KUALA LUMPUR, Feb 25 — Fed-up with the federal government’s attempts to dodge out of paying oil royalties, the Kelantan state government is fighting fire with fire.
Earlier this week, Kelantan sent out copies of its eight-point stand of its claims for payments for oil produced off its coast to several Malay-language newspapers to counter the federal government’s eight arguments.
According to lawyer Tommy Thomas, a member of a team of lawyers engaged to act for the state government, the papers have yet to publish the state’s version.
The federal government had over the weekend taken out pages in Berita Minggu, Mingguan Malaysia and Sinar Harian listing eight reasons to deny Kelantan its claim.
“We disagree with the answers given in the recent advertisement made on behalf of the federal government,” Thomas said, and provided a copy of the state’s basis for its oil claims for contrast.
He noted that the Petroleum Development Act (PDA), which is the document referred to by both state and federal governments in the oil dispute, had come into force on Oct 1, 1974, and had set up Petronas, giving it rights to oil sourced from land or in waters in the country.
“Under the PDA, each of the 13 states signed identical agreements and vesting grants at different dates between 1975 and 1976 with Petronas, vesting their respective ownership of oil in Petronas,” the lawyer said, giving a brief background of the case.
The national oil company was to pay each state where oil was produced “a yearly sum equivalent to five per cent of the value of petroleum produced onshore and offshore of the state concerned”, Thomas added.
He also pointed out that Kelantan’s neighbour on the east, Terengganu, had received yearly payments for oil from the federal government from the start while the state was in the hands of the national coalition, Barisan Nasional (BN), but the payments stopped almost immediately after the state fell to PAS in 1999.
Kelantan’s response to the eight questions raised is reproduced below alongside the federal government’s answers to the same questions, for comparison.
1. According to the Petroleum Development Act 1974, what is the term used for payment made for oil and gas production?
State: The PDA, the 13 Agreements and the 13 Vesting Grants all use the term “cash payments”. The popular word used by all concerned is “royalty”. However, nothing turns on the description of the payment.
Federal: The term used is “cash payment” of 5 per cent. The word “royalty” is not being used anywhere in the Act.
2. According to the agreements between Petronas and the state government in 1975/1976, what are the requirements to entitle the state governments to the 5 per cent cash payments?
State: The terms used in the PDA, the 13 Agreements and the 13 Vesting Grants are “on-shore” and “off-shore” to denote petroleum produced from land (on-shore) and from water (off-shore). Neither the PDA, the 13 Agreements nor the 13 Vesting Grants contain any limitations on the right of any state to receive cash payments for petroleum produced off its coast based on the length from the coast. Hence, neither the PDA, the 13 Agreements nor the 13 Vesting Grants restrict the payment of cash payments for petroleum produced 3 miles, 12 miles, 200 miles or any other distance from the coast of the 13 states because distance is not specified in the PDA, the Agreements and the 13 Vesting Grants. Instead, the generic word “off-shore” is used.
The Emergency (Special Powers) Ordinance No. 1969 does not govern the ownership of petroleum, whether on-shore or off-shore. The Ordinance also does not deal with the legal obligations of Petronas to pay cash payments to a state where petroleum is produced on-shore or off-shore. Only the PDA does. Thus, the Ordinance is not the relevant law on the matter.
Federal: The oil or gas wells must be within the state boundaries, that is, the state land and its territory waters which is 3 nautical miles measured from the ebb level (Emergency (Essential Powers) Ordinance No.7 1969).
3. Does the Kelantan state government or any other state governments in Peninsular Malaysia have the right to claim from Petronas the said cash payment?
State: Yes, provided petroleum is produced on-shore or off-shore the state concerned. Thus, in March 1978, Petronas informed Terengganu that petroleum had been produced in the Pulai oil field, which is located about 150 miles from the coast of Terengganu. In June 1978, Petronas made the first ever cash payment to Terengganu for petroleum produced off-shore Terengganu (in Pulai). For 22 successive years, that is, from 1978 to March 2000, Petronas made cash payments to Terengganu twice a year under the PDA, the Agreement and the Vesting Grant, although petroleum was produced hundreds of miles off-shore Terengganu. Only when PAS formed the state government of Terengganu after the general election of November 1999 did Petronas cease making cash payments to Terengganu, although Petronas is still producing petroleum off-shore Terengganu without paying Terengganu for it.
Federal: They have no right to do so as at this moment, all productive oil and gas wells in the peninsula are situated beyond the 3 nautical mile zone. Therefore, any production from the wells situated beyond state waters, which is beyond the 3 nautical mile zone, belongs to the federal government.
4. What is the position of Sabah and Sarawak on the issue of royalty payment?
State: Until the PDA came into force in October 1974, the legal basis of royalty payments to Sabah and Sarawak were laws passed by the British colonial power. After the PDA’s enactment and the establishment of Petronas, Sabah and Sarawak are treated in an identical manner as the peninsula states. Thus, the sole legal basis of payment of cash payments to Sabah and Sarawak since October 1974 is the PDA, their two Agreements and their two Vesting Grants. They are in the identical position with Kelantan, Terengganu and the other nine states of Peninsular Malaysia. All are treated equally under the PDA to avoid discrimination among the 13 states of Malaysia.
Federal: Before 1974, the state governments of Sabah and Sarawak already had their own positions on the royalty rights through enforcement of agreements as well as the enforcement of the Continental Shelf Act 1966. It is historic and special privileges acknowledged when they joined Malaysia in 1963.
5. What is meant with the payment of “Wang Ehsan”?
State: This is the political label invented by the Mahathir administration in 2000 when it directed Petronas to cease making cash payments to Terengganu after PAS formed the state government. The term “wang ehsan” has no legal basis. It is not found in the PDA, the 13 Agreements and the 13 Vesting Grants.
Federal: Wang Ehsan is a contribution or aid channelled to the states including Kelantan based on the discretion of the federal government. This contribution is beyond the scope/ jurisdiction of the Petroleum Development Act 1974 and the agreement signed between Petronas and the state government in 1975/1976. This aid is given solely based on the federal government’s awareness and responsibility for the welfare of the state and its people.
6. Why is the federal government offering Wang Ehsan to Kelantan in the amount of RM20 million only?
State: We cannot answer this question as it is a sum arbitrarily picked out by the federal government and without any legal basis.
Federal: The federal government is giving this allocation based on courtesy with regard to gas produced in federal waters. The Kelantan state government has no right in the area as it is outside the 3 nautical mile zone.
7. What is the position of the statement made by former Petronas chairman Tengku Razaleigh Hamzah that royalty should be paid to Kelantan based on the petroleum production obtained from outside the state waters as well as questioning the giving of the Wang Ehsan?
State: We support the recent public statement by Tengku Razaleigh Hamzah. Much weight must be given to Tengku Razaleigh as he was the first chairman of Petronas, and signed the 13 Agreements on behalf of Petronas with each of the state governments. He is very conversant with these matters. He also enjoyed the trust and confidence of the late Tun Abdul Razak, Malaysia’s 2nd Prime Minister, and the architect of our petroleum policy.
Federal: The statement by Tengku Razaleigh Hamzah, Gua Musang MP, needs to be seen as a mere personal opinion from him. Any decision taken with regard to the right to royalty payment needs to be made in accordance with the relevant laws as well as agreements signed between Petronas and the state governments.
Tengku Razaleigh Hamzah needs to explain that the PAS Terengganu government cannot question the position of Wang Ehsan as the money that has been channelled all this while, although in the name of oil royalty, does not belong to the state.
He also stated that when Petronas was formed, there was no state in Peninsular Malaysia that had the right to the oil production found in the area outside the state’s “territory” (Bernama, Nov 1, 2000).
Although today Tengku Razaleigh had changed his position, the position of the law has still not changed. The people and the country are obliged to respect the laws of the country.
8. Is the opposition leader informed of the position of the rights of the state government in this issue?
State: Again, we cannot answer this question because Datuk Seri Anwar Ibrahim, the leader of the opposition, does not officially represent Kelantan in the petroleum royalty issue.
Federal: Based on the position of the existing provisions of law, the opposition leader is aware that the state government has no right to any cash payment or royalty in relation to the petroleum production which are being explored beyond state waters. That is why the opposition leader had once tried to make a resolution to amend the Petroleum Development Act 1974 in December 2009.
Therefore, the opposition leader himself is aware that the Kelantan state government has no right on any oil or gas wells within federal territory.
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