Tuesday, August 9, 2011

UBF: Sabah must get more from new oil finds


Sabah must get more from new oil finds’
Queville To | August 8, 2011fmt

With the new oil and gas finds in Sabah, it is imperative that the deal with Petronas is revisited, says Jeffrey Kitingan.

KOTA KINABALU: Jeffrey Kitingan today claimed that state Barisan Nasional leaders stopped making a fuss about the meagre oil royalties from Petronas once their ‘associates’ had been awarded lucrative contracts by the national oil company.

Disclosing this, Borneo Heritage Foundation (BHF) leader Jeffrey said: “Sabah BN leaders should also stop paying lip service and for once seriously consider the interests of the state and the plight of the poor citizens.

“The time is up for these leaders and for patriotic leaders to rise and demand for the rights of Sabah and its people to be the paramount criteria, especially for the sake of the future generations of Sabahans.”

Stressing his views in a statement issued today, Jeffrey said the Umno-led BN state government and its leaders needed to re-examine and re-think their strategies on the oil and gas resources located in Sabah and its territorial waters, especially in view of new oil finds in the state.

“With the loss of ‘Blocks L and M’ to Brunei without so much of a whimper from the Sabah state government and its Barisan Nasional leaders, the state government should not lose this new opportunity to re-negotiate on the Petroleum Development Act 1974 and on a more equitable and fairer revenue sharing formula,” the former PKR vice-president said.

He lamented that the current 5% oil royalties directly contributed to Sabah becoming the poorest state in Malaysia. Sabah was once second richest state after Selangor (then including Kuala Lumpur) in 1970.

He added that the disclosure by Chief Minister Musa Aman in the 2011 state budget in November 2010 that Sabah was projected to receive RM721.7 million as oil royalties for 2011 paled in comparison to the RM13.7 billion that will be received by Petronas.

(The projected figures are however expected to be much higher given the current global crude oil prices)

According to Jeffrey, the RM721.7 million was ‘small change’ for a total oil revenue of RM14.42 billion for Petronas from Sabah.

Lucrative Petronas contracts

Chief Minister Musa in January 2011 also disclosed that Sabah now produced 26.9% of Malaysia’s daily crude oil production.

“Together with the liquefied natural gas (LNG) in current production, including the wells off the island of Labuan and the existing LNG fields that are to be tapped and then piped to Bintulu via the new Kimanis-Bintulu Pipeline, the new gas find of 550 billion standard cu.ft. with an estimated daily production rate of 21 million standard cu.ft. as well as rumours of new oil-fields off Sandakan and Kudat and the much touted “find of the century” somewhere off the coasts of Sabah, oil and gas is here to stay and could play a very crucial and integral part of Sabah’s economy and future,” Jeffrey noted.

He also expressed regret over the imminent siphoning of Sabah gas all the way to Bintulu, Sarawak via the Kimanis-Bintulu pipeline.

He contended that the cost of the new production facility and the gas pipeline could have been spent on a new facility in Sabah to process Sabah’s LNG rather than being sent 533 km overland to Bintulu.

“With the (gas) pipeline, Sabah has lost all the spin-offs that could be generated if the production facility was housed in Kimanis, Sabah,” he lamented.

Jeffrey claimed that information from reliable sources close to Petronas revealed that Petronas was building another four platforms off Kimanis with a budget of RM8 billion.

He thus reiterated that together with the new gas finds, there was no excuse for Sabah not to develop its own oil and gas industry locally.

Sabah contractors sidelined

He also claimed to have met international oil and gas corporations who were prepared to invest in Sabah if Sabah developed its oil and gas industry.

He added that BHF was prepared to spearhead the development of the oil and gas industry in Sabah, if the state government was unable to do it.

“In fact, BHF has received calls from various sources to urge the state government to step down for failing to look after the interests of Sabah vis-a-vis the oil and gas resources in Sabah and failing even to safeguard the interests of Sabah contractors in the construction of the Sabah Oil and Gas Terminal (SOGT) in Kimanis,” he claimed.

He further lamented that while Petronas had previously indicated that the total expenditure in Petronas projects in Sabah was expected to be in the region of RM36 billion, Sabah contractors were yet to enjoy jobs.

“So far less than 5% of Sabah contractors have only been awarded contracts and to top it all, the SOGT contract is being awarded to a Sarawak company.

“If the state government is to continue with its lackadaisical approach, Sabah’s economy and its people will remain the poorest in Malaysia,” he warned.

Jeffrey thus contended that there is no point in the state government claiming to be in the coalition with the federal government and having good relationship with the federal government when it cannot even secure a better and fairer revenue sharing with Petronas and looking after Sabah’s interest.

He further said that Sabah should be getting 50% oil royalties and at least a 12.5% stake in Petronas as a contributing stakeholder in the wealth of the Petronas Group.

Being oil producing state, Sarawak, Terengganu and Kelantan should also similarly be given a 12.5% stake each in Petronas, with the balance 50% in Petronas to be divided between the federal government and the non-oil producing states.

He added that if this was the case, the people of Sabah will be as rich as their counterparts in Brunei.


  1. Greetings to all readers,

    I honestly think that there is a serious misconception on oil and mineral matters. In this respect it would be most prudent for one to understand the Federal Constitution and how a Federation works in Malaysia.

    Malaysia is a union of Federated states just like the USA. But therein lies the fundamental difference.

    In Malaysia the relations between the Federal and states are governed Part VI, Part V11 of the Federal Constitution. Part V1 laid down various articles , beginning from Article 73 to 95E of the Constitution. While Part VII provides for Articles 96 to Article 112 E.

    Therefore it is imperative that one understands the separation of powers and jurisdictions of the state and the Federal Government before jumping to a poor conclusion that the Federal Government is imposing an unfair terms in regards to oil royalties to the states. Let us not forget that under the Petroleum Development Act 1974, all or any states in which oil are discovered, then those states will receive 5% royalties regardless. Terengganu also receives 5% royalties like any other oil producing states.

    I will continue my discourse in this forum later as I am now hard press for free time. I will state my grounds on why I think that there is this serious misconception on oil royalties. In reading my later opinion on the basis of what is adumberated in the Federal Constitution, one will understand that in some instances, the oil gains and income from royalties are not a matter of rights but matters of privilege.

    It would be different if the oil is found in shore because according to the " State List " in the Federal Constitution, land is a state matter. But if it is found off shore, that does not immediately make it a state right. I will explain this constitutional position later.


  2. In perusing the Federal Constitution, it is imperative that one must also understands how a Federation works and how are the laws in relation to state and federal jurisdictions are to be interpreted.

    Article 73 of the Federal Constitution states that there are distribution of legislative powers between the States government and the Federal government. Article 74 of the same Constitution provides for the division on matters which are in the state list and Federal list.

    To know where the state list and Federal list are, one must look at the Ninth Schedule of the Federal Constitution. It is a very lengthy schedule no doubt, but it is comprehensive enough to divide the jurisdictions among these two governments.

    In briefly looking at the Ninth Schedule, one can conclude a few matters here :

    (1) Firstly there are three list, one is the state list, another is the Federal List and the third is the joint list between the state and the Federal Government meaning that the areas in which both state and Federal Government may have joint jurisdictions and exercising them at the same time.

    ( 2) But do not ignore Article 75 of the Federal Constitution. It states that :

    "..If any state law is inconsistent with a Federal law, the Federal law shall prevail and the state law shall, to the extent of the inconsistency, be void.

    Let me return back to the Ninth Schedule again. A cursory look at it then one can see that mining of minerals is a matter of Federal jurisdictions but subject to item ( 2) in the state list.

    Now looking at the state list as a whole, one can conclude that the state will only have control over matters pertaining to land, rivers, and a limited extent of the sea shore.

    In this regards, one needs to peruse the Economic Exclusive Zone Act as well.

    Thus, while the state owns the land, rivers, mountains, hills, but not the sea limit which is beyond 10 nautical miles to 200 nautical miles of the Malaysian waters. Most of the oil fields in Sarawak are those beyond the 10 nautical miles beyond the shores until the last 200 nautical miles. Therefore it must be borne in mind that the STATE DOES NOT OWN THE SEA LINE AND SEA WATER AREAS BEYOND 10 NAUTICAL MILES UNTIL THE 200 NAUTICAL MILES. THESE ARE OWN BY THE FEDERAL GOVERNMENT.

    Therefore the oil fields and income from these economic zone are purely own by the Federal Government and the giving of royalties are a matter of good will and not one of right. However if an oil field is found in land, meaning within the land itself, then that oil fields becomes the right of the state government and any mining of oil will be done according to the joint list and as per stated in the Ninth Schedule in respect of mining of minerals and oil.

    I will write again.


  3. And to strengthen the point of what is a Federal owned jurisdiction and what is a state jurisdiction, let us look at how various laws and their implementations are done.

    In regards to offences at the high sea or even at the shoreline boundaries, then it is the duty of the Federal Government to implement all laws and execute them. A notable example is the Economic Exclusive Zone Act and the Fisheries Act. In these two laws, the duty is incumbent on the Federal agencies like the Marine Police, the Marine Police, the Maritime Agency Enforcement to enforce laws in relation to offences at the high seas and shore line.

    But in relation to rivers, then we can see that river is a joint list ( in as far as enforcement is concerned. But the ownership of river is entirely own by the state government ), therefore any maritime offences in rivers, then state agencies like the River Enforcement Board ( Lembaga Sungai ) and federal agencies like the Marine Department and Marine police may jointly enforce laws together. This is because river is in the joint list although rivers are owned by the state in it's ordinary meaning and understanding.

    But the state does not own the sea line until 200 nautical miles of our Economic Exclusive Zone. Whatever oil exploration and oil findings are owned by the Federal Government. But since there is this Petroleum Development Act 1974, then out of ex gratia goodwill, the Federal Government will give 5% royalties, but out of goodwill only. But since there is this law on goodwill, then the Federal government is bound to honour this goodwill.

    I'll write again if I am free.

    With warm regards,