Kelantan sues Petronas for oil royalties

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KUALA LUMPUR:The Kelantan state government filed a suit against national oil corporation Petroliam Nasional Bhd (Petronas), claiming an unspecified amount of purportedly unpaid oil royalties and a breach of contract by Petronas.
Kelantan Menteri Besar Datuk Nik Abdul Aziz Nik Mat filed the suit on Monday morning, Aug 30 at the new commercial court registrar here.
Nik Aziz, who is PAS spiritual leader, was accompanied by lawyer Tommy Thomas, Kelantan senior state executive council (exco) member Datuk Husam Musa and a crowd of supporters.
In its suit, the Kelantan state government was seeking a court order for specific performance of the Kelantan Petroleum Agreement dated May 9, 1975.
The agreement required Petronas to make annual cash payments to the state government amounting to an equivalent of 5% of petroleum won and saved on-shore and off-shore Kelantan and sold by Petronas, its agents or contractors.
The Kelantan government was accusing Petronas of breaching its obligations under the Petroleum Development Act 1974, the Kelantan Petroleum Agreement and the Kelantan Grant.
In its suit, the Kelantan state government also said that Nik Aziz had written a letter dated Dec 31, 2009 to the president and CEO of Petronas requesting for cash payments to be paid to the Kelantan state government for petroleum won off-shore Kelantan.
According to the details of the writ of summons, the Kelantan government said it had received a reply from the President and CEO of Petronas dated Feb 2 and April 12 stating that the state government was not entitled to receive any cash payments.
Through the legal action, Kelantan was also requesting that an inquiry be ordered to require Petronas to fully disclose all the relevant facts related to the cash payments payable to Kelantan and for all arrears of cashments to be accounted and paid within one month of a court order.
The Kelantan government was also seeking an order for all future cash payments be paid for petroleum produced off-shore, damages, 8% per annum interest, costs and other reliefs.
The Kelantan government also said: "Despite its failure to make cash payments to the Kelantan state government, Petronas continues to make similar cash payments to the state governments of Sabah, Sarawak and Terengganu (until 2000 when PAS took control of the Terengganu state government from the Barisan Nasional) under identical or similar Agreements and Grants..." the suit said.
The Kelantan administration also contends that Petronas was "unfairly discriminating" against it because Kelantan was controlled by PAS, a political party which is in opposition to the ruling BN coalition.
Under agreements signed in the mid 1970s, all state governments were promised cash payment or royalty of five per cent for petroleum extracted on-shore or off-shore in return for surrendering their control of petroleum resources to Petronas.
In November last year, Prime Minister Datuk Seri Najib Razak announced in the Dewan Rakyat that the federal government would pay wang ehsan ("compassionate payment") to Kelantan from 2010 for any petroleum products extracted near the state's shores.
The money would be channelled to the state via the Federal Development Department in Kelantan.
The federal government has reportedly distributed RM25 million in compassionate funds to the people of Kelantan to date.
The move however ruffled PAS leaders who assert that Kelantan was entitled to oil royalty and not a "goodwill gesture".
The federal government contended that Kelantan was not entitled to claim royalty as the oil produced came from beyond three nautical miles of the state's shoreline.
The federal government pays 5% oil royalty to Sabah and Sarawak while Terengganu and Kelantan only get wang ehsan, a term which only came into the picture after PAS took control of Terengganu after the 1999 general election.
The federal government stopped paying oil royalty to Terengganu but began paying wang ehsan after BN regained the state in the 2004 general election.