Staking claim on Sarawak’s O&G

Part 5 of a 6 part special series to celebrate the second anniversary of Chief Minister Datuk Patinggi Abang Johari Tun Openg

The Sarawak government has imposed a 5 per cent sales tax on petroleum products, namely crude oil, natural gas, liquefied natural gas (LNG), chemical-based fertilisers and gas-to-liquid products.

The tax is expected to generate RM3.897 billion this year, serving as a new source of revenue to propel Sarawak’s development agenda.

Chief Minister Datuk Patinggi Abang Johari Tun Openg has declared that Sarawak will not withdraw the sales tax despite dissent from the federal government.

The Gabungan Parti Sarawak (GPS) chairman has asserted that the sales tax is part of Sarawak’s rights enshrined in the 10th Schedule of the Federal Constitution.

It was learnt that talks are ongoing between the Ministry of Economic Affairs and Petroliam Nasional Berhad (Petronas) on the implementation of the payment mechanism to Sarawak.

Sarawak implemented the regulatory rights over its oil and gas activities after the Oil Mining (Amendment) Bill 2018 was passed at the State Legislative Assembly (DUN) sitting in July last year.

The amendment was to update several provisions in the Oil Mining Ordinance (OMO) 1958 as well as to bring the Ordinance in line with current practices and operations in the upstream sector of the oil and gas industry in Sarawak.

Following the amendment, Sarawak is able to strengthen its regulatory control over the exploration and prospecting of petroleum and mining on land.

When Parliament passed the Continental Shelf Act 1966 and Petroleum Mining Act 1966 to regulate mining petroleum in continental shelf, these Acts were not extended to Sarawak.

These Acts were made applicable to Sarawak after the 1969 Proclamation of Emergency, when in the exercise of emergency powers under Article 150 of the Federal Constitution, the Yang di-Pertuan Agong promulgated the Emergency (Essential Powers) Ordinance No. 10, to extend the said Acts to Sarawak and Sabah.

However, the OMO 1958 was never repealed by the said Emergency Ordinance, which ceased to have effect in 2012 as Article 150(7) of the Federal Constitution provides that all laws passed during the emergency shall cease to have effect six months after the proclamation of emergency was annulled by Parliament.

Petronas is not exempted from complying with OMO 1958 or Sarawak Land Code when Petronas and its contractors undertake exploration, prospecting and mining for petroleum in Sarawak.

Sarawak is regulating the upstream activities of Petronas and its contractors to ensure that their upstream activities comply with state laws.

Such regulation is enforced to also ensure that the exploitation of Sarawak’s valuable resources is carried out in the manner that serves the best interests of Sarawak and its people.

It is said that by exercising such regulatory control over the upstream activities of exploring, prospecting and mining of oil and gas in Sarawak, the government is actually addressing the issue of ownership of oil and gas on and off the shore of Sarawak.

Sarawak is the main producer of natural gas and exporter of LNG in Malaysia, whereby according to the Statistics Department, the volume of LNG exported from Sarawak was 27 million metric tonnes with a total gross value of RM41.1 billion in 2017.

Under this regulation, companies involved in the oil and gas industries in Sarawak must obtain the necessary licences and leases required under OMO 1958 and Gas Distribution Ordinance 2016.

The application for licences must be made in a form prescribed under OMO and submitted to the State Minerals Management Authority (SMMA) through Petroleum Sarawak Bhd (PETROS).

Abang Johari has stressed the necessity of enforcing the OMO given that the rights enabling the oil and gas industry players to operate in Sarawak should belong to the Sarawak government.

With the new regulation, Petronas must only deal with PETROS to produce or extract oil and gas from beneath land within Sarawak’s boundaries.

For PETROS to work alongside Petronas, the Chief Minister is certain statutory powers conferred by OMO on the SMMA or the minister would be delegated, via statutory instrument, to PETROS.

Notably, Sarawak has also issued a handbook on ‘The Regulatory and Basic Procedures of the Oil and Gas Industry in Sarawak’, which reportedly states that the oil and gas industry in Sarawak would be experiencing regulatory adjustments in consequence of Sarawak reclaiming its constitutional authority to regulate the mining and production of petrochemicals as well as the distribution of gas across Sarawak.

The handbook indicates that PETROS would be a major revenue contributor to Sarawak via active participation as a major player in the exploitation and utilisation of petrochemicals across the Land of the Hornbills.

Also in July last year, Abang Johari said the DUN never endorsed PDA 1974, adding that the OMO 1958 “is a law that still remains in force today”.

“The OMO 1958 gives Sarawak full regulatory authority over all persons and companies involved in the operations of the oil and gas industry in Sarawak.

“Petronas applied to the Federal Court to seek a declaration that the Sarawak OMO 1958 was already repealed implicitly by the PDA. We are glad that this application to seek the declaration in the Federal Court was rejected by the Federal Court on June 22, 2018,” he said.

On June 6 last year, Petronas filed an application for leave to commence proceedings under Article 4(4) of the Federal Constitution to seek a declaration that the PDA applied in respect of the regulation of upstream activities in Sarawak.

It sought the court’s declaration that the PDA was duly enacted by Parliament, and it stated that Petronas was the exclusive regulatory authority for the upstream industry throughout Malaysia including in Sarawak.

The Federal Court, however on June 23, dismissed Petronas’ application for leave with RM50,000 costs to commence legal proceedings against the Sarawak government, in its challenge against the latter’s claim to regulatory authority in the upstream oil and gas sector within Sarawak.

In a response to this court ruling, Abang Johari said the decision paved the way for the Sarawak government to enforce its state laws, and that PETROS would be delegated with the power to implement OMO.

In March last year, Saau Kakok, a Bidayuh with almost 40 years of experience in the oil and gas industry, was officially appointed as the CEO of PETROS.

He was the Special Projects Vice-President for Asia of a United States-based independent oil company prior to the appointment.

PETROS, led by chairman Tan Sri Datuk Amar Hamid Bugo, has five board members namely Datin Josephine anak Hilary Dom, Datu Zuraimi Sabki, Sharbini Suhaili, Heng Hock Cheng and Dato Mohammad Medan Abdullah.

Abang Johari said Petronas had been exporting LNG from Sarawak since 1975, and the revenues derived have contributed tremendously to the national economy and the development of the federation.

“By the exercise of our constitutional rights, the state government is fulfilling the aspirations of the people of Sarawak that the additional revenues from oil and gas will accelerate industrial development and economic progress to enable Malaysia as a whole to achieve a high income economy by the year 2030,” he added.

The Chief Minister has also made it clear that Sarawak’s goal is to restore Sarawak rights that are enshrined in the Malaysia Agreement 1963 – the international treaty between Sarawak, Sabah, Singapore and Malaya to form the Federation of Malaysia, which puts Sarawak as an equal partner with Malaya and Sabah.