Allegations have been made that Hassan Marican privately led a revolt against the appointment of a key aide of Prime Minister Najib Razak as a director of Petronas.

A Straits Times report said Najib’s close aides see the rebuff as an act of insubordination.

Najib had wanted Omar Mustapha appointed as a Petronas director, but the board rejected his appointment because the 38-year-old aide had failed to honour a scholarship he received from Petronas, government officials say.

Still, under the Petronas Charter, the board is answerable to the PM, who has sole discretion over all of the firm's activities, including the appointment of directors and senior management.

“This whole thing has spun out of control,” said a businessman who has close ties to Najib. “It was just a board appointment and no one expected the Petronas board to have reservations.”

Several people close to Najib have said he is being advised to exercise his veto powers over Petronas and decree that the board should carry out his instructions to the letter. Anything less would be viewed as a sign of political weakness.

However, private economists and analysts say a hard-nosed approach to this delicate problem could pose numerous risks.

Petronas officials say privately that the company's international partners have voiced concern over the future of Hassan and other senior Petronas officials because of the widening public controversy over the face-off.

Rating agencies and international fund managers with Petronas bond holdings are similarly concerned, they say.

There could also be some political fallout for the Najib administration if the country's powerful civil servants feel his aides are muscling in on their turf.

Published: 03 July 2009 03:16 GMT  | Last updated: 03 July 2009 03:53 GMT