THE Chief Minister has rightly said that the issues with regard to reclaiming our rights over petroleum should not be politicised and that discussions with Petronas to arrive at a regulatory framework, based on our State laws, should be handled by professionals. There is no doubt that such discussions are ongoing and well-informed government sources have vouched that there has been good momentum achieved.
Legacy Issues
The enforcement of our Oil Mining Ordinance, 1958, the Land Code and the Natural Resources and Environment Ordinance, which regulate the upstream activities of exploration, prospecting and mining of oil and gas, requires the unwinding of multiple legacy matters.
When the 1969 Proclamation of Emergency was declared following the May 13 unrest, the Yang di-Pertuan Agong promulgated the Emergency (Essential Powers) Ordinance No.10 of 1969 (EO 10) to make the Petroleum Mining Act, 1966 and the Continental Shelf Act, 1966 applicable to Sarawak. These two Acts were extended to Sarawak because of the Proclamation of Emergency. The two Acts could not constitutionally have effect in Sarawak as they encroached on the rights of Sarawak over land in the Continental Shelf and the rights to pass laws relating to issuance of licences and leases for mining under Item 2(c) State List in the Ninth Schedule of Federal Constitution. EO 10 and the extension of the two Acts to Sarawak when an Emergency is in force, cannot be challenged on the ground of inconsistency with any provision of the Federal Constitution.
Under the EO 10, the Oil Mining Ordinance, 1958 (OMO), was only applicable to mining onshore of Sarawak. Oil mining activities in onshore areas require licences or mining leases issued by the Yang di-Pertua Negeri. The Federal Government had, however, full authority over upstream
mining activities offshore including in the Continental Shelf of Sarawak.
On March 18, 1971 when the Proclamation of Emergency and EO 10 was in force, it is a matter of public record that the Oil Mining Lease issued by the then colonial Government in 1952 to Sarawak Oilfields Limited (later known as Sarawak Shell Berhad) which authorised offshore and onshore mining in Sarawak by Shell, was assigned to the Federal Government. That Mining Lease was then taken over by Petronas after the coming into force of the Petroleum Mining Act, 1974 (PDA). Thereafter, Shell was given specific blocks to explore and mine by Petronas under Production Sharing Contracts (PSCs), and other blocks were taken over by Petronas who entered into PSCs with other petroleum companies. Based on publicly available information, there are currently 45 oil and gas producing or exploration blocks offshore of Sarawak.
Post-Emergency Period
The 1969 Proclamation of Emergency was annulled by both Houses of Parliament in December 2011. Under Article 150(7) federal Constitution, it is provided as follows:-
“At the expiration of a period of six months beginning from the date on which a Proclamation of Emergency ceases to be in force, any ordinance promulgated in pursuance of the Proclamation and, to the extent that it would not have been validly made but for this Article, and any law made while the Proclamation was in force, shall cease to have effect, except for anything done or omitted to be done before the expiration of that period.”
Although EO 10 and the Continental Shelf Act, 1966 and Petroleum Mining Act, 1966 ceased to have effect and/or ceased to have application to Sarawak by June 2012, anything done when the said Ordinance and/ or Acts were in force, does not cease to have (lawful) effect. On this legal basis, it would be difficult, if not impossible, to argue that the PSCs entered into between Petronas and its contractors covering 45 oil and gas producing and exploration blocks offshore Sarawak, have been nullified once EO 10 and the said Acts have ceased to
have effect in Sarawak in June 2012.
Regularising the upstream activities
The Chief Minister has repeatedly said that Petronas and their contractors must regularise their upstream activities to be aligned with our State Laws. This means they would have to have licences for exploration and prospecting and mining leases for production of oil and gas, both onshore and offshore as well as lawful authority to occupy and use state land.
thesundaypost dated 23/9/2018 reported that Sarawak Association for People’s Aspiration (SAPA) urged “Sarawak Government to enforce the OMO now” and call for an end of the “grace period”.
The OMO was enacted in 1958 and has been in force since June 1958 for onshore and offshore oil mining (except for period when EO 10 was in force when OMO only applied to onshore oil mining).
However, as of today, none of the PSCs operating in the 45 Oil or gas producing blocks have any licence or mining lease. If the State Government follows the dictates of SAPA by enforcing OMO now (with no grace period) all oil and natural gas exploration and production would have to cease immediately until licences and mining leases are granted to them. SAPA also said that “the oil and gas belong to us; and the law is with us as land owner”.
What is SAPA implying? Are we to adopt the Mugabe style of approach in Zimbabwe, kick out the white farmers and repossess their land and give them to the Africans? In our case, are we to tell those companies operating in the 45 blocks that because the oil and gas belong to us and since they have no licence or mining lease as required by OMO, they must cease operations and decommission their oil wells and production platforms, shut all their pipelines? And, they must do so immediately because NO GRACE period would be granted even though we, Sarawakians, well know (a) their huge investments are at risk and (b) the State and national economy would suffer horrendously when oil and gas production comes to a halt even for a short period of time.
Such an approach borders on insanity. No responsible Government would adopt this approach.
The grace period is to enable the oil and gas industry in Sarawak to rationalise their operations and business in accordance with our laws based upon a regulatory framework underpinned by the OMO and other related laws. To implement this rationalisation scheme, a great deal of technical, seismic and geological data plus information on the PSCs are required from Petronas and these have to be properly evaluated or analysed by relevant State Government agencies, unless of course, SAPA is advocating the State Government should simply give out licences and leases to whoever is currently operating in the 45 blocks.
To facilitate this rationalisation process, the State Government has formed PETROS who would be a co-regulator for oil and gas industry and to spearhead the Government’s efforts to having a more equitable share in the benefits and profits from the oil and gas found and produced in Sarawak and to enhance the participation in the oil and gas industry by Sarawakians and Sarawak companies.
PETROS is served by a Board of Directors comprising of persons with vast experience in oil and gas, a Chief Executive
Officer who has worked in international oil companies for many years and a team of dedicated professionals. Petros together with a team of experienced Legal Officers from the State Attorney-General’s Chambers, as announced by the Chief Minister, are currently in active discussion with Petronas, to achieve the above objectives and to have in place a regulatory framework that will be conducive to the growth of the oil and gas industry in Sarawak.
Therefore, SAPA and other political figures should really heed the sound advice of the Chief Minister to refrain from politicising this matter and coming out with outrageous demands that could adversely affect investors’ confidence in both out regulatory process and their decisions to invest in the exploration and production of oil and gas in Sarawak.