Oil royalty: Breach of faith by Barisan and Petronas — Datuk Husam Musa

APRIL 10 — It is very important to place on record how Barisan Prime Ministers from Dr Mahathir have directed Petronas to stop paying oil royalty to states ruled by the Opposition, despite the law and the contracts that the parties entered into. In 1974 the Petroleum Development Act, 1974 ("PDA") was enacted by Parliament. It contemplated the transfer by all the 13 States of their ownership of petroleum rights on their lands (onshore) and in waters off their coast (offshore) to a company to be incorporated and to be known as Petronas. But the PDA could not take effect until all the 13 States gave their consent to such transfer. Such consent was to be given through 2 documents: Agreement and Grant. By 1975, the 13 States, through their Menteri Besars and Chief Ministers, signed 13 Agreements and Grants, which are identical for all the 11 Peninsular States, and substantially similar for the 2 East Malaysia States. The Federal Government also signed the Agreement and Grant. All the 14 Agreements and 14 Grants were signed with Petronas.
Accordingly, the 14 Agreements and 14 Grants are "statutory contracts" under the PDA. They are legal documents which are to be treated solemnly and with sanctity. They represent federalism, that is, the sharing of a very valuable and depleting resource by the 13 States, and the Government of Malaysia, and its agency, Petronas.
The bargain was essentially that in consideration of the 13 States relinquishing all their ownership rights and claims to Petronas,. "cash payments" (the word "royalty" was never used in the legal documents) of 5 per cent of all petroleum produced "onshore" and "offshore" the 13 States were to be paid by Petronas to the relevant oil-producing state. Thus, it was not the intention of any of the States to give up for free their ownership rights to petroleum. Whether 5% was fair and reasonable for a very valuable and depleting resource is another question altogether.
It was also agreed that the Federal Government would receive an equivalent sum of 5 per cent i in cash payment for petroleum produced onshore and offshore each of the 13 States, leaving 90 per cent to Petronas. The Federal Government's right to receive cash payment of 5 per cent for petroleum produced on the land belonging to a state, say, Kelantan (onshore) is significant because the Federal Government never from time immemorial had any ownership right or claim to such onshore petroleum, which belonged solely and exclusively to Kelantan. If ownership was not the basis, why was it agreed that 5 per cent cash payment will also be paid to the Federal Government for onshore petroleum? It was because it was part of the bargain or deal reached by the 14 governments in the interests of federalism, and the greater public and national interest. It was a classic case of give and take, a consensus arrangement reached in good faith. Strict legal rights were not insisted upon.
When the PDA was enacted in 1974, petroleum was only produced in Sarawak and Sabah. They were the first States to receive 5 per cent cash payments for petroleum produced hundreds of miles offshore Sarawak and Sabah.
In 1978 the first cash payments were paid to Terengganu for petroleum produced hundreds of miles offshore Terengganu.
Until 2000, the system worked well, as originally agreed in 1974-5. What triggered a change was the election of PAS as the State Government of Terengganu. The Federal Government, controlled by Prime Minister Dr Mahathir, directed Petronas to stop making cash payments to Terengganu. It was a blatant political decision taken to punish the people of Terengganu for daring to elect a PAS government. It was not based on the law. When the PAS government of Terengganu sued the Federal Government and Petronas in 2001, the 2 parties for the very first time claimed that cash payments are not payable to Terengganu for oil produced outside the territorial waters off Terengganu, that is, outside the 3 mile limit. This was a specious and disingenuous argument put forward by their lawyers as an after-thought to justify a political decision by their political masters.
When Kelantan, under a PAS government, submitted a claim to Petronas for cash payments for petroleum produced "offshore" Kelantan, it was rebuffed. As a result, Kelantan instituted legal proceedings against Petronas for violating the PDA, the Agreement and Grant. The Federal Government applied to intervene, and despite Kelantan's objection, the Courts allowed them to do so although Kelantan has no claim, (monetary or otherwise) against the Federal Government.
UMNO recaptured the State Government of Terengganu in the 2004 general elections. Petronas shortly thereafter resumed cash payments to Terengganu, and Terengganu's civil suit, originally filed by the PAS government, was withdrawn by the UMNO government. Despite public outcry, the terms of settlement between the UMNO Federal and Terengganu State Government and Petronas remain secret and confidential. Even the people of Terengganu have been kept in the dark about cash payments by Petronas to their State from 2000. The people of Malaysia are entitled to know whether the arrears from 2000 have been paid by Petronas to Trengganu, if so, how much, and what has happened to that money.
When petroleum was discovered offshore Pahang, again hundreds of miles in the South China Sea, the Federal Government immediately announced that cash payments would be paid to the Pahang government, controlled by UMNO.
Hence the political nature of the dispute is demonstrated by the fact that UMNO or UMNO friendly State governments in Sarawak, Sabah, Terengganu and Pahang are always paid cash payments by Petronas, while PAS controlled governments in Kelantan and Terengganu (2000-2004) are never paid. The effect of Petronas not paying cash payments to opposition controlled states after taking away their petroleum and gas from such states without paying for them amounts to theft. The 6 Agreements and Grants of these 6 States are identical or substantially similar. Neither the PDA, the 14 Agreements nor the 14 Grants make reference to the distance from the coast or shore. 3 miles, 12 miles or any other distance is not mentioned in any of the legal documents. Instead, the relevant word that is always used is "offshore", which common sense and logic will indicate, is without limit on the High Seas.
It is terribly disappointing to note that Petronas is prepared to break contracts merely on the order of the Prime Minister. Petronas surely cannot behave this way with respect to the hundreds of contracts it has entered into with foreign counterparts the world over.
Hence, the only conclusion that can be drawn from the conduct of the Federal Government and Petronas, wholly controlled by the Federal Government, is discrimination between UMNO and PAS controlled State governments. The former is paid while the latter is not. The hypocrisy and double-dealing conduct of the Federal Government and Petronas must be punished by the 13.3 million votes at the forthcoming general elections.

Source themalaysianinsider