Petroliam Nasional Bhd has invested about RM183 billion in Sarawak’s upstream sector via production sharing contracts in the state.

THE Sarawak government is expected to enforce the Oil and Mining Ordinance 1958 (OMO 1958) tomorrow after Petroliam Nasional Bhd (Petronas) was denied leave to commence legal proceedings to seek a declaration on the Petroleum Development Act 1974 (PDA) being the law applicable for the petroleum industry in Malaysia.

Petronas is seeking a declaration that it is the exclusive owner of the petroleum resources and the sole regulator for the upstream industry in Malaysia while the state government is seeking to regulate the oil and gas (O&G) industry based on its laws — OMO 1958, the Land Code of Sarawak and the Gas Distribution Ordinance 2016.

The national oil company believes that the determination by the Federal Court would help provide clarity on its rights and position under the PDA.

Legal firm Azmi & Associates partner Zuhaidi Mohd Shahari said Petronas’ authority as the regulatory body in petroleum and gas in Malaysia as provided for under PDA1974 had never been really contested.

“What Petronas did was to seek declaration that the PDA supercedes the Sarawak state laws on mining. Unfortunately, the Federal Court did not grant (permission) for that suit to be heard by the Federal Court.

“This could be seen as a strategic manoeuvre by Sarawak to get more autonomy, to have more control over its rights such as in land, mining, and timber, which are all under the power of the state,” said Zuhaidi.

While the dismissal by the Federal Court on June 22 was purely on technical grounds, some viewed it as victory for Sarawak.

However, Petronas’ legal challenge is far from over, as evidenced from its statement that the Federal Court decision was purely over technical matter about jurisdiction of the Federal Court to hear on the matter.

In the statement, Petronas said: “The Federal Court did not in any way determine or endorse the merits of the legal position taken by the Sarawak government to regulate upstream petroleum activity under its Oil Mining Ordinance 1958.”

It also said that the Federal Court’s decision “does not in any way impair Petronas’ ability to further pursue its legal actions, with the intent to seek clarity on its rights and position under the PDA 1974”.

Meanwhile, O&G players like Barakah Offshore Petroleum Bhd, which has 70 per cent of its operations in Sarawak, is seeking more clarity over the next course of action for production sharing contracts (PSCs) in the state.

“At this current time, we are continuing business as usual. But, tomorrow, we would like to know how we, as one of the PSC companies, should proceed with our operations,” said Barakah Offshore president and chief executive officer Nik Hamdan Daud.

“It’s status quo at the moment. To my knowledge, they have not communicated anything to us or our colleagues in the industry,” he told NST Business.

It was learnt that the Sarawak government would likely give PSCs a grace period until the end of next year for them to adhere to the new OMO 1958 regulatory framework.

“I think the OMO 1958 will take effect from tomorrow unless Petronas obtains an injunction to stop them from enforcing the OMO. And Sabah is waiting to make the next move while observing how this ‘Petronas versus Sarawak’ episode will unravel,” said Zuhaidi.

Sabah, like Sarawak, has long sought more autonomy for its natural resources. Both states had asked for O&G royalties to be increased to 20 per cent from about five per cent currently.

Petronas on its part has always maintained that oil royalty to producing states is a Federal-State matter.

To date, Petronas has invested about RM183 billion in Sarawak’s upstream sector via the PSCs.

From 1976 to last year, the national oil company had also paid about RM33 billion in cash payments to the Sarawak government.

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