Why Sarawak is questioning the law that created Petronas

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KUALA LUMPUR (Jan 27): Sarawak is questioning whether the Petroleum Development Act (PDA) — the law that created Petroliam Nasional Bhd, Malaysia's only Fortune 500 company and vested with the nation's oil and gas wealth — is still relevant today.

The question hinges on the state of emergency under which the bill was passed in 1974, according to The Edge Malaysia's cover story 'Why Sarawak questions the Petroleum Development Act' for the week of Jan 29-Feb 4 by assistant editor Khairie Hisyam Aliman, citing the Sarawak Chief Minister (CM).

The CM Datuk Patinggi Abang Abdul Rahman Zohari, popularly known as Abang Johari, told the weekly that the issue is a critical matter Sarawak is actively pursuing.

The weekly wrote that following the riots on May 13 1969, the then Yang di-Pertuan Agong issued the Emergency Proclamation, applicable to the whole country. Parliament was suspended and the entire nation was placed under a caretaker government until 1971. While Parliament reconvened in 1970, the proclamation — along with two other emergency proclamations that applied to Sarawak and Kelantan — were never lifted until 2011.

That means the Petroleum Development Bill was passed while the nation was, technically, under a state of emergency, the weekly wrote.

“So, the question is, when the emergency was lifted, is (the PDA) [still] relevant? We don’t know. That’s what we have to discuss (with the federal government),” said Abang Johari.

Sarawak, he added, has formed a “high-level committee to [look into it] because we feel that it (the PDA) is not relevant anymore”. But he stressed that it is an issue for the legal minds from both sides to determine and “not for me to decide”.

The Sarawak government's stance on the PDA is relatively new, the weekly noted. Abang Johari’s immediate predecessor, the late Tan Sri Adenan Satem, started the ball rolling by asking for higher oil royalties than the present 5% after becoming chief minister in 2014, it wrote. That year, the Sarawak legislative assembly, led by Adenan, unanimously passed a motion to ask for a 20% oil royalty, a move originally mooted by the opposition.

According to the weekly, data from the Energy Commission showed that as at end-2015, Sarawak has 28.7% of known national oil reserves and accounted for 29.4% of national production. As for gas, Sarawak accounted for 52.7% of the country’s known reserves. Today, the state is said to hold much potential in terms of unexplored hydrocarbon deposits.

Abang Johari, who took charge of Sarawak in January last year, set up Petroleum Sarawak Bhd (Petros) a few months later to be Sarawak’s wholly owned oil and gas company, which he said should have equal standing with Petronas in terms of oil and gas activities in Sarawak.

He told The Edge that Petros will be an “active player” in the sector within two years — and that it will go into oil exploration, among other things — which is around the time some production sharing contracts in Sarawak would expire. Abang Johari, however, declined to comment on whether that is a factor behind the two-year deadline.  

Should discussions with the federal government result in upholding the Sarawak government’s interpretation on the PDA, is there a possibility that Petros will be vested with Sarawak’s oil and gas reserves? “Yes, something like that,” Abang Johari said, adding that the ideal outcome should be a “win-win [situation] for the Sarawak and federal governments”.

The PDA issue is part of Sarawak’s pursuit of rights under the Malaysia Agreement 1963, which it says “have been eroded”, the weekly wrote. According to Abang Johari, one example of such rights is Sarawak’s claim to its territorial waters. He said Sarawak's boundary, once 12 nautical miles when Malaysia was formed, is now only three nautical miles.

Under the Federal Constitution, he said the boundaries cannot be changed without Sarawak's consent. This territorial water dispute ties back to Sarawak’s eye on its oil and gas wealth as hydrocarbon deposits in Malaysian waters mostly occur beyond the three-nautical-mile line.

To strengthen its case, Sarawak sent a legal team to London last year to do further research on the Malaysia Agreement and gather additional documentation on its rights under the Malaysia Agreement 1963. “We have found documents that strengthen our argument on our rights,” said Abang Johari, whose father Tun Abang Openg Abang Sapiee — Sarawak’s first governor — was among the signatories to the treaty.

What were these documents and what do they entail? What spurred Sarawak to question the PDA now — with the 14th general election just around the corner — when it has benefited not only from the royalties but also the spin-offs of the O&G industry there? Pick up a copy of The Edge at newsstands near you today to follow the discussion.

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