End bickering over Petronas’s O&G rights, ex-Treasury man tells Sarawak

 

Sarawak is insisting that all domestic users buy their gas from Petros, an arrangement which is “bound to disrupt existing commercial agreements Petronas has with end users in the state,” according to a source. (Reuters pic)

PETALING JAYA: 

A former senior Treasury official has urged Malaysians not to question Petronas’s right to oil and gas resources in Sarawak, amid reports that negotiations between the national oil company and Petroleum Sarawak Berhad (Petros) are deadlocked.

Nik Azmi Nik Daud said both Prime Minister Anwar Ibrahim and Sarawak premier Abang Johari Openg have issued statements recently acknowledging the Petroleum Development Act 1974 (PDA) as the overarching oil and gas governance framework.

Addressing the Dewan Rakyat on Feb 17, Anwar said Petronas’s existing international and domestic contracts will not be affected even as Petros assumes gas aggregator duties.

Despite this, a source in the Sarawak government told FMT recently that Sarawak is insisting that all domestic users buy their gas from Petros. “Such an arrangement is bound to disrupt existing commercial agreements Petronas has with end users in the state,” the source said.

Nik Azmi Nik Daud.

Nik Azmi said the validity of the PDA was beyond question, and that federal laws override state laws in situations where the two conflict.

“Full control of oil and gas is with Petronas, as enshrined in the constitution via the PDA,” he told FMT, adding that the legislation was properly passed by the Dewan Rakyat and duly documented.

“Bickering by half-baked minds doesn’t change that. Sarawakian representatives and everybody should look to history and stop spreading misinformation that could harm relations among Malaysians.”

The PDA vests Petronas with ownership and authority over all upstream and downstream oil and gas activities across the country.

Nik Azmi said that prior to the PDA, Malaysia had no access whatsoever to oil and gas resources as these had been given by the colonial powers to foreign oil giants “for as long as there is the moon and the stars”.

Even our first prime minister Tunku Abdul Rahman failed to get them back despite securing Malaya’s independence from British rule, he said.

On March 3, the Sarawak United People’s Party castigated the state’s DAP chapter for questioning the PDA’s applicability to the state after previously acknowledging its validity.

Earlier in February, Sarawak’s legal counsel JC Fong accused the federal government under former prime minister Razak Hussein of drawing up the PDA in secrecy.

“Those who say Sarawak was never consulted on the PDA should check their facts,” said Nik Azmi.

“When Tengku Razaleigh Hamzah led the PDA’s drafting and passing, he was strongly assisted and supported by Abdul Rahman Yakub, Sarawak’s then chief minister.

“Then primary industries minister Abdul Taib Mahmud, a Sarawakian (later the state’s chief minister and governor), had earlier introduced the Hydrocarbon Bill to the Dewan Rakyat but it was rejected.

“Rahman Yakub then together with Tengku Razaleigh suggested that Petronas take over oil distribution (which falls within the aggregator role), during the parliamentary debate, to benefit everybody.

“The PDA could not be passed without a vesting instrument,” he added, referring to a Straits Times report dated July 29, 1976.

“All states signed this vesting order that transferred their jurisdictions to Petronas in perpetuity.

“At the PDA enforcement ceremony in August 1976, ex-PM Razak Hussein and others witnessed then-Sarawak state secretary Bujang Nor sign the vesting deed.”

Nik Azmi also dismissed claims that Sarawakian MPs were not involved in the passing of the PDA and that Rahman Yakub had single-handedly signed over Sarawak’s rights.

“The PDA could not be passed without the states approving it with a two-thirds majority in their own DUNs (state legislative assemblies).

“Petronas’s Nik Saghir Noor and a team of lawyers including then solicitor-general Salleh Abas and others oversaw that all the legal and constitutional boxes were ticked in the vesting of rights in Petronas under the PDA.

“Tengku Razaleigh advised all state leaderships not to table any motion to their respective legislative bodies unless confident that it would get a two-thirds majority. Rahman Yakub got the approval of the Sarawak DUN for the PDA.

“The deal for a 5% cash payment to all the other states was accepted if oil and gas was found in their respective states.”

Meanwhile, Nik Azmi said Sarawak’s appointment as gas aggregator would not run afoul of the PDA. He said Section 6 of the Act empowers the prime minister to assign downstream roles to third parties.

However, he said that besides distributing gas, aggregators must also maintain and upgrade all infrastructure such as pipelines.

“Sarawak and even other states can apply, but they must prove they can manage it. Petronas won’t bail them out if they fail,” he cautioned, highlighting the significant capital expenditure needed for the role.

Nik Azmi added that transferring the capex spending to Petros would ease Petronas’s burden, allowing it to focus on high-revenue investments.

He said ownership and authority of all upstream activities remain with Petronas but states may seek to become partners under a joint development agreement, just as corporations do internationally.

“The process is open—if they qualify, they can bid,” he said.

Nik Azmi urged all parties to remain factual. “The legal framework is clear. There’s no room for baseless theories,” he said.

Sarawak’s PDA claims misinformed

A top lawyer with considerable experience in litigating oil and gas disputes in the country also insisted that the PDA is constitutionally sound, contrary to claims previously emanating from Sarawak.

“The courts have never taken the position that the PDA is unconstitutional,” the lawyer, speaking on condition of anonymity, told FMT.

“It’s a convenient excuse by Sarawak to say that the PDA was passed during an emergency, and so is not valid.

“But that’s not true, because although Malaysia was in an emergency, Parliament resumed after three years. The emergency was from 1969 to 1971, after which Parliament sat.

“We were theoretically in a state of emergency, but Parliament was fully functional, and many laws were made throughout that period. Those laws are still in force.

“The PDA isn’t an emergency law,” he said.

The lawyer also noted that while Sarawak has special rights under the Malaysia Agreement 1963, this does not extend to ownership and authority over oil and gas.

“Sabah and Sarawak are not like other states, so they have an additional tier of rights,” he said.

“But the important thing is, notwithstanding the Malaysia Agreement 1963, they accepted the federation.”

In accepting the federation, you accept that there will be a separation of powers between the federal and state governments, he said.

“And in Sarawak’s case, it can exercise its enhanced rights. But they can’t just ignore the federal list, the federal powers.

“Does Sarawak have legislative competency to enact any laws pertaining to oil and gas? The answer is no. It’s actually in the federal list, which is why the PDA could be enacted. The PDA could not have been made otherwise,” he said.

The lawyer said Sarawak’s conduct over the years also casts doubts on its claim that the state’s Oil Mining Ordinance 1958 overrides the PDA.

“The PDA put in place the structure for cash payments (that is, 5% royalty).

“Sarawak has been collecting that money all along and they’re still collecting it, so how can they say that the OMO is still valid when they have accepted the PDA and its payments all this while?” - FMT