Sarawak-Petronas oil dispute: Visionary leadership needed to achieve ‘win-win’ solution (VIDEO)

KUALA LUMPUR, Dec 10 — Only visionary leadership can resolve the ongoing dispute between Sarawak and Petronas over the right to oil and gas (O&G) resources in and around the state, Tan Sri Tengku Razaleigh Hamzah said.

For over the past year, Sarawak has been pushing for a deal with Petronas that would make Petroleum Sarawak Berhad (Petros) the sole gas aggregator in the state, according to a report published today in Free Malaysia Today.

Last week, Sarawak Premier Tan Sri Abang Johari Openg refuted claims that his state was acting greedily, saying that it was simply exercising its “constitutional right” to distribute gas which belongs to the state.

Previously, he had said that Sarawak was prepared to fight any party that “disrespects” its “rights” in court.

Despite this, there are signs that both sides were willing to come to a compromise.

Last month, Prime Minister Datuk Seri Anwar Ibrahim expressed he was open to negotiations based on trust, understanding, and mutual respect.

“(Malaysia has) a federal system. We navigate, we negotiate, but we draw the line (if the need arises),” Anwar told FMT when he was speaking about federal-state relations.

Deputy Prime Minister Datuk Seri Fadillah Yusof, a Sarawakian, said he hoped that a mutually beneficial outcome would be reached, one that benefits both the state and the nation.

“What we want to achieve is a ‘win-win’ arrangement for both the state and the federal government,” he said.

Tengku Razaleigh argued that a win-win federal-state partnership, grounded in integrity and a commitment to equitable wealth distribution among all Malaysians, existed when Malaysia’s oil and gas industry first came into being in 1974.

He said that every state has benefited from public goods like healthcare, education, and national defence, and today’s leaders must recapture this spirit and reaffirm their commitment to these principles.

The Petroleum Development Act 1974 (PDA) grants Petronas the exclusive right to all onshore and offshore petroleum resources throughout the country, including Sarawak.

Petronas has exercised this right unchallenged for the last 50 years.

In recent years, however, Sarawak has taken various steps to assert its claim to these resources, including passing the Distribution of Gas Ordinance (DGO) in 2016 and establishing Petros the following year.

Sarawak argues that its entitlement to O&G resources is based on two pieces of legislation: the Sarawak (Alteration of Boundaries) Order in Council 1954, which extended the state’s boundaries to include the continental shelf off its shores, and the Oil and Mining Ordinance 1958 (OMO), which pre-dates the PDA and grants the state rights to all O&G resources within those boundaries.

While legal experts have challenged these claims, Sarawak has remained adamant in seeking that Petros take control over the buying, selling, price-fixing, supply, and distribution of natural gas in the state.

Sarawak’s motivations are clear: it wants to generate more revenue and ensure that 30 per cent of gas is available for domestic use by 2030, up from the current 5 per cent. The state also claims that it has not received its fair share of the benefits, accusing the federal government of favouring Peninsular Malaysia.

Tengku Razaleigh called on both federal and state leaders to rise above the dispute and emulate the foresight of their predecessors in the 1970s, who put the current structure in place.

He highlighted that the federal government, under then Prime Minister Tun Abdul Razak Hussein, negotiated with states for the nationalisation of O&G resources and the creation of Petronas. Sarawak’s chief minister at the time, Tun Abdul Rahman Ya’kub, played a key role in these negotiations, which were conducted in good faith and with a shared interest in prioritising national needs.

“(Rahman) wanted a body to be created. Having taken into consideration the laws that had been enacted in the states, Petronas was born,” Tengku Razaleigh said.

He added that the nationalisation of O&G resources gave Malaysia a fresh start, allowing the country to use its oil wealth to grow and benefit the people.

“Tun Razak’s noble thinking was that oil money should go back to the people, and I agreed with him,” Tengku Razaleigh said, recalling that the then prime minister had earned everyone’s trust to be the custodian of the nation’s wealth.

In recent years, Petronas has developed a working relationship with Petros, including collaboration on Sarawak’s carbon capture and storage initiatives.

However, Petronas has refrained from giving up the role of gas aggregator, which would have significant financial consequences for the country.

Tengku Razaleigh acknowledged that Sarawak may feel entitled to more but cautioned against steps that could harm Petronas.

He suggested that if Sarawak feels victimised, it should bring the issue to Putrajaya and discuss it with the prime minister, who oversees Petronas.

“See where things have gone wrong and where they have been shortchanged and I’m sure they can put it right.

He warned, “For heaven’s sake, don’t kill the goose that lays the golden egg.”

Former prime minister Tan Sri Muhyiddin Yassin agreed, saying that harming Petronas could backfire on Sarawak.

“You cannot go as far as to kill the goose that lays the golden egg. Because if Petronas makes losses, so will Sarawak,” he told FMT.

Divesting Petronas’s role as the sole gas aggregator in Sarawak would have a substantial impact on the company’s finances.

Since Petronas’s inception, it has contributed approximately RM1.4 trillion in oil dividends, taxes, and payments to Malaysia’s socioeconomic development.

However, with 90 per cent of its gas cargoes sourced from Sarawak, Petronas expects its annual gas profits of RM10-20 billion to shrink substantially.

Its yearly export takings, estimated at RM136 billion last year, would also likely be significantly reduced.

This would put considerable strain on federal finances, resulting in lower contributions from Putrajaya towards development expenditure, including in Sarawak.

Meanwhile, Petros may struggle to have the same financial impact without Petronas’s scale and expertise.

Muhyiddin noted that while Sarawak is capable of intelligent decision-making, there are limits to what it can demand.

He emphasised that “Sarawak does not undertake upstream exploration and production. They get those yields from Petronas’ activities. Petronas needs Sarawak, and Sarawak needs Petronas.”

Fadillah’s “win-win” solution would require both parties to move beyond their legal positions to avoid a costly and damaging court battle.

Former Prime Minister Tun Dr Mahathir Mohamad suggested that autonomy in petroleum production could be explored.

Muhyiddin called for fairness and reason in the negotiations, particularly towards Petronas, noting that the company is investing billions in Sarawak for offshore drilling.

“Petronas is investing billions in Sarawak to drill in the high seas (for) petroleum. You (Sarawak) need Petronas,” said Muhyiddin.

Ultimately, Tengku Razaleigh emphasised that Petronas belongs to all Malaysians, not just the government.

“It belongs to all the rakyat of Malaysia,” he said.