Kelantan’s Claim to Petroleum Royalty vs Prof Shad Saleem Faruqi

  
Dato’ Husam’s statement on 24th February 2010 as follows;-
          
 I refer to the article by Professor Shad Saleem Faruqi which was published in yesterday’s issue of The Star.  Since, the writer is a constitutional scholar, if is not surprising that a large portion of the article looks at the issue of Kelantan’s claim to petroleum royalty from a contitutional view point.  Thus, he reproduces hugh chunks from the Federal Constitution which are not relevant to our cliam, unless he is going to argue that the Petroleum Development Act  1974 (“PDA’), the 13 Agreements and the 13 Vesting Grants signed by the 13 States of Malaysia and the Agreement  and Vesting Grant signed by the Federal Government are unconstituuional and therefore illegal.  Such a result will have extra-ordinary ramifications because Petronas was itself established under the PDA, and the Federal Government’s right to receive 5 % royalty from petroleum produced anywhere in Malaysia is also derived from the PDA its Agreement and its Vesting Grant.

            The PDA vested ownership in petroleum won and obtained on-shore or off-shore Malaysia Petronas.  Under the PDA, each of the 13 States Malaysia signed identical Agreements and Vesting Grants at different dates in 1975/1976 with Petronas vesting their respective ownership of petroleum in Petronas, in consideration of Petronas making to every State where petroleum is produced o shore and off shore cash payments in the form of a yearly sum aquivalent to 5 % of the value of petroleum produced on-shore and off shore the State concerned.
            The PDA, the 14 Agreements and the 14 Vesting Grants all use the term “cash payments”. The popular word used by all concerned is :royalty”. However, nothing turns on the description of the payment.
            The terms used in the PDA, the 14 Agreements and the Vesting Grants are “on-shore” and “off-shore” to denote petroleum produced from land (on-shore) and from water (off-shore). Neither the PDA, the 14 Agreements nor the 14 Vesting Grants contain any limitation on the right of any Sate to receive cash payments for petroleum produced off its coast based on the length from the coast. Hence, neither the PDA, the 14 Agreements not the 14 Vesting Grants restrict the payment of cash payments for petroleum produced 3 miles, 12 miles, 200 miles or any other distance from the coast of any of the States of Malaysia because distance is not specified in the PDA, the Agreements and the Vesting Grants. Instead, the generic word “off-shore” is used throughout.
            In march 1978, Petronas informed Terengganu that petroleum had been produced in the pulai oil fields which is located about 150 miled from the coast of Terengganu . In june 1978, Petronas made the first ever cash payment to Terengganu for petroleum produced off-shore Terrengganu (in Pulai). For 22 succesive years, that is, from 1978 to march 2000, Petronas made cash payments to Terengganu twice a year under the PDA, the Agreements and Vesting Grant, although petroleum was produced hundreds of miles off-shore Terengganu. Only PAS formed the State Government of Terengganu after the General Elections of November 1999 did Petronas cease making cash payments to Terengganu, although Petronas is still producing petroleum off-shore Terengganu without paying Terengganu for it.
           
Professor Shad wonders whether estoppel would apply to a public authority. Although Petronas is established under the PDA, it is also a public company (Berhad) incorporated under the Companies Act. It is a multi-nasional oil giant, comparable to the Exxon, Shell and BP of this world – a high honour for Malaysia Petronas signed an agreement with Kelantan (as it did with the 12 states of Malaysia): it is a blot on its international reputation that it does not honour that agreement. Surely, estoppel must bind Petronas, like any other trading company and any other individual. For estoppel purposes, Petronas is not a public authority.
Until the PDA came into force in October 1974, the legal basis of royalty payments to Sabah and Sarawak were laws passed by the British colonial power. After the PDA’s enactment and the establishment of Petronas, Sabah and Sarawak are treated in an identical manner as the 11 Peninsular states. Thus, the sole legal basis of payment of cash payments to Sabah and Sarawak since October 1974, is the PDA, their 2 Agreements and their 2 Vesting Grants. They are in the identical position with Kelantan,Terengganu and the other 9 States of West Malaysia. All are treated equally under the PDA to avoid discrimination among the 13 States of Malaysia.
In summary, Kelantan has a very strong claim to cash payment/royalty for petroleum produced off-shore Kelantan. Hopefully, reason and good sense will prevail, and the new President of Petronas will take immediate steps to pay or just dues.
 
Yours faithfully
 
Dato’ Haji Husam bin Haji Musa
State Executive Councillor

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