A Blast From The Past.....Was The Oil Royalty 5% Or 20%?

Is the Petroleum Development Act 1974 unconstitutional? Petronas doesn't answer to Parliament and is only answerable to the Prime Minister of the day-hence if my memory still serves me correctly the Prime Minister of the day is Najib Tun Razak.But 36 years ago,the time the Petroleum Act was enacted,the Prime Minister was Tun Abdul Razak (22th.Sept.1970-14th.Jan.1976), while Tun Hussein Onn serve as the Prime Minister from 14th.Jan.1976-16th.July.1981.

Ironically,call it just pure coincidence,we are now seeing off springs in a similar capacity.But today we're more keen to re-discover the events that took place in Sabah,which could have change the fate of Sabahans,especially when oil was actually first discovered in 1882.

On the morning of June 6th.1976 @10am,Sabah Chief Minister born as Donald Aloysius Marmaduke Stephens and ,later known as Tun Haji Mohammad Fuad Stephens boarded a Nomad Aircraft from Kota Kinabalu and bound for Labuan. Along with him on the flight were State Ministers Datuk Salleh Sulong, Chong Thien Vun, and Assistant Minister Darius Binion. The purpose was to welcome Malaysian Finance Minister Tengku Razaliegh Hamzah and Sarawak Chief Minister, Datuk Pattingi Hj.Abdul Rahman Yakub,who were visiting the oil refinery at Labuan.

On the 7th.June.1976,the visiting Finance Minister cum Petronas Founding Chairman, Tengku Razaleigh Hamzah was scheduled to sign an Oil Agreement in Kota Kinabalu between the State Government of Sabah and Petronas. Unfortunately the signing ceremony never took place, not on the 7th.June.1976 anyway. The reason.... Chief Minister Donald Stephens, Salleh Sulong, Chong Thien Vun, Peter Mojuntin (the Golden Son of the Kadazans) along with 7 others perished in the controversial accident of the Nomad Aircraft carrying them on the 6th.June.1976, in Kota Kinabalu. That tragedy is also known as the DOUBLE SIX TRAGEDY or DOUBLE SIX CRASH.

The question lingering in the minds of Sabahans till this day is - was the final discussion prior to the signing of this Oil Agreement 5% or 20% ?? Will we ever know?


Catastrophically, after only eight days after the First Huguan Siou, Donald Stephens, perished in that controversial crash, and on the 14th.June.1976,the Government of Sabah signed an agreement with Petronas, granting it the right to extract oil and earn revenue from the territorial waters of Sabah in exchange for 5% in annual revenue as royalty.

Today, after 34 years, its questionable if National oil firm Petronas could be unlawful as its founding law was approved before it signed agreements with all the states, according to law professor Datuk Dr Shad Saleem Faruqi.

He also explained that according to the Malaysia Federal Agreement, land belongs to the states, which complicates the provision in the agreement surrendering control of petroleum found onshore under the Petroleum Development Act 1974.

“I think there are some aspects of the Petronas Act that is unconstitutional,”

Under the agreements signed in the mid-1970s all state governments were promised cash payment or royalty of five per cent for petroleum extracted onshore or offshore in return for surrendering their control of petroleum resources to the national oil company.

Shad also pointed out that the Act was passed before all the states had signed the agreement.

“The constitution says when you take somebody’s property you have to pay adequate compensation,” said Shad.

Federal powers:

In Schedule 9, List I of the Federal Constitution, the following topics are assigned to the Federal Government:

> Except as to State rights over permits and licenses, the Federal Government has rights over development of mineral resources, mines, mining, minerals and mineral ores, oils and oilfields, petroleum products, safety in mines and oilfields: Para 8(j).

> Gas and gas works, production and distribution of power and energy: Para 11(c).

> Foreign and extra-territorial jurisdiction: Para 1 (g).

> Treaties, agreements and conventions with other countries and all matters which bring the Federation into relations with any other country: Para 1(a) and 1(b).

Peninsular Malaysian States:

When it comes to Peninsular Malaysian States, the following matters fall in State hands:

> Land: Schedule 9 List II, Para 2(a). Under the Interpretation Acts, 1948 and 1967, Section 3, land includes “the surface of the earth … all substances therein… all vegetation and other natural products… whether on or below the surface… and land covered by water”. The territorial waters of Kelantan will come within the definition of “land covered by water”. Territorial waters are defined by Section 4(2) of the Emergency (Essential Powers) Ordinance No 7, 1969. Subject to some exceptions, they refer to three nautical miles.

> Revenue from lands: Schedule 10, Part III Para 2.

> In addition to the income from land, one notes that in Article 110[3A] there is provision for discretionary payment on such terms and conditions as maybe prescribed by or under federal law of the export duty on “mineral oils” produced in the state. Petroleum comes within the meaning of “mineral oils” under Section 10 of the Petroleum Development Act.

Sabah & Sarawak:

In addition to the rights of other states, Sabah and Sarawak enjoy some special sources of revenue.

> Schedule 10, Part V, Para 1 assigns import duty and excise duty on petroleum products to Sabah and Sarawak.

> Schedule 10, Part V, Para 3 assigns royalty and export duty on “mineral oils” totaling 10% to Sabah and Sarawak. “Petroleum”, as defined in the Petroleum Development Act, falls within the meaning of “mineral oils” and, therefore, 10% combined royalty and export duty on it constitutes part of the guaranteed revenue for Sabah and Sarawak.

From the above, it follows that the constitutional right of Peninsular Malaysian states is confined to fees for permits and licences and for extraction of any petroleum that is derived from their land and territorial waters.

Anything beyond territorial waters, e.g. on the Continental Shelf, is entirely in federal hands. All gas is in federal hands.

Legally, the oil and gas belongs to the states. The only way the federal government can ‘steal’ this oil and gas would be to come out with a new law that allows them to do so. If not it would be illegal for the federal government to touch the oil and gas. It belonged 100% to the states.

And this new law or Act called the Petroleum Development Act 1974 allowed the federal government to unilaterally (note the word ‘unilaterally’ and not ‘bilaterally’) amend the terms of the Federal Agreement. Normally, it requires all the parties to the Agreement to agree to any amendments to that Agreement before it can be amended. In this case, only one party made the changes (unilaterally) and the other parties were forced to remain silent.

The Federal and State Government of Sabah have a whole load of explaining to do.Were there two sets of agreement - one dated on the 7th.June 1976 and the other 14th.June 1976? Was the oil royalty 5% or was it more?

Why didn't any of the Chief Ministers after Donald Stephens demand for more oil royalty for Sabah? Sabahans have been hoodwinked long enough and the time has come for Sabahans to demand what rightfully belongs to them.The State Government of Sabah has been silent and it's quite obvious,they will remain silent-hence a puppet government.If history could be reversed would Sabahans today enjoy a much higher oil royalty had the illustrious sons and freedom fighters of Sabah did not perished?

Interestingly,Tengku Razaleigh Hamzah has been invited and has agreed to deliver a talk and answer questions in relation to the petroluem issue on the 2nd.April.2010 @8pm at the KDCA Buiding in Penampang,Sabah.I would encourage all Sabahans to attend this event and probably listen to all the unanswered questions.