freemalaysiatoday.com
What next for Sarawak, Petros and Petronas?
FMT
Petronas and the federal government’s take from Sarawak’s petroleum has been around 91%, with Sarawak only getting 1%-2%.
By Suarah Petroleum Group
SPG
congratulates the Sarawak government and Chief Minister Abang Johari
Openg for taking this bold and brave step to exert Sarawak’s ownership
and its rights over its own petroleum resources.
All Sarawakians
must support this revolutionary move, as it immediately gives tangible
hope for the equitable redressing of economic imbalances faced by
Sarawak from the uneven distribution of economic value creation and
subjection to unfair exploitation policies/practices on its rich oil and
gas natural resources.
With the official launch of Petros on
March 6 by the chief minister, followed by his unequivocal assertion
that the ownership of Sarawak’s oil and gas resources still lies with
Sarawak, all parties involved in the industry in Malaysia, especially
Petronas, must accept this new reality.
To avoid any doubt, it is
no longer “business as usual”. The Sarawak government officially no
longer recognises the Petroleum Development Act 1974 (PDA74) that
unconstitutionally vested Sarawak’s petroleum resources with Petronas.
So, what must come after this watershed moment for Sarawak?
New licensing and regulatory regime
Following
the chief minister’s announcement, a new licensing and regulatory
regime will be imposed by the Sarawak government on July 1. It will
detail the applicable rules and regulations applicable to bona fide
players in the upstream, midstream and downstream sectors of Sarawak’s
oil and gas industry. Even Petronas will have to apply for a licence to
operate in Sarawak and will no longer be able to claim ownership of
Sarawak’s petroleum resources.
Petronas’ statement that it
welcomes the formation of Petros within the current framework of PDA74
(reported in The Borneo Post, March 8) appears in denial of the new
reality. There is broad expectation among Sarawakians from all walks of
life that Petronas will accept the new rules of the game after more than
40 years of having things their way. The sooner the better for all, and
it will be a reflection of the maturity and professionalism of
Petronas’ current leadership team.
Sarawak petroleum authority
To
ensure that proper management and governance is in place to safeguard
the state’s resources and its environment, the Sarawak government should
without delay set up the Sarawak Petroleum Authority, reporting
directly to the chief minister or perhaps to a newly created energy
ministry, with full power and authority to control and regulate all
aspects of the petroleum industry in Sarawak.
This is to avoid
further depletion of its resources with poor value creation. For
example, Petronas’ National Gas Utilisation policy states that the gas
resources in Sarawak and Sabah are mainly for export whereas for the
peninsula it is for domestic energy and industrial consumption. To make
matters worse, it is even subsidised at the expense of re-investment for
economic multiplier projects in Sabah and Sarawak.
As can be
surmised, the so-called massive profits from Bintulu LNG operations and
offshore Sarawak have been at the ultimate expense of better value
creation of its economy. This is a sacrifice which was forced on Sarawak
to fuel the economic boom in Malaya from Petronas’ Peninsular Gas
Utilisation (PGU) project. Therefore, such a policy must be changed for
better value-creation covering Sabah and Sarawak, in the interest of a
truly national and balanced development within Malaysia.
Sarawak oil and gas fiscal and planning framework
The
Sarawak government will need to decide what fiscal framework to impose
on Petronas and all other operators within Sarawak’s boundaries. It is
suggested that the Production Sharing Contract (PSC) regime adopted by
Petronas itself would be an appropriate model to follow, given its
success in bringing Petronas to where it is today.
Most
importantly, Sarawak must be able to craft its own strategic policy and
values of having control and ownership of its oil and gas resources,
aimed at promoting the best utilisation and value creation from
Sarawak’s resources. These policies and values will underpin the terms
and conditions of, among others, the fiscal regime, procurement policies
and giving priority to Sarawak companies.
Sarawak petroleum development master plan
It
is also timely for the Sarawak government to formulate its own
petroleum development master plan (something that has not been done
holistically) covering key areas of upstream, midstream and downstream
development, to ensure an orderly and sustainable development of the
industry, which at best has only a 15- to 20-year window of opportunity
before it is overtaken and replaced by renewable energy.
Handing over of Sarawak’s oil and gas assets by Petronas
Petronas’
role in all new and existing PSCs must be relinquished and, together
with all of Sarawak’s oil and gas assets, handed over to the Sarawak
Petroleum Authority. Petronas (and its current operators) can continue
operating the PSCs but only as a contractor to the Sarawak government
with terms and conditions for the continued operations to be negotiated
and agreed on.
Data acquisition
In order to
adequately exercise its ownership rights, the Sarawak government must
require Petronas to hand over all existing exploration and production
data to the Sarawak Petroleum Authority, which should be equipped to
store, examine and complement such data. After all, this data was taken
over by Petronas from Shell, which had operated in Sarawak’s territory
and waters since the 1900s.
New PSCs
We
note with concern that Petronas is still signing new PSCs with its
contractors. There must be a moratorium on all new PSCs and all other
related dealings in the interim period.
Under the new rules, all
PSCs for existing operating blocks in Sarawak must be regularised with
the real owner (Sarawak) and signed by Petronas and all other operators
with the Sarawak government represented by the Sarawak Petroleum
Authority.
The current 70:30 split between Petronas and its
contractors after taking into account cost oil or cost gas should be
reviewed since Petronas no longer functions as owner/regulator.
Petros’ carried interest
The
Sarawak government must insist that Petros take up a stake (“carried
interest”) in all new PSCs, similar to that given to Petronas Carigali.
This is extremely important if it wants to build up Petros as its
operating oil and gas arm.
All of this will constitute immediate
revenue generation for the Sarawak government to replace the 5% cash
payment currently made by Petronas (which may continue as partial credit
towards the new revenue model). The 5% now paid by Petronas to the
federal government under PDA74 must stop insofar as Sarawak is
concerned. This can no longer be sustained with the repudiation of
PDA74.
Other than upstream in exploration and production, Petros
should also look into active participation in the midstream and
downstream sectors to take advantage of the full value chain of the
petroleum business, especially as Sarawak will have access to its own
production under the new PSCs.
At the same time, the Sarawak
government must look into tax-exempt status for Petros, which would
otherwise be subject to corporate tax on its earnings as a company
operating under the Companies Act. This would defeat the purpose of
having Petros as a cash-generating vehicle for the Sarawak government.
Audit of cash payments by Petronas to the Sarawak government
Sarawak
is said to owe the federal government RM2.5 billion. SPG believes there
are grounds to question the amount of revenue from the cash payments
made by Petronas to Sarawak, which would appear have never been audited.
SPG also questions whether the excise and export duties for crude oil
and petroleum products collected by the federal government have been
remitted to Sarawak as required under the Federal Constitution.
Restitution and reparation
Furthermore,
in settlement and compensation for all its activities over the years
under PDA74, all shares in companies and associated facilities based on
Sarawak’s oil and gas resources operated by Petronas in Sarawak, such as
MLNG and ABF, must be handed over to the Sarawak government.
Some
have said that it takes longer to develop a state as big as Sarawak.
This ignores the fact that with proper allocation of its own oil and gas
resources, Sarawak would definitely have been in a much better position
economically and in terms of physical development than it is today.
PDA74
may have created a “tuan tanah” or “landlord” mentality in Petronas,
and has failed to give due consideration to producing states’ interests
in the development of their petroleum resources. Sarawak and Sabah could
have been developed as twin hubs for gas/petrochemicals and oil
respectively as they have the biggest reserves of these two resources.
One
only has to look at the current state of the facilities in Lutong,
Miri, to have a sense that Petronas only wants to maintain a minimal
presence while exploiting to the fullest the Miri light crude that now
trades in place of Tapis crude from Malaya which has depleted. Instead,
new multi-billion ringgit investments are going to places where no
indigenous oil and gas resources exist.
Redressing of economic imbalance
The
Sarawak government must stand firm and resolute in strategically
addressing the situation and properly managing Sarawak’s petroleum
resources for the benefit of present and future generations of
Sarawakians. Sarawakians, irrespective of their political beliefs, must
stand with the government in this regard.
The economic imbalance
between Malaya and Sarawak needs to be addressed, and Petronas needs to
adjust to this economic reality. It is ultimately in the national
interest that both sides make sacrifices for each other, and not one way
only.
History will show that Sarawak has contributed far more
than its fair share to the nation’s economic growth, at the expense of
its own needs. Sarawak and its people cannot remain deprived of the real
fruits of the management and development of their own petroleum
resources. Petronas and the federal government’s take from Sarawak’s
petroleum has been around 91%, with Sarawak only getting 1%-2%. This has
to change.
In all federal systems throughout the developed world,
states are never deprived of the benefit of their God-given resources,
as federal coffers can be filled through many other avenues.

Sarawak and Sarawakians deserve to be in the mainstream of Malaysia’s development. Now.
Suarah Petroleum Group is a think tank comprising Sarawakian professionals in the oil and gas industry.
The views expressed are those of the authors and do not necessarily reflect those of FMT.
