THE suit filed by the Sarawak government against Petronas for non-payment of the state-imposed sales tax marks a sad day for all concerned and the nation as a whole.
It signals a breakdown in the official as well as backroom negotiations between state and federal authorities on the one hand and between the state and Petronas on the other.
Yet, it is hardly a surprise.
This represents a defeat in the state’s attempt to bring to an amicable conclusion the quest for a new regime governing the oil and gas industry.
There will be enough blame to go around for the current unsatisfactory state of affairs but perhaps it is worthwhile to sit back and try to see where things went so terribly wrong.
The state government probably gets the initial blame for initiating a move which - with the benefit of hindsight - was thoughtless, not hinged to any economic rationale and therefore totally unrealistic.
But the 20-per cent royalty demand was backed up by a unanimous vote in the State Assembly and it got a further boost when Pakatan Harapan endorsed it in its 2018 General Election manifesto before it went on to win unexpectedly and started to backtrack soon after it formed the new federal government.
To its credit, the state government under Datuk Patinggi Abang Johari Openg likely soon realised the royalty demand was a hopeless cause and opened a new front with the sales tax move.
It might have been a stroke of genius (nobody seriously questions that Sarawak is within its rights to impose its own sales tax) but for the ramifications - intended or otherwise - the move brought in its wake.
Petronas likely saw the move as an assault on its prerogatives as the sole guardian and custodian of the nation’s oil and gas industry conferred on it by the Petroleum Development Act (PDA) of 1974.
This came about after consultations with and consent from the respective state governments of Sarawak and Sabah then.
The unilateral Sarawak move to impose an oil-and-gas sales tax would have been seen by Petronas as impinging on its rights conferred by Parliament as the ultimate regulator of the industry.
Moreover, whatever the rights and wrongs of Sarawak’s new tax, it is undeniable that it introduces regulatory uncertainty into the industry and may make it harder to attract new investments, especially for the exploitation of increasingly marginal oil or gas fields.
At the end of the day, this hardly serves the interests of anyone, least of all Sarawak.
Of course, this was not the first shot across the bow by Sarawak. That came about when the state set up Petros, its very own mirror-image of Petronas.
Was it well-advised to put the latter on notice in this way? Was there not a better, possibly win-win, proposition for all involved?
Was Petros an impulsive act by an untested new chief minister?
Or was it the culmination of a fruitless campaign by the state to impress upon Petronas and its owner, the federal government, the reasonable expectations and aspirations of the state to play an increasingly more active role in the industry?
All said and done, what are the implications of Sarawak’s suit against Petronas?
It appears all bets are off, for the time being, at least.
A worst-case scenario has the suit taking a life of its own; dragging on interminably and morphing into a full-blown constitutional case as Petronas seeks to have its exclusive rights and prerogatives under PDA 1974 tested and confirmed.
The immediate consequence of this can be grave for Sarawak, especially as provisions for the collection from and spending of the sales tax have already been tabled and approved under the state budgets for this year and next.
All this as speculation swirls that the state may call a snap election next year.
Will heightened rhetoric in the heat of electioneering only result in further entrenched and hardened positions, making compromise even more unlikely?
It is not too late for all concerned to pull back and take another stab at reaching a negotiated and comprehensive agreement.
The top leaders at both state and federal levels must recognise that this is, at root, a political matter and a political compromise best serves the interests of all sides to the dispute.
The state playing a more active role in the oil-and-gas industry is a popular issue that resonates across the state’s political divides.
Federal leaders must avoid needlessly inflaming popular passions by reaching out for an honourable settlement.
The writer views developments in the nation, the region and the wider world from his vantage point in Kuching, Sarawak