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Wednesday, September 18, 2019

Equal partners but no money

There was a time when East Malaysians believed the promise of a 20% oil royalty by the Pakatan Harapan (PH) government would become a reality. But this hope is now a pipe dream. It is like a mirage disappearing in a desert storm, an optical illusion.

Someone needs to pinch us and bring us back to reality.

In his Malaysia Day speech, Prime Minister Dr Mahathir Mohamad reiterated that Sabah and Sarawak are equal partners with the peninsula. Being equal partners is good – but where is the ang pow packet?

Finance Minister Lim Guan Eng is living up to his new reputation as the “mou chen” (no money) minister. He says legacy issues from the “bossku” government are preventing the implementation of promises in the PH manifesto, especially the pledge concerning the oil royalties for Sabah and Sarawak.

According to Lim, the government has taken concrete steps towards fulfilling its promises to the two states, for example terminating the project delivery partner agreement for the Pan-Borneo Highway.

We don’t know what the exact connection is between the project and oil royalties, and many are befuddled over his statement. It could be a smokescreen or a red herring to distract us from the real issue at hand.

There is no point talking about the waning euphoria post-GE14. After an extended honeymoon, it has been a downhill trip all the way and some Sarawakians are boldly calling for a divorce.

The finance minister from DAP has to learn the hard way: it’s easy for the opposition to promise the sky, but it can be difficult to deliver once you are the government. There are many competing needs and requests from different states, and it becomes a zero sum game. A zero sum game is a situation where there is no net gain among the participants. If one gains, it means the others have to lose an equal amount.

Last June, we had the first statements on the oil royalties from our nonagenarian prime minister in the Dewan Rakyat. Mahathir said the government would honour its promise of a 20% royalty to petroleum-producing states. However, he later U-turned and said it would be 20% of the profit.

In July 2018, clarifying the muddled statement of the prime minister, Economic Affairs Minister Mohamed Azmin Ali said in the Dewan Rakyat that PH’s promise of a 20% royalty to oil-producing states would take time to fulfil as laws needed to be amended and states would have to be consulted. He confirmed that the royalty would be based on net profit, not gross production as presently practised.

He also said the proposal could not be immediately implemented as it contradicts the Petroleum Development Act 1974. If Petronas were to increase this royalty to the state governments based on gross profit, it would have grave implications on the company as well as the finances of the federal government.

Azmin’s statements are all about the zero sum game. Give more oil royalty to Sabah and Sarawak, and Petronas will have less profit to give the federal government for its expenditures.

In September 2018, Azmin said a special Cabinet committee had been set up and given six months to study proposals for the payment method for the oil royalty. A year later, nothing has been announced.

In August, a statement from the Prime Minister’s Office said seven issues related to MA63 had been resolved, with another 14 to be resolved by the end of the month. There was no mention of the oil royalty or the 40% return on taxes for Sabah.

In March this year, Azmin told the Dewan Rakyat that Malaysia’s oil and gas reserves are expected to last 10 years based on the average annual production rate. By the time GE15 comes around, our reserves will last another five years, and Sabah and Sarawak will still be biting their fingers, waiting for the elusive increase in oil royalty.

In the state budget reading in November 2018, Sabah Chief Minister Shafie Apdal said in the first seven months of the year, the export value of crude petroleum had grown by 44.2% to RM16.8 billion compared to RM11.7 billion in the same period the previous year. He attributed this to a higher volume of petroleum and bullish higher prices of crude petroleum.

Petroleum royalty is expected to remain the highest contributor to 2019’s total revenue estimates which accounts for 37.5% with a projected collection of RM1.6 billion.

It must be pointed out that the state government has no control over the oil and gas production in Sabah and relies totally on the numbers given by Petronas. The state government cannot dictate any terms on oil exploration in Sabah waters. If the export is RM16.8 billion for those seven months, our 20% oil royalty should be approximately RM3.36 billion – double what we are getting now.

After the Lim “mou chen” letdown, Mahathir announced the Shared Prosperity Vision in an effort to close the gap between the rich and the poor, and the urban and the rural. He said some states are very wealthy while some are poor. We have to reduce the gap between the rich and poor states. This means that focus will be given to poor states.

When visiting Sarawak on Malaysia Day, Mahathir reinforced the federal government’s commitment to focusing more on developing Sabah and Sarawak, in line with the Shared Prosperity Vision. He acknowledged that not enough attention had been paid to the two states in the past compared to states in the peninsula.

Given the issue of more than 600,000 illegals who will receive temporary passes, the poverty rate in Sabah will grow. Mahathir’s economic adviser, Muhammed Abdul Khalid, said there is a need for Malaysia to change the current method to measure poverty rates as it is outdated. The poverty line income or PLI rate used by the economic affairs minister – a monthly income of RM980 for Peninsular Malaysia, RM1,180 for Sabah and RM1,020 for Sarawak – was very low.

United Nations human rights expert Philip Alston meanwhile said non-citizens, including migrants, refugees and stateless people, who are barred from the public school system, face severe barriers to healthcare and are often unable to work legally. They are systematically excluded from official statistics on poverty.

It is still unclear what the final status of the 600,000 illegals in Sabah will be once they obtain the temporary pass. They will definitely be an additional financial burden on the state and may reduce the quality of life of rightful citizens. If the illegals are included in the poverty count, Sabah will be the poorest state in Malaysia. (Sabah’s poverty rate is currently 2.8%.)

The Sabah government needs more money as it struggles to deal with the mushrooming colony of squatters. In July 2018, Deputy Chief Minister Jaujan Sambakong said the state government was coming up with strategies to deal with this issue. He said there were a total of 35,093 squatter families comprising 146,225 individuals statewide. Most of them are believed to be illegals.

In the zero sum game, there are no winners or losers. In natural selection, those who shout the loudest may get more. Niceties and timidity may have worked in the past, but the state government has to show more muscle now in its negotiations.

An online news portal reports that Sarawak has gone further than Sabah by insisting that the MA63 issues be settled by end-October. Like Lim’s Malaysia Day message, it’s time for East Malaysian leaders to step up and become the key decision-makers.

Sarawak, as the most vocal, has taken the lead. It’s up to Sabah to step up the zero sum game as well.

By Joe Samad

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