Kelantan sues Petronas over oil royalty

Aug 31, 2010: The Kelantan government, led by menteri besar Nik Abdul Aziz Nik Mat, has filed a suit against national oil and gas company Petronas, to claim unpaid oil royalty since 1998.

The commercial suit against Petronas covers alleged breach of contract and raises constitutional issues.

Nik Aziz, accompanied by his deputy Ahmad Yaakob and senior excos Husam Musa and Takiyuddin Hassan, witnessed the filing in Kuala Lumpur this morning. Also present were PAS treasurer Mohd Hatta Ramli and about 200 supporters.

"The payment has been wilfully with held by Petronas and the federal government from the Kelantan people. As a responsible head of administration, I have to ensure that the rights of the people of Kelantan are protected. Hence, the court action," Nik Aziz told a press conference.

"It is incumbent upon me and compulsory for me, as head of the administration, to look after Kelantan's property using all means necessary, including discussion and using the courts. I am fulfilling my religious obligation to protect Kelantan's assets."

Senior lawyer Tommy Thomas is representing the Kelantan government. He had represented the Terengganu PAS-led government in a similar suit in 2001 against Petronas, when the federal government had withheld payment of the oil royalty.

The reliefs sought in the Kelantan government's 47-page statement of claim include:

1. Specific performance of the Kelantan Petroleum agreement;

2. An account to be taken or an inquiry ordered requiring Petronas to make full and truthful disclosure of all relevant facts relating to cash payments payable to Kelantan include the period;

3. An order that all arrears of cash payments be paid to Kelantan within one month;

4. An order of all future cash payments be paid to Kelantan;

5. Damages; and

6. Interests and costs along with other relief and liberty to apply.

Statement of claim

The statement of claim goes back to Kelantan's entry into the federation of Malaya on Aug 31, 1957. It was agreed that the ownership of petroleum won and obtained on-shore or off-shore would remain with the state.

The Kelantan Petroleum Agreement was signed between then menteri besar Mohamed Nasir and Petronas founding chairperson Tengku Razaleigh Hamzah (left).

The agreement was to become part of the Petroleum Development Act 1974 (PDA), under which it was agreed that Kelantan is entitled to an equivalent of five percent of the value of the petroleum won and saved on-shore and off-shore.

The statement of claim said oil is extracted from four identified areas - Kelantan; Kelantan-Thailand which forms part of the (Joint Development Area between Malaysia-Thailand); Kelantan-Vietnam (Joint Development Area between Malaysia-Vietnam); and the Kelantan-Terengganu border.

Kelantan alleged that Petronas had breached its obligations under the PDA and the Kelantan Petroleum Agreement namely:

- to provide any information about its exploration activities in areas off-shore Kelantan, whether in the four blocks or elsewhere;

- to provide any information about the extent of its production of petroleum off-shore Kelantan; and

- to make cash payments in respect of petroleum won off-shore Kelantan.

Kelantan's contention is that Petronas is obliged to make cash payments twice a year for petroleum retrieved off-shore. The state government had written to Petronas at the end of last year, but received a negative response from the company which continued extracting oil.

It claimed Petronas has unfairly discriminated the state government by refusing to make cash payments, on the basis that the state government is led by PAS, which is in opposition to BN at federal level.

Petronas had, meanwhile, been making cash payments to Sabah, Sarawak and Terengganu (until 2000 when PAS took control of the state government).

Kelantan claimed it has not been treated equally with Sabah, Sarawak Terengganu and with this, Petronast has violated Article 8 of the Federal Constitution regarding equality.

It also claimed that Petronas has failed to appreciate the cash payments, thereby depriving the state of its property.

Choice of date

Husam, when met later, said the suit was filed today - a day before the country celebrates its 53rd year of independence - to commemorate Kelantan's standing as part of the federation.

"We want to remind the federal government and Petronas that they have reneged on their duty to the Kelantan people," he said.

He said that, within the four blocks, oil had been extracted from the Kelantan-Terengganu border in 1998, and from Kelantan-Thailand in 2005.

Husam (speaking, in blue shirt) said the nearest oil field is just 40km from Kelantan's shores. Despite this, the state has not received any oil royalty.

The state government wants Petronas to reveal details of production in court, he said, so that payment of five percent of the production can be ascertained.

Husam, the exco for petroleum affairs, said the Kelantan-Thailand joint development area yields about US$8.5 billion worth of unprocessed oil and US$1.5 billion worth of gas.

"From this, Kelantan is entitled to five percent or RM800 million annually from the Kelantan-Thailand joint development area. We do not know what the other four oil fields yield as that information has been withheld," he said.

The issue of oil royalty resurfaced in the middle of last year, during the Manek Urai by-election campaign.

The BN-led federal government went to great lengths to place several advertisements in Malay-language dailies, stating that Kelantan is not entitled to oil royalty but has been granted 'compassionate' payment of RM20 million.

Razaleigh, however, trashed the argument, describing it as "an insult to the intelligence" and later offered to testify on behalf of Kelantan.

By: Hafiz Yatim