EVERYBODY knows that national oil company Petroliam Nasional Bhd (Petronas) has been losing its clout in Sarawak in the last few years. It came to light in 2016 when Sarawak issued a moratorium on all new applications for work permits for staff outside the state, including Petronas.
It was reported that the state government’s decision was prompted by complaints from Petronas officers from Sarawak whose services were terminated or retrenched because of the downturn in the oil price.
In April last year, Sarawak announced the setting up of Petroleum Sarawak Bhd (Petros), a company that would enable Sarawak to actively participate in oil and gas (O&G) extraction activities in the state.
Petronas since then has said that it has had a series of discussions with the state, but there is not much progress.
In the last one year, Sarawak has embarked on several initiatives that would see Petros come into force from July this year.
The grim reminder came in an official letter from Sarawak Attorney General (AG) Datuk Talat Mahmood Abdul Rashid to Petronas president and chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin on April 13.
The letter stated that starting from July 1, the state government would regulate the downstream and upstream O&G industry in accordance to state laws, including the Oil Mining Ordinance 1958 (OMO), the Land Code of Sarawak and the Gas Distribution Ordinance 2016.
The letter stated that Petronas has to comply with the state laws for the exploration, prospecting and mining of petroleum including natural gas, and the distribution of gas within the state.
“Any such activities and the use or occupation of state land, both onshore and offshore, carried out without the required licences or leases issued under the state laws after July 1 would be deemed illegal and appropriate action would be taken,” the letter stated.
Petronas was told to liaise “immediately” with the Sarawak state-owned oil exploration company Petros to discuss arrangements on the exploration and prospect of mining petroleum and natural gas in the state.
The letter also stated that the state government would be holding a dialogue session with all persons or companies involved in upstream and downstream O&G activities in Sarawak.
Petronas responded on May 22, more than a month after the issuance of the letter from the Sarawak AG and two weeks into the formation of a new government at the federal level under Pakatan Harapan.
Petronas issued a lengthy letter stating that the company disagreed with the state on its authority over the exploration and mining activities of O&G resources.
“Petronas is not required to apply for any such licences or leases from the state under the OMO ... there is no requirement for Petronas to liase with Petros. In all instances, Petronas fully reserves its rights in respect of the foregoing,” the three-page letter ended.
Petronas, in essence, disagreed with Sarawak’s contention that the state was not covered by the Petroleum Development Act 1974 (PDA).
In outlining details, Petronas said that the PDA had vested in it exclusive powers to regulate upstream O&G activities throughout Malaysia and that no other body had such powers.
“The OMO was superceded by the PDA, which by necessary implication repealed the OMO,” the letter said.
It also said that the Sarawak government had entered into an arrangement, in March 1975, vesting in Petronas the ownership of petroleum resources both offshore and onshore in return for agreed cash to the state government.
Petronas also wrote that the OMO was a pre-Malaysia Day law and that under the Malaysia Act 1963, the OMO is to be treated as a federal law since the ordinance pre-dates the formation of Malaysia.
This means that from then on, the Sarawak government could no longer consider itself the authority under the ordinance, Petronas stated.
Since the letter was issued, there were no major developments until June 4, when Petronas filed a case seeking a declaration from the Federal Court that it is the exclusive owner of petroleum resources in the country, as well as the only regulator of upstream activities nationwide, including in Sarawak.
It is worth noting that Sarawak has also issued a handbook on “The Regulatory and Basic Procedures of the Oil & Gas Industry in Sarawak”.
The handbook says that the O&G industry in Sarawak will be experiencing regulatory adjustment in consequence of the state reclaiming its constitutional authority to regulate the mining and production of petrochemicals, as well as the distribution of gas in Sarawak.
It says that the aim of the handbook is to give industry players clear and comprehensive guidance to help them understand and apply all relevant state legislations when operating in Sarawak.
“The state government will exercise its regulatory powers in a manner that would not jeopardise the interest and investment of those who have already been operating in Sarawak,” the handbook states.
The role of Petros is also laid out in the handbook, including to assist the state government to issue exploration, prospecting and mining licences.
It points out that Petros is to be a major revenue contributor to the Sarawak state through active participation as a major player in the exploitation and utilisation of petrochemicals in Sarawak.
There has been growing dissatisfaction in the Sabah and Sarawak governments over the years on oil royalties, despite the fact that the bulk of Petronas’ hydrocarbons are derived from the two states.
Things between Sarawak and Petronas started to heat up last year when Sarawak chief minister Datuk Patinggi Abang Johari Tun Openg announced the formation of Petros.
Wan Zulkiflee then responded that he welcomed any involvement by state government entities in the O&G business, but it has to be within the PDA.
He said that under the PDA, Petronas is the custodian and manager of the O&G resources in Malaysia.