kelantan, Perlis, Terengganu, and Kedah. These minerals—essential to electric vehicles, renewable energy systems, semiconductors, and defence technologies—are valued at approximately RM809 billion.
The question now is whether Malaysia can replicate the Petronas model for rare earth elements (REE), or whether fragmented governance and foreign dependence will squander this opportunity.
Rare earths are not rare in quantity, but they are rare in strategic clarity. Malaysia’s deposits are dominated by light REEs (LREEs) such as neodymium, praseodymium, lanthanum, and cerium. These elements are indispensable to permanent magnets used in electric motors, wind turbines, and consumer electronics.
Yet the real geopolitical leverage lies in heavy REEs (HREEs) like dysprosium, terbium, and yttrium—used in high-performance magnets, lasers, fibre optics, and military-grade systems.
The price gap is stark. As of late 2025, neodymium and praseodymium trade at around US$94 per kg while dysprosium and terbium range from US$250 to nearly US$2,000 per kg. In simplified terms, light REEs are worth just five to 10 per cent of heavy REEs.
Without refining capacity, Malaysia risks exporting low-value feedstock while forfeiting the strategic and economic benefits of high-value elements. While federal coordination remains cautious, several Malaysian states are already moving forward.
Kelantan has signed a memorandum of understanding to supply Mixed Rare Earth Carbonate (MREC) feedstock to an Australian MNC’s advanced materials plant based in Kuantan. The state has deployed drone surveillance to monitor illegal mining and protect its deposits, particularly in Jeli and Gua Musang. Kelantan’s strategy is to position itself as a resource supplier, leveraging the MNC’s global supply chain while avoiding the environmental and regulatory burdens of building its own refinery.
Perlis, meanwhile, has entered into a partnership with two local companies, one of them publicly-listed, to explore REE mining alongside large-scale agro-plantation projects. The plan includes cultivating Napier grass and Blackthorn durians—raising questions about ecological compatibility.
Mining rare earths requires soil disturbance and chemical leaching, while agro-plantation demands conservation and long-term fertility. The dual-sector model may reflect economic ambition, but it also exposes contradictions in land use and environmental stewardship.
At the federal level, caution prevails. During the 22nd China–ASEAN Expo, held from Sept 16 to 19, 2025, in Nanning, Guangxi Province, reports surfaced of preliminary discussions between
Malaysia’s sovereign wealth fund and a Chinese state-owned enterprise regarding a rare earth refinery project.
Yet the sovereign fund publicly denied any involvement, stating, “We are not in talks with anyone.” This denial likely reflects reputational caution, geopolitical balancing, and internal coordination gaps.
Malaysia could be trying to avoid appearing beholden to China, whose dominance in REE refining is under global scrutiny. At the same time, ministries such as the Ministry of Natural Resources and the Ministry of Investment, Trade and Industry have acknowledged China’s offer to share refining technology—albeit under conditions that protect trade secrets and limit access to state-linked entities.
Critically, China has signalled that it prefers to deal with government-linked companies (GLCs) when engaging in strategic mineral partnerships. Other governments and global investors share this preference.
GLCs offer continuity, accountability, and sovereign legitimacy. They are seen as capable of managing environmental risks, negotiating technology transfer, and ensuring compliance with international standards. Malaysia’s current decentralised model—where each state negotiates independently—does not inspire confidence among global partners. It lacks the institutional clarity and strategic coherence that a GLC or national entity could provide.
If we do not adapt, we risk being bypassed in favour of more coordinated jurisdictions.
The decision by Minister Datuk Seri Johari Ghani to reject a centralised REE authority should not be the end of the conversation. It should be the beginning of a deeper, more courageous dialogue—one that seeks a formula beneficial to both federal and state governments.
Constitutional limitations and state-level resistance should not be treated as immovable obstructions, but as negotiable hurdles—challenges to be addressed through dialogue, legal innovation, and shared national purpose. The Federal Constitution was never meant to freeze Malaysia’s development in place; it is a living framework, capable of evolving to meet new strategic realities.
If the current division of mineral rights between states and the federal government prevents Malaysia from unlocking the full value of its RM809 billion rare earth deposits, then it is time to rethink—not retreat.
What Malaysia needs is a federal–state formula that guarantees states will benefit more—not less—from a coordinated national body. This formula must be water-tight, transparent, and enshrined in law. It could include guaranteed revenue-sharing ratios favouring the host state, state representation on the board of any national REE entity, joint oversight of environmental and ESG compliance, and priority for local employment and downstream investment in the host state.
Such a formula would not erode state rights—it would enhance them. It would allow Malaysia to speak with one voice to global partners, while ensuring that the economic and ecological dividends remain rooted in the communities where REE is mined.
The Petronas model offers valuable lessons. It succeeded because it was built on a foundation of centralised authority, technocratic leadership, and long-term vision.
The Petroleum Development Act gave Petronas exclusive rights over Malaysia’s oil and gas resources. It invested in research and development, cultivated local talent, and forged global partnerships on Malaysia’s terms.
A “Petronas for REE” would require similar pillars: a Malaysian Rare Earths Authority to unify mining, refining, and environmental compliance; sovereign control over refining technology, either through indigenous innovation or transparent tech transfer; a national roadmap that aligns state-level initiatives with federal industrial policy; and civic engagement to ensure public trust, youth participation, and ESG accountability.
Without coordination, Malaysia faces several risks. REE mining can produce radioactive waste, contaminate water sources, and degrade soil. Public distrust—rooted in past legacies like Bukit Merah and the Kuantan waste controversy—remains potent.
Economic leakage is likely if Malaysia continues to export raw feedstock. Geopolitical vulnerability looms if refining technology remains foreign-controlled.
These risks are not hypothetical. They are already visible in the cautious dance between the sovereign fund’s denial, China’s silence, and the states’ assertive moves.
Malaysia’s rare earths are more than minerals. They are a test of industrial courage, civic integrity, and strategic clarity. The choice is stark: build a national formula that guarantees shared benefit—or watch opportunity dissolve into fragmented ambition, ecological risk, and foreign dependence. The clay is local. The courage must be national.
(The views expressed here are entirely those of the author, Dr Mohd Safar Hasim, a former academician and journalist, and currently a Council Member of the Malaysian Press Institute)
WE