Review Of The Petroleum Development Act 1974 Long Overdue

By Dr Jeffrey Kitingan

The recent call by the Sabah Oil and Gas Contractors Association to amend the Petroleum Development Act 1974 (“the Petroleum Act”) in order to solve the problem of Sabahans not benefiting from the industry is not only timely but long overdue.

The Sabah State Government must take urgent steps to address the issue of Petroleum Act which in reality is a 100% total loss of the oil and gas assets suffered by the State and the people of Sabah. With the Petroleum Act, all the oil and gas reserves in Sabah are lost forever and vested in Petronas UMNO. In return, Petronas is to make a cash payment to the State Government of a measly and miserable 5% of the revenue received by Petronas. The 5% cash payment or so-called “oil royalties” are no adequate compensation for the total loss of the oil and gas assets which, by right, should benefit all Sabahans first and not Petronas first. It has to be remembered that in many dealings, the revenue of Petronas is based on operational profits and in such instances, it is a gross injustice to Sabah and Sabahans that Sabah only gets 5% of the profits while 95% of the profits go to Petronas.

In January 2011, the Chief Minister has announced that Sabah contributes 26.9% of the crude oil produced in Malaysia of some 637,000 barrels per day. While in the Sabah State Budget for 2011 the Chief Minister projected the oil royalties (5%) to be RM721.7 million of which all will be used for the annual expediture of the State. Not a single sen is saved or invested for the future of Sabah and Sabahans. In Norway, the main bulk of the oil revenue from its North Sea oilfields are saved and invested making Norway one of the largest investors in the whole of Europe and making every Norwegian born to be already in ownership of assets derived from oil extracted long before he or she is born.

Statements by Sabah Federal and State Ministers and political leaders calling for review of the Petroleum Act are nothing more than rhetorics and merely lip service. It merely reinforces the notions that the Sabah leaders have taken no concrete steps to address the issue and that the Sabah non-Umno leaders are powerless to deal with any matter for the benefit of Sabah and Sabahans.

The problems plaguing Sabah on the oil and gas exploration and extraction are further compounded by the lack of transparency in the dealings on Sabah’s oil and gas reserves and lack of political will to establish an oil and gas industry in Sabah whilst one of the latest arrangement for for whatever natural gas that is piped on-shore is to be diverted to Bintulu, Sarawak for processing. The RM4.0 billion Kimanis-Bintulu Gas Pipeline and the billions spent on expanding the Bintulu LNG Plant could very well have been invested in a new plant in Sabah where Sabahans could reap the benefits of the future spin-offs from such an investment.

Coming back to the Petroleum Act, the Sabah State Government has absolute rights to seek the review and even repeal of the Petrtoleum Act. There are no obstacles or hindraces to the rights of the State Government. It is pertinent to note that a major issue at stake is whether the Petroleum Act is itself unconstitutional given the position of Sabah arising from the Malaysia Agreement 1963 and the safeguards given to Sabah by the founding fathers of Malaysia.

If the Petroleum Act is to be continued, Sabah should be entitled to nothing less than 50% of the profits derived from Sabah’s oil and gas assets and at the same time the State Government should be entitled to a share in Petronas given that Sabah is a stakeholder in the profits derived by Petronas compared to non-oil producing States. The moneys that are invested by Petronas in Sudan, Iran, Iraq and other overseas ventures are derived partly from profits derived from Sabah’s oil and gas assets. It is similar profits partly from Sabah that has help Petronas establish its subsidiaries some of which are now listed on the Malaysia Stock Exchange and generate more profits for Petronas upon their listing and their continued operations.

It is high time for the Sabah State Government and the Sabah leaders to take whatever necessary action to safeguard the oil and gas assets in the State for the future of Sabah and the people of Sabah. If these leaders are unable to perform and are powerless to act for the benefit of the Sabah, it is time for them to review their position in the Barisan National ruling coalition.