KUALA LUMPUR (July 12): Two Luxembourg-registered subsidiaries of Petroliam Nasional Bhd (Petronas) have been seized by “heirs” of the late Sultan of Sulu over a US$15 billion (approximately RM66.55 billion) legal dispute with the Malaysian government arising from an agreement signed 144 years ago, the Financial Times (FT) reported on Tuesday (July 12).
According to the FT report, bailiffs in Luxembourg seized the companies, namely Petronas Azerbaijan (Shah Deniz) and Petronas South Caucasus, on behalf of their clients on Monday.
The report said the subsidiaries managed gas interests in Azerbaijan and could be worth more than US$2 billion.
Petronas had not responded to a request for comment at press time.
The move is part of legal efforts by the Sulu heirs to win compensation over land in Sabah that they said their ancestor leased to a British trading company in 1878, before the discovery of vast natural resources in the area, FT reported.
Petronas had in February sold 9.99% stake in the Shah Deniz natural gas project to Russian oil and gas company LUKOIL for about US$1.45 billion, following a revision of the original planned deal which involved the sale of Petronas’ entire 15.5% stake in the project for US$2.25 billion.
The state-owned energy company was dragged into this dispute as Malaysia does not recognise the decision by an arbitrator in France, which had ruled in March that Malaysia must pay the descendants US$14.9 billion.
The dispute arises after “heirs” and “successors-in-interest” to Sultan Jamalul Kiram II initiated a claim against the government of Malaysia through an international arbitration proceeding in Madrid, Spain, Malaysia's Ministry of Foreign Affairs and Attorney General’s Chambers (AGC) had said in a joint statement in March.
The ministry and AGC said the claim is based on an agreement Sultan Mohamet Jamal Al Alam, the Sultan of Sulu at the time, and Baron de Overbeck and Alfred Dent entered into in 1878 under which the Sultan of Sulu granted and ceded in perpetuity the sovereign rights over certain territories located in North Borneo, now forming part of Sabah, Malaysia.
“As a token, RM5,300.00 per annum was to be paid to the then Sultan of Sulu, his heirs or successors. Following the Lahad Datu armed invasion, payment was ceased in 2013,” the statement read.
The statement was issued after the French arbitration ruling, a ruling which Malaysia pointed out it had not participated in.
“The government of Malaysia does not recognise the claim and did not participate in the purported arbitration proceedings because Malaysia has always upheld and has never waived its sovereign immunity as a sovereign state,” Putrajaya said in its March statement.
“In addition, the subject matter of the claim is not commercial in nature and thus cannot be subject to arbitration and the 1878 Agreement contains no arbitration agreement. We further stress that the claimants’ identities are doubtful and have yet to be verified,” it added.
The FT also reported on Tuesday that if Malaysia continues to ignore the ruling, the money owed to the “heirs” is set to increase, and the claimants’ lawyers indicated that they would pursue more state assets if a resolution was not reached.
The arbitrator in France previously highlighted that for every year the Sulu heirs are getting unpaid, Malaysia’s outstanding liability to the heirs will rise by 10%, the report noted.
Bernama in May, citing Foreign Minister Datuk Seri Saifuddin Abdullah, reported that Malaysia will be sending diplomatic notes to 168 countries that signed the New York Convention as an early notification on possible unilateral legal claims by descendants of the Sulu Sultan.
The proactive move was taken so that 168 countries were aware of the unilateral claim, apart from hoping that the countries involved would inform Malaysia if there were such applications filed in their countries, Saifuddin reportedly said.
The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. Malaysia and Luxembourg are contracting states in the convention.