Sabah should get a higher oil royalty

KOTA KINABALU, Nov 25, 2011: The State government should continue to demand for a higher petroleum royalty from the Federal government, said Luyang State Assemblywoman, Melanie Chia.

Speaking at the State Legislative Assembly on Wednesday while debating on the State Budget 2012, Chia fervently asserted that this was only appropriate and fair to the people of Sabah, in view of Sabah's significant contribution to the nation's coffer.

Citing reliable sources, Chia noted that much of Malaysia's 83 trillion cubic feet (Tcf) of proven natural gas reserves, as of January 2009, comes from offshore of Sabah and Sarawak. It is known that PETRONAS contributes to about 40% of Malaysia's revenue.
She further noted that the discovery of many more new fields of oil and gas in Sabah especially this year, including significant discovery of petroleum near Kota Kinabalu, have been significant to Malaysia and PETRONAS.

"Sabah, especially with the new found fields, should therefore enjoy the benefits of this natural endowment to its people," she asserted.

She reminded that having a fixed rate on the oil royalty to the State revenue is different from having Federal allocation that can increase or decrease depending on State Federal relationship.

"Just as a reminder, the Federal allocation for the year 2012 is only RM1,520.76 million for development, which is less than 3% of the total amount development budget of RM51 billion for the whole country. But in a federal budget amounting to RM232 billion, what Sabah gets is so insignificant," she pointed out.

She further reminded that the good days will not last forever.

"The day the oil wells run dry, that day we will get nothing. Therefore, the Sabah Government should still pursue the task of getting a higher petroleum royalty, and I still maintain that we should ask for a revision of at least 20%," she said.

To back up her call, Chia noted that previous reports have indicated that Malaysia could turn into a net energy importer by 2015 based on its current trend of consumption if oil and gas (O&G) production did not improve.

The National 2011/2012Economic Report revealed that the country's oil production could fall further to 600,000 barrels per day this year. Just take note that total oil production for the financial year ended March 31, 2011, had fallen to 2.14 million barrels of oil equivalent (BOE) per day, from 2.27 million BOE per day in 2010.

She also expressed regret that the development of the O&G sector in Sabah was a bit too late and too little, as compared a certain non-oil producing states in the country like Pahang, Malacca, Kedah, and recently the RM60billion refinery and petrochemical integrated development (RAPID) petrochemical complex in Pengerang, Southern Johor.

It was said that this RAPID petrochemical complex was expected to create at least 20,000 jobs during the construction phase and 4,000 potential jobs for highly-skilled workers. There is also the RM5 billion independent deepwater petroleum terminal in Pengerang, which is to be the first deepwater terminal in South-East Asia. Last year, the Government said PETRONAS would play a major role in the development of Johor's southeast areas of Teluk Ramunia and Pengerang turning it into an O&G hub in the region.

"Compare to what non-oil producing state like Johor gets, what is the promise of RM45 billion for the Sabah O&G industry? We only want a fair deal from what is produced in our beloved State. We are not yet talking about what we lost in oil fields Block L and Block M and that recently PETRONAS entered into a joint production sharing contract with PetroleumBrunei.

"PETRONAS will start drilling for oil in Brunei waters and also in Block M. This joint production sharing will give PETRONAS billions of ringgit in contracts and income. And what do we get?" she asked.

She further lamented that Sabah youths have long left Sabah to work in Johor.

Touching on the oil palm sector, Chia urged the State government to tap into the vast potential of the oil palm downstream industries which is estimated to worth a whopping RM100 billion.

"{Besides oil and gas sector} The other major source of state revenue is from the oil palm industry from the collection of sales tax from CPO. The government has correctly stated it is beyond its control especially the prices and production of CPO. Changes in the prices of this commodity in the international market will affect the revenue that we expect to collect under this category.

"Therefore, we need to be prudent, and at the same time, we should look into other revenue from is sector. It has been reported that with the vast acreages planted with palm oil in the state, the potential palm oil industry downstream industries and value adding is potentially RM100 billion," she elaborated.

She continued that the Manufacturing Sector is one of the 3 sectors identified in "Halatuju of the State" and is one of the three main thrusts of development of the state.

"This sector should be greatly empowered so that it could spearhead industrial development and promote downstream activities especially in our palm oil sector.

"Can you imagine if Sabah gets to keep the palm oil produced in the state and develop the downstream activities, in additional to the potential value adding, the number of jobs that will be created?" she said.