Dr. Jeffrey Urges Government to Restore Oil Rights

“The Sabah government need to take immediate actions to restore ownership rights of Sabah’s oil and gas resources as the legal opinion is that the vesting order signed by Tun Abdul Razak on 26 March 1975 granting ownership rights to Petronas is unlawful, unconstitutional and invalid” said Datuk Dr. Jeffrey Kitingan, Chairman of STAR Sabah at a press conference regarding proposed legal action on the vesting of Sabah’s oil and gas resources to Petronas.

As a re-collection, Tun Abdul Razak, the then Prime Minister of Malaysia, had on 26 March 1975 signed away Sabah’s oil and gas resources to Petronas by executing the Vesting Order under Section 2(2) of the Petroleum Development Act, 1974 and granted in perpetuity and conveyed to and vested in Petronas the ownership in and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum whether lying onshore or offshore of Malaysia.

Based on legal opinions received, Tun Abdul Razak had no authority to sign away Sabah’s oil and gas resources to Petronas as the oil and gas belonged to the Sabah government.

Based on Datuk Harris Salleh’s own admission, it appeared that he was coerced into signing the 1976 Oil Agreement agreeing to accept 5% cash payment as compensation for the surrender of ownership rights of the oil and gas vested to Petronas and further agreeing to waive or reject the collection of royalties that were the rights of the State government under Section 24(2) of the Sabah Land Ordinance.

Harris ought not to have signed the 1976 Oil Agreement as the 1975 Vesting Order was invalid and should not have been binding on Sabah and Harris.

Challenge on Federal Government’s Deal on Blocks L & M with Brunei 

On 16 January 2003 Murphy Oil Sabah Co. Ltd., a subsidiary company of Murphy Oil Corporation, USA) announced that it signed Production Sharing Contracts with Petronas covering Block L and M, offshore Malaysia.

Murphy Oil had a 60% interest in Block L and 70% in Block M with Petronas Carigali Sdn. Bhd., a subsidiary of Petronas, holding the remaining 40% and 30% respectively.  Each block covered an area of about 1.5 million acres, totaling 3 million acres for Blocks L & M.

Blocks L & M are located within Maritime District 14 (MD-14) and within the boundary and territorial waters of Sabah.

On 16 March 2009, 3 weeks before stepping down as prime minister, Datuk Seri (now Tun) Abdullah Ahmad Badawi, executed by way of exchange of letters with Brunei ceded Blocks L & M to Brunei purported in exchange for Brunei dropping its claim to Limbang, Sarawak.   Brunei subsequently denied the alleged dropping of its claim over Limbang.

This arrangement was only disclosed by Petronas to Murphy Oil Corporation on 21 April 2010 and in turn Murphy Oil made a public disclosure on 22 April 2010 that their production sharing contracts were terminated by the exchange of letters and ceding of Blocks L & M to Brunei by the Malaysian government.

Tun Dr. Mahathir and Tan Sri Harris Salleh had stated that it was within their knowledge that the oil reserves in Blocks L & M were worth at least USD100 billion.   Even based on the 5% cash payment payable to Sabah, Sabah would have lost at least USD5 billion or USD30-40 billion if the 40% of Block L and 30% of Block M had belonged to Sabah instead of Petronas.

Naturally, as a direct consequence of the invalidity of the 1975 Vesting Order, the ceding of Blocks L & M to Brunei is invalid.   In the proposed action, the Sabah government should also challenge the ceding of Blocks L & M and if it cannot be recovered from Brunei, the federal government ought to compensate Sabah at least USD30-40 billion for the loss of Blocks L & M.

Sabah Government Urged to Annul 1975 Vesting Order and Regain Oil Rights

“In the best interests of Sabah and its people, I call upon and strongly urge the Sabah government and the Sabah BN leaders to act truly as patriotic Sabahans and take all appropriate action to annul the 1975 Vesting Order as well as the 1976 Oil Agreement which will restore and return the oil and gas resources to Sabah” pleaded Dr. Jeffrey.

Letters have been prepared to be sent to the Sabah government and the Sabah BN parties and their leaders to take the necessary action.

The Sabah Chief Minister and his Sabah BN leaders have been trumpeting that the Sabah BN enjoys a very good relationship with the federal government.

If what is said by the Chief Minister and his Sabah BN leaders are true, it would appear to be a simple task for them to get the Prime Minister to give back and restore Sabah’s oil and gas resources to its rightful owners.

Along with the annulment of the Vesting Order, the Sabah government can negotiate on a win-win situation for the restoration of the losses sustained by Sabah since 1975 including the returns of the windfall gains wrongfully obtained by Petronas.

If diplomatic discussions cannot resolve the annulment of the vesting and restoration of the oil and gas ownership rights, then the Sabah government should not hesitate to take legal action and bring the matter before the courts.

On our part, we have made all preparations and are ready to file the court action against the federal government, state government (if needed), Petronas and the various parties to annul the 1975 Vesting Order and to seek the necessary consequential orders for compensation and damages and return of the wrongly obtained gains from Sabah’s oil and gas over the years from 1975.
The patriotism of the Sabah BN leaders and the sincerity of the federal and Sabah government are now laid before the people of Sabah and we let the people judge on their actions and make their votes count in the forthcoming general elections.
 
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STAR:  PETRONAS MISSES POINT – ITS OWNERSHIP AND RESPONSIBILITY

“Petronas is irresponsible and misses the point when it acted as if it is the sole custodian of Malaysia’s oil and gas resources.” said Datuk Dr. Jeffrey Kitingan, STAR Sabah Chief, in response to Petronas’ statement that Petronas cannot afford to increase the cash payment to 20% to the oil-producing States as offered by Pakatan Rakyat.

The federal government is also irresponsible in using Petronas as its mouth-piece to reject the claims of the oil-producing states for increases in the cash payment from the current 5%.

The federal government and Petronas has totally ignored the fact that the oil and gas resources belonged to the states, Kelantan, Terengganu, Sabah and Sarawak, in the first place.  It did not belong to the federal government and definitely not Petronas.

Vesting 100% Ownership to Petronas and Giving Back 5% Is Wrong

The late Tun Abdul Razak had no right to vest and give away Sabah and Sarawak’s oil and gas resources to Petronas in 1975 when he signed the Vesting Order as the then Prime Minister of Malaysia.   The oil and gas did not belong to Malaysia but to Sabah and Sarawak and in the latter was already producing oil on its own in arrangements with its overseas partners.

Therefore, taking away 100% of its oil and gas and giving back a meagre 5% to Sabah and Sarawak is wrong and unacceptable.

Increasing 5% Cash Payment Should Not Be The Issue

From Sabah and Sarawak’s point of view, we should not be trapped into discussing the increase of the 5% cash payment.   In fact, many of our Sabah leaders, including the Chief Minister, are still confused with the 5% cash payment and royalties.   It is not royalty as in the 1976 Oil Agreement, the State government was pressured to reject or waive its right to collect royalty.

The real issue now is not the amount of cash payment but the validity of Tun Abdul Razak’s Vesting Order to Petronas as the oil and gas belonged to Sabah and Sarawak.  Such a vesting to Petronas has to be unconstitutional and invalid?

Therefore, Petronas and the federal government, and Pakatan Rakyat as the alternative front, and their leaders should be talking, firstly about restoring and returning the ownership of the oil rights to Sabah and Sarawak and then, secondly re-negotiate for the States to contribute a portion of the oil revenue to the federal government/Petronas.

The current Prime Minister should atone for the injustices caused by his late father in 1975 against the people of Sabah and Sarawak and revoke the 1975 Vesting Order.

The Prime Minister should respond to this specifically and not beat around the bush or get others to do his talking.  He need to show he is the Prime Minister for all Malaysians including Sabahans and Sarawakians and have their interests at heart and that he is in charge.

For example, Umno/BN would now need to raise the oil revenue for Sabah and Sarawak from 5% to 20% and this additional income, if put to good and proper use, will definitely contribute to the well-being of Sabah, Sarawak and their people.   And if Umno/BN does not increase the oil revenue to 20%, BN component parties in Sabah and Sarawak should re-assess their position and pull out from BN for the sake of Sabah and Sarawak and their future.

Petronas Should Be Responsible Not Run Away from Responsibilities

The role, accountability, transparency and responsibility of Petronas has long been disputed.   It is now  time for Petronas and the federal government to make Petronas a publicly accountable and responsible corporation.

Petronas should not be run and managed like one’s father’s company.

Except perhaps for its Chief Executive, its Adviser and the Prime Minister, no one else in Malaysia is fully informed of the going-ons in Petronas.  Now, information is provided selectively and on a need to know basis.

In this modern technology era, Petronas should make full disclosures of its production, sales volume, sales values, production contracts, as a matter of fact, the full details and works, not just for Sabah but all the oil-producing states so that the people who are the ultimate owners of Petronas are kept in the know and not in the dark as being done now.

Petronas Should be Owned at least 50% by Oil States

From available information, it appears that as at 30 June 2012, the total assets of Petronas stood at RM493.3 billion.  Presumably, these assets included the once tallest in the world Petronas Twin Towers, KL Suria, KLCC Convention Centre, MISC Berhad with its fleet of LPG tankers and vessels, Putrajaya, the F-1 race track in Sepang amongst others.   Internationally, Petronas has now grown into global corporation with operations worldwide.

It has to be remembered that Petronas started from humble beginnings in the 1970s and with 95% of the oil revenues of the oil-producing states.  It is believed that Sabah and Sarawak contribute more than 75% of Malaysia’s oil and gas production.

If the founders of Petronas in the 1970s had foreseen the potential and future of Petronas, they should have realized that the real stakeholders of Petronas are not the federal government but the oil-producing states themselves and the people of these states.  The founders should have provided for the shareholding of Petronas to be owned at least 50% stake held by the oil-producing states.

Petronas would not be what it is today, a Fortune 500 corporation, if not for the oil and gas from Sabah, Sarawak, Terengganu and Kelantan.

In the true spirit of a true federation, the time has arrived for the federal government to restructure Petronas and allow at least a 50% stake to be held by the oil-producing states.

In criss-crossing Malaysia, the Prime Minister has been trumpeting that he is the Prime Minister for all Malaysians with his 1-Malaysia slogan.   This boast has been proudly supported by all Barisan Nasional leaders, often if not all the time, to be in the good books of the Prime Minister.

The additional revenues derived by the oil-producing states will contribute towards a higher development tempo and pace for the oil-producing states and alleviate poverty in these states which are currently amongst the poorest in Malaysia.  Development will then be more equitable and balanced and bring these states on par with the more developed states and provide an additional impetus to propel  Malaysia to developed nation status.

In conclusion, at the root of the oil and gas issue, the time has come for the federal government to return the oil and gas ownership rights to the rightful owners, Sabah, Sarawak, Terengganu and Kelantan, and for Petronas to assume the mantle of responsibility and be accountable and transparent for its operations and financial reporting.

Datuk Dr. Jeffrey Kitingan is Chairman of STAR Sabah