Sunday, November 29, 2009

Honouring Our Agreements

by Tengku Razaleigh Hamzah

The Government has now responded to Kelantan’s claim to a portion of the profits derived from petroleum resources extracted offshore by PETRONAS.

Its response violates the letter and the intent of a solemn agreement signed between each State Government and PETRONAS under the Petroleum Development Act.

That agreement is made out in language simple enough for a schoolboy to understand, in both Bahasa Malaysia and English.

The Constitutional rights of the people of Kelantan are denied. However this has implications far beyond Kelantan:

1) It negates an agreement signed between the Kelantan Government and PETRONAS. By implication, it negates identical agreements signed by PETRONAS with every other state and deprives the people of their constitutional rights.

2) The Government’s refusal to recognize a straightforward contractual obligation on PETRONAS’s part puts a question mark over the status of oil payments due to the other oil-producing states. The States’ rights to 5% of profit derived from the extraction of any petroleum resources is based on a quid pro quo according to which the States vested entirely and in perpetuity all their rights and claims to petroleum resources to PETRONAS. In return for this PETRONAS is legally bound to pay the states the 5% directly

3) If PETRONAS no longer recognises its legal obligation to pay the States what is due to them under the Petroleum Development Act, the States, and in particular Sabah and Sarawak, will now wonder if the corresponding Vesting Deed by which they vested all their rights in their petroleum resources to PETRONAS remains in force.

4) The Government’s response substitutes for PETRONAS’s legal obligations under the Petroleum Development Act an arbitrary “compassionate payment” from the Federal Government. This casts serious doubt on the Malaysian Government’s respect for the sanctity of contracts and the rule of law. Let’s not talk about spurring investment to take our economy to a higher level if we fail to understand the importance of abiding by contractual obligations.

I helped craft and negotiate the Petroleum Development Act. As Chairman of Petronas, I signed separate and identical agreements in respect of these payments with each of the Mentris Besar of the States. I must insist that PETRONAS is bound by them and that the Federal government should not interfere in their fulfillment.

Tengku Razaleigh Hamzah

Member of Parliament, Gua Musang

I will discuss my response to the proposed parliamentary caucus on this issue in my next posting.

I last wrote on the issue of Kelantan’s right to oil payments in my letter to the Mentri Besar of Kelantan in July this year. PETRONAS was formed to unite the country under a single and simple formula for sharing the bounty of our petroleum resources. Any unraveling of this formula could have serious consequences for our Federation.

Friday, November 06, 2009


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