Tuesday, September 24

Necessary amendments of the FC and Federal Acts


Part V

Is there really equal partnership between our state and the federal government?

Not really. Equal partnership with the federal government would mostly be constitutional mirages. Equal partnership does not actually exist in the FC nor between the strong two tier federal government structure and the Borneo Territories in Grundsnorm jurisprudence nor in law. They are not equal partners legally and constitutionally except as an alluring political cliche. At most, no federal domination, but always consult as “equal partners” undefined and orally by Tun Razak since 3rd August 1962, would be assurances under Article VIII of the MA1963, though more than just a political manifesto, implemented outside the constitution.

Equal partners would refer only to all the various states within the States of Malaya which are unequal to the Borneo States protected by their five tiers of entrenched constitutional provisions. The void and illegal Act 354 and PDA1974 were in breach of Article 1, 2 and 161E(3) of the Federal Constitution (“FC”), identical to Article 66(3) of the Malaysia Bill (“MB”), the Annex A to MA1963 and the balances of the 7FCs and 7PMs respectively. The amendments of article 46 on “no two third rule” for the States of Malaya including later the Federal Territories without amending Article 9 of MB was void. Restoration without implementation is hollow.

In practice, the federal government which holds the financial powers makes the practical rules and dictates how much and when to fulfil its entrenched constitutional duties on grants while whittling away the Borneo States’ rights and privileges though entrenched, whether under the Emergency Powers or unconstitutional and void amendments, even not approved by the states’ legislative councils as shown above. Federal treasury has no funds for the grants would be aim pregnable stumbling block in arbitration by an independent assessor under Article 112D of the FC. We hope the recent proclamation of Rule of Law will change the path of our constitutional history.

However, if the Borneo States were to exceed their constitutional or legal powers, politically under political alignment, they would be told to get behind the yellow lines. States’ financial rights to grants would sometimes be constitutional mirages due to unequal powers and power politics.

Why schools must be taught the real history of the Borneo Territories joining in the formation of Malaysia?

Schools must teach the true history of the formation. The public has to be correctly educated continuously on what the federal government has failed to fulfil under the MA1963 and related documents for the Borneo States, apart from promoting better understanding and discard prejudiced views, perceptions and fake news. That was also the intention and voices of PKR and DAP Sarawak before and now. Indeed the PH government was based on this declaration of intent for restoration, autonomy, transparency, governance and recently the Rule of Law proclaimed by the maestro, Tun Mahathir, our PM. The restoration would include revision of education with English to be over-hauled, to upgrade healthcare and others waived by Sarawak and Sabah through political pressures or financial or other reasons. Reformations on the financial, administrative and constitutional autonomy ought to be negotiated or given to them overdue since the mandatory constitutional Review in 1973 which was aborted due to the rocketing bonanza of OPEC.

Could the state use self-help under local sales tax provision before royalty provision is amended on its O&G?

Yes. Whenever possible, self-help by imposing the local sale tax to replace the additional 20% royalty on O&G or more while doing national service would be the only constitutional means to raise money for the development of the state to a certain level of Peninsula Malaysia, though assured by the first two premiers to be at the same level as the States of Malaya.

The state owes about RM2.38 Billion to the federal while the federal still unfortunately owes tens of billions for the additional 5% royalty based on consideration and assurance of Tun Razak after imploring Tun Rahman, the Chief Minister of Sarawak, not to go for a declaratory judgment in the Privy Council in 1974-1975 on PDA 1974. The RM10 Million loan contra grant for dilapidated schools was a good start. So, the state must be allowed to use the balance of the 5% royalty assured by Tun Razak and partially paid with a reconciled statement to offset acquisitions of Petronas’s assets, if agreeable.

Why was the problematic Petronas, a public company, proposed to be under the Petronas Act?

PDA 1974 was set up hurriedly due to the oil bonanza of OPEC in 1973. The dying PM, Tun Razak, unfortunately was erroneously advised to incorporate Petronas as a public company under the Companies Act 1965 instead of a statutory body, say under the Petronas Act, already hinted by a jurist, Mr Jaginder Singh of Melbourne University in the Malayan Law Review 1976. It was not Petronas’ fault. Consequently, the federal government and Petronas would unwittingly and inevitably have breached the entrenched constitutional provisions under items 2(a), 2(c) and 2(d) of the State List Ninth Schedule and the rest of 7 FCs and 7 PM laws of Sarawak and Article 76 of the United Nations Convention on the Law of the Sea (“UNCLOS 1982”) and MA 1963 as a constitutional agreement and a multi-lateral treaty under the directors’ fiduciary duties and by Petronas itself under the Companies Act.

PDA 1974 breached the 7FC particularly Article 95D in a rush due to the dying PM

Unfortunately, they ought to know these 7 PM laws, 7 FCs and MA 1963 apart from several sections of the Companies Act including its memorandum and Articles of Association of Clause I(2), allowing only one shareholder, namely the “federal government of Malaysia” which was not allowed under Sections 14(1), 16(6) and 36 of the Companies Act 1965 (“CA1965”) and continued for some time, before being rectified subsequently. The federal government was not allowed to be classified as the holding company of Petronas under Section 17 which would require Petronas to comply with the legal requirements of a public company. That was complied years later.

But not all breaches of law, 7PMs and 7FC could have been rectified and ratified retrospectively constitutionally and legally also under the various sections of the CA 1965 and FC by promulgating the Petroleum Development (Amendment) Act 1985 (“PD(A)A 1985”). There must be 50 members and a prospectus or a statement in lieu of prospectus issued, whether debenture was intended or not. In the Pine Tree Club in Singapore, due to improper prospectus, the directors were heavily fined and nearly went to jail. The federal government must transfer its valid conveyance and enforceable constitutionally and legally property right and exclusive right, if any, to Petronas to issue valid licences/O&G leases under the PSCs before Petronas can claim the constitutional and legal rights on licensing the Sarawak’s O&G under the PDA, Oil Agreement, PSCs and the purported grant in perpetuity in Tun Rahman’s (“TR’s) letter which were actually all ultra vires, void, illegal and therefore unenforceable against Sarawak without the approvals of the Council Negeri.

Petronas has breached 7FCs, 7PMs, Companies Act and law

The federal government, Petronas and its directors under the fiduciary duties have no defence for breaching the entrenched constitutional provisions of Items 2(a), 2(c) and 2(d) of the State List 9th Schedule, apart from the rest of the 7 FCs and 7 PM laws of Sarawak. So Petronas even as a public company has no such right, power and locus standi. Under its Clause 3(1) of the memorandum and Articles of Association Petronas has provided the object of Petronas, but really a power clause, namely “To acquire …… keep the ownership, rights …… in respect of petroleum lying offshore and onshore”, namely breaching the same entrenched provisions mentioned above which protect the dominions of Sarawak and Sabah. Unfortunately, that uniquepower clause sprung out of Section 2(1) of the PDA 1974 is troublesome constitutionally and legally. Due to an oversight, there was no power in the Memorandum and Articles given to Petronas to commercialise its undertakings until that was ratified11 years later under Section 3A(1) and (2) inthe PD(A)A 1985.

Petronas account needs transparency, accountability under the Rule of Law. Federal Minister of Transport, Baru Bian and local DAP leadershave voiced the same as Sarawakians

Strangely, in the financial information of Petronas (20076-K) in the SSM in 2017, the net profit shown was only RM 26,152,000,000 against its net profit of RM45,400,000,000 in 2017 reported. But according to The Financial Times, Petronas as one of the new “Seven Sisters” oil company outside the OECD has revenues of US 46.06 billion in 2016 and US 55.68 billion (2015) including its international operations. Malaysia is following Singapore GIC which does not disclose its true profit and loss account in Parliament. That unfortunate practice would be best to be revised for transparency, corporate governance and accountability under the Rule of Law, administrative justice and constitutional parliamentary democracy.

Unfortunately, the non-disclosure of the actual profits in the annual audited accounts in SSM would be a continuing offence for the directors and the company as a public company, contradictory to the Rule of Law.

That would seem to be the purpose of the PD(A)A 1985 promulgated most unfortunately without the constitutional consultation of the Borneo Territories as equal partners with the wrong legal advice given to the cabinet to enact the new Article 4 of PD(A)A 1985 which was void, illegal and not enforceable.The approvals by the Council Negeri at the fifth tier are always mandatory under the entrenched constitutional provisions under the dominions of Sarawak and Sabah on their O&G under the 7FCs and 7PMs and for certain federal legislations and amendments of the FC, especially under the State List in Ninth and the Tenth Schedule.

Was PD (Amendment) Act 1985 problematic under 7FCs and 7Pms?

Yes. Due to an oversight and/or legal advice, the PDA 1974 was only amended correctly 11 years later in 1985 by PD(A)A1985 retrospectively backdated from 30th May 1985 to 1st October 1974 empowering Petronas power and right to commercialise on “undertaking and to acquire by agreement, assignment……“under the new Sections 3A(1) and (2).

Unfortunately, all the above breaches of the Companies Act would incur penalties and fines of continuing nature since 1974 until properly amended, namely from a few thousands Ringgits to millions. The problem was inherently caused by the legal and constitutional legacies of Petronas as a public company incorporated under the Companies Act, coupled with the void PDA 1974.

But the new Section 4 was legally and constitutionally troubling for “Act done on transaction carried out before enactment of this Act,” namely unable to declare retrospectively as a “cure” for unlawful acts under this void federal legislation and ultra vires and void actions under the 7 FCs and illegal transactions and acts under the 7PM laws of Sarawak and Companies Act, as if that PD(A)A 1985 had been enacted and in force at the time of commission or omission of the offences by “curing retrospectively” the illegalities, ultra vires and void transactions, if you will, including “all legal proceedings whatever form or nature pending or which may hereafter be instituted, in any court.” Due to an oversight, the cabinet was wrongly advised on promulgating this void and illegal provision.

Some ultra vires void and illegal acts are not rectifiable norratifiable by legislation for example on the prohibition of compulsory acquisition of land under Article 76(4) and Item 2(D) of the State List Ninth Schedule retrospectively not withstanding Article 75 of the FC. Parliament has no powers to legislate, for example under the prohibition on land including the continental shelf of the Borneo Territories under Article 95D of the FC with no compulsory acquisition under Article 13 of the FC, unless approved by the Borneo States’ Legislative Councils.

Fortunately due to the subsequent correct legal advice, the new Article 4 of PD(A)A1985 was removed. As at 1st June 2013, the previous Article 4 on the Cash Payment was reinstated. The fiduciary duties of the directors would include to ensure that in running the public company there would be no breaches of the 7FCs and 7PMs laws of Sarawak, apart from the Companies Act, international laws and treaty. Unfortunately, ignorance of them would not be a valid defence under law, through no fault of Petronas per se.

Everything was done in a rush. There were unintended but some inherent problems with legal and constitutional ramifications and consequences of Petronas as a public company. In a parallel case, not exactly the same, SSK Migas was formed after the constitutional court had declared P.T Migas to be unconstitutional and illegal in Indonesia.


How to kick start Petros’s operation and ensure its success?

Petros should act as an independent,eminent profit-orientated enterprise, secondingor recruiting proven top world class calibre, hand on experienced operators and management even outside Sarawak under contractsfrom international oil companies including Petronas,beyond political correctness to ensure the proper kick start to shorten the learning curve and build up a strong, trim, independent business-like model, efficient, transparent and cost effective team after reissuing expired PSCs first. “Penny wise, pound foolish” has to be avoided. Political correctness must not outweigh the fast tracking Petros’sa ssured professional story of success with upsides while avoiding early Petronas’s and Pertamina’s  unforced errors that had prolonged the time for the learning curves. Petros and our state government would have considered seriously the followings:

i. To self-help on the local sales tax on O&G and their products in stages to generate revenues first, before restoration of others under MA63 with no guaranteed time frame; to discuss the moratorium of Petronas not to issue further PSC and others.

ii. To commence with proper terms of licensing on terms of PSC licences at the beginning with 2 drilling holes and a “3D” seismic (geophysics) costing at least US$50 million for new areas, with stipulated tax structures, deductions, RC Index, threshold volume, abandonment costs, state equity cash flow, IRR of 15% for the contractor company and percentage of carried interest before exploration. Standard 5 years for exploration, 6 years for development and 20 to 25 years of operation tenure have to be allowed or based on Petronas’s PSCs model. The Land Code and OMO (Amendment) 2018 would need to be refined accordingly.

iii. Petros’s business and mindset must not be run as a part of government department nor ministry, but similar to Petronas  with more independent business like model and culture like Singapore Petroleum Corporation (“SPC”), trim, focusing on profits. It is important to install the latest digital technology, CCTV locked in the pumps and FPSO (Floating Production Storage and Off Loading Vessel)with AIS (Automatic Identification System) to ensure proper records of production, export and payment of local sale tax at real times not over 6 months as amplified in Part I. That is to prevent Mr Lim Kit Siang/Exxon alleged incorrect offshore production records in the 1980ies. It would be different even from Sarawak Energy Berhad’s (SEB’s) model which has more direct, visible social, economic and political responsibilities directly to consumers. Revenues of O&G are more for investments, development with proven expertise and building reserves in oil sovereign fund before the O&G run dry.

iv. To set up a marketing network with hedging, futures and farm in the downstream industries eg CNG, if feasible in future and in the contractors’ interest in the Murphy Oil.

v. To train and/or recruit the best locals and Malaysians based on meritocracy, not on political correctness to run a lean, hand on, tight, profitable operation independently under seconded world class proven foreign special talents and expertise in various sectors of the vertical and horizontal integrated industry similar to Petronas. The operation must be seen transparently with declaration of interest sand accountable to the Chief Minister and the cabinet. It will be good for an O&G team with experts to advise the same.

vi. To create an oil sovereign fund akin to Norway model.

vii. To work closely with the federal government and Petronas on grounds of mutual respect and interest with a touch of quiet diplomacy.

viii. To set up a strong enforcement section including the Land and Survey, under the geological and geophysics department for valuation of assets and monitoring under (iii) above for correct productions and sales on real times to prevent expensive losses, leakages and wastages of O&G, answerable to the DUN.