Section 2 of the Petroleum Development Act 1974 (PDA) vests in Petronas full ownership and exclusive rights to all onshore and offshore petroleum resources.
Sarawak, on the other hand, claims that it owns these resources by virtue of the state’s Oil and Mining Ordinance 1958 (OMO). It argues that the OMO continues to have the force of law and “co-exists” with the PDA.
The state says the particular continental shelf has been within its boundaries since 1954. Those boundaries, Sarawak says, remained intact when it joined Malaysia nine years later.
The dispute is significant as it challenges Petronas’s right to mine a resource-rich area in the South China Sea, including in the vicinity of the Luconia Shoals.
Estimated to house 60% of the nation’s O&G resources, the area generates the bulk of Malaysia’s liquefied natural gas (LNG), sufficient to fulfil 90% of Petronas’s LNG exports.
No longer content to receive only 5% oil royalties as provided for in an agreement entered pursuant to the PDA, Sarawak has lately demanded a greater share of all O&G revenues generated.
To back its claim, the Bornean state argues that it owns the sole legal right to all resources off its shores.
It’s not their oil, says Tengku Razaleigh
Former finance minister Tengku Razaleigh Hamzah is adamant that Sarawak does not have a superior claim to the resources compared to Petronas.
“It’s not their oil. It was not even discussed at the time (when the Malaysia Agreement 1963 was drawn up),” he told FMT.
He said Sarawak should continue to honour its obligations under the royalty agreement previously entered into.
“You can’t go back and forth, you know. An agreement is an agreement,” said Tengku Razaleigh, the national oil company’s first chairman.
So, does Sarawak have a legitimate claim? FMT explores the legal contentions advanced by the state.
Sarawak’s maritime boundaries
Sarawak was a British colony prior to 1963, and secured its independence by becoming part of the Federation of Malaysia.
The state claims that nine years earlier, while still under colonial rule, Queen Elizabeth II issued the Sarawak (Alteration of Boundaries) Order in Council 1954.
The order extended the colony’s boundaries to include the continental shelf, comprising the seabed and the subsoil lying beneath the high seas contiguous to the state’s territorial waters.
That, according to Sarawak’s state legislative assembly speaker, Asfia Awang Nassar, meant that Sarawak’s borders when it became part of Malaysia already included the continental shelf off its coast.
In October 2019, Asfia was quoted by Dayak Daily as saying:
“If the contention of the federal government was that Sarawak’s continental (shelf) has been constitutionally and legitimately acquired under the PDA even though it transgressed Article 2 of the Federal Constitution, then the federal government must pay compensation to the state government at market rate.”
Sarawak relies on Section 4(3) of Part II of the Federal Constitution to claim that the continental shelf formed part of its territories when it joined Malaysia on Sept 16, 1963.
The state also points to Article 2(b) of the Federal Constitution which provides that any law altering the boundaries of a state must be consented to by its state assembly and the Conference of Rulers.
Sarawak says neither condition has been satisfied, rendering any alteration to its boundaries unconstitutional and, therefore, null and void.
The ‘continental shelf’
That begs the question as to what constitutes the “continental shelf”.
Maritime lawyer Liew Teck Huat suggests that this is where the problem with Sarawak’s legal position lies.
“Sarawak claims that the 1954 Order in Council extended its boundaries to include the continental shelf, which it says goes up to 200 nautical miles from the edge of its territorial waters.
“But the 200 nautical mile length is not specifically stated in the Order in Council itself. That is because at the time it was issued the concept of what constitutes the ‘continental shelf’ had not yet been resolved.”
Liew said the term was only properly defined in the 1982 United Nations Convention on the Law of the Sea (Unclos), an international treaty which established a comprehensive legal framework for all marine and maritime activities.
Malaysia signed on to Unclos in 1982 and ratified it four years later.
“Unclos was formally adopted as part of Malaysian law when the Territorial Sea Act 2012 was passed by Parliament following the annulment of the 1969 Proclamation of Emergency in December 2011,” said Liew.
He said Sarawak’s narrative that the Territorial Sea Act 2012 was passed to rectify a mistake in boundaries or that it was unconstitutional because it did not comply with Article 2(2) of the Federal Constitution is without basis.
“In any event, any legislation passed into law by Parliament must be taken as valid and enforceable unless struck down by a court.
“It is for the party asserting that a law is unconstitutional – in this case the state of Sarawak – to challenge it in the Federal Court,” said Liew.
He also claimed that the 200 nautical mile limit provided for in Unclos was for the benefit of Malaysia, being the party that signed on to the international treaty.
“The right to the continental shelf off all Malaysia’s coasts, including Sarawak’s, belongs to the entire nation.
“On that basis, the PDA and the Territorial Seas Act 2012 do not make inroads into Sarawak’s boundaries as claimed, and are good law,” said Liew.
Multiple issues arise touching on historical boundaries, state rights and federal authority. Unless determined with finality by the courts, any dispute between Petronas and Sarawak will likely remain unresolved. - FMT
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