By Simon Peter
Commentary: The Petronas-Petros gas distribution rights issue is far from over
Despite recent claims by Prime Minister Datuk Sri Anwar Ibrahim, the dispute between the Sarawak government and Petroliam Nasional Berhad (Petronas) over the control of gas distribution in Sarawak is far from over.
The prime minister was reported by the media as saying that the dispute between Petronas and Petros over the gas distribution rights had been resolved in his meeting with Premier Datuk Patinggi Abang Johari Openg.
However, Minister in Prime Minister's Department (Law and Institutional Reform) Datuk Seri Azalina Othman Said’s statement in parliament had made the issue rather murky and confused.
Her statement had also angered Sarawakians towards the federal government, particularly on Petronas only recognising Petros’ role as a gas aggregator minus the liquefied natural gas in Sarawak.
She claimed that Petronas and its subsidiaries did not require licensing and did not subject to any additional procedures to carry out petroleum operations in Sarawak beyond those stipulated under the PDA.
An upset Abang Johari declared that Azalina was giving misleading statement on the role of Petros as gas aggregator including LNG, saying that her statement was not “really accurate”.
What is being the gas aggregator then if LNG is excluded?
Both Anwar and Abang Johari had agreed to sort out the issue once and for all.
In the national interests, Abang Johari had stressed that he and the prime minister had reached an understandings that all parties respect federal and State laws including Petroleum Development Act 1974 (PDA 1974) and Distribution of Gas Ordinance 2026 (DGO 2016).
He said Petronas and Petros would work together as partners to advance national and state interests and revenues, and the interests of Sarawak would have to be prioritised.
Abang Johari had made it very clear that even though Petros took the role of gas aggregator, existing contracts entered into by Petronas and its subsidiaries were not affected to enable Petronas to fullfil its domestic and international contractual obligations.
Anwar’s follow-up statement supported Abang Johari’s points on the Petronas-Petros issue.
The federal government, according to Anwar, aspired to support Sarawak in engaging in oil and gas industry activities within the state and that both Petronas and Petros would have to move forward as partners to ensure the protection of the nation's and Sarawak's interests and benefits.
In the meantime, Sarawakians have to wait for the outcome of another round of meeting between Anwar and Abang Johari.
The Petronas-Petros issue has to be settled as soon as possible and must be based on a win-win situation.
The earlier the better and should not be dragged too long until the term of the unity government ends in 2027 or 2028. By then, it will be too late.
Abang Johari had made it known that the Gabungan Parti Sarawak (GPS) only supported Anwar as prime minister until the end of his term.
However, that stand may change if the Petronas-Petros issue is amicably solved to the satisfaction of all parties.
The gas industry is a billion ringgit business, with Petronas and its subsidiaries controlling and getting much of it.
Political pundits cited Tan Sri Muhyiddin Yassin, then the prime minister, as an example, who had a hand in helping to solve problem relating to the imposition of 5 per cent Sarawak State Sales Tax on petroleum products that was strongly opposed by Petronas.
They also would want to see if Anwar could do the same this time around.
It is recalled that the Kuching High Court had ruled that the Sarawak government had the constitutional and legal rights to impose the SST in a civil case involving the Sarawak government against Petronas.
However, Petronas filed an appeal in the Court of Appeal. It later withdrew the appeal, allowing the Sarawak government to proceed with the imposition of the SST.
Judge Azhahari Kamal Ramli, in giving his grounds of judgment, said he found that the power of the state to make law for imposing sales tax derived from Article 95B(3) of the Federal Constitution.
He said this Article was added to the Federal Constitution upon the recommendation of the Inter-Governmental Committee (IGC), prior to the formation of Malaysia that the Borneo states should have the power to impose sale tax, that any discriminatory rates would not be imposed on goods of the same type but of different origin.
The judge added the Article 95B(3) was added by Article 26 of the Malaysia Act 1963 to take effect from September 16, 1963, which provided that the legislatures of Sabah and Sarawak could also make laws for imposing of sales tax and any sales tax imposed in the states of Sabah and Sarawak should be deemed to be among the matters enumerated in the State List and not to the Federal List.
It is also recalled that the Federal Court, on June 22, 2018, struck out Petronas’ application to haveexclusive right over oil and gas resources in Sarawak.
Chief Judge of Malaya Tan Sri Datuk Wira Ahmad Maarop, in dismissing the application, held that the declaration sought by Petronas did not come within the ambit of Article 4 of the Federal Constitution.
"In my view, the declaratory reliefs sought by the applicant do not come into the ambit of Article 4(3) and 4(4) of the Federal Constitution.
“Hence the reliefs sought by the applicant are not within the exclusive original jurisdiction of the federal court. The reliefs sought are within the constitution of the high court of Sarawak.
“Thus the question of leave on Article 4(4) of the Federal Constitution does not arise. The application is dismissed," Justice Ahmad Maarop said in his ruling.
A press statement from the Chief Minister’s Office said that the Federal Court’s decision paved the way for Sarawak to enforce its laws from July 1, 2018.
The statement added Petros would be delegated with the appropriate powers to implement the Oil Mining Ordinance (OMO) 1958.
In its court filing, Petronas sought a stay order in respect of the Sarawak government’s commencement to regulate upstream activities in the state under OMO 1958 beginning July 1, 2018.
Petronas was required to comply with the OMO and must have the requisite licences or leases, failing which the upstream activities carried out by Petronas would be illegal and appropriate action would be taken.
Petronas was seeking a declaration that the PDA was duly enacted by Parliament and that Petronas was the exclusive regulatory authority for the upstream industry throughout Malaysia, including in Sarawak.
However, Sarawak argued that the OMO 1958 was a law where the Sarawak state legislature had the legislative authority to regulate the granting of oil prospecting licences, oil exploration licences and oil mining leases.
Therefore, the state of Sarawak has the executive authority over the permits and for prospecting for mines and over mining leases and certificates.
According to Abang Johari, Sarawak’s probable and proven reserves of petroleum represent 60.87 per cent of Malaysia's total reserves while Sabah’s make up around 18.8 per cent.
This explains why Sarawak wants to have a major share in the gas industry, not a bystander.
Let’s take a look at the Federal Constitution.
Ninth Schedule of the Federal Constitution:
Section 8 of the Federal List: Trade, commerce and industry, including-
(j)Subject to item 2 (c) in the State List: Development of mineral resources; mines, mining, minerals and mineral ores; oils and oilfields; purchase, sale, import and export of minerals and mineral ores; petroleum products; regulation of labour and safety in mines and oilfields.
Ninth Schedule of the Federal Constitution:
Section 2 of the State List: Except with respect to the Federal Territories of Kuala Lumpur and Labuan, land including-
(c)Permits and licences for prospecting for mines; mining leases and certificates.
Petroleum Development Act 1974:
2. (1) The entire ownership in, and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum whether onshore or offshore of Malaysia shall be vested
in a Corporation to be incorporated under the Companies Act 1965 or under the law relating to incorporation of companies.
(2) The vesting of the ownership, rights, powers, liberties and privileges referred to in subsection (1) shall take effect on the execution of an instrument in the form contained in the Schedule to this Act.
(3) The ownership and the exclusive rights, powers, liberties and privileges so vested shall be irrevocable and shall enure for the benefit of the Corporation and its successor.
The main amendments to the Oil Mining Ordinance 1958:
1.Section 8 stipulates that a licence or lease shall not b assigned or transferred without the prior approval of the Majlis Mesyuarat Kerajaan Negeri
2. Section 8A on the restriction on award of contract by a licencee to lessee
3. Section 19 and Section 27 empower the Majlis Mesyuarat Kerajaan Negeri to grant oil prospecting licence and oil mining lease whether or not the applicant had previously been granted an oil exploration licence;
4. Section 33 on the overriding control by the State Minerals Management Authority established under the Mineral Ordinances 2004 (Cap 56). This amendment would give the authority the power to issue directions or guidelines to the lessee
5. Section 33B on the delegation by the authority. This means the section would allow the authority to delegate any of its power, functions, duties or responsibilities conferred by OMO to:
(i) The Minister
(ii) A Committee formed by the authority comprising its members or any other persons named in the notification
(iii) Any other public officer,or
(iv) Any person
6. Section 33C is incorporated to provide the state with the power to issue a single licence and lease comprising of oil exploration, oil prospecting and oil mining activities
