Abraham (right) says Kelantan, like Terengganu, never had any royalty rights to oil extracted outside its territorial waters. — Picture by Jack Ooi
KUALA LUMPUR, March 20 — All peninsular states have no right to oil royalty payments for petroleum found in waters beyond three nautical miles of their shores, a lawyer has claimed today.
“The legislative and constitutional framework all point to the fact that the states in West Malaysia — Kelantan, Terengganu and Pahang — never possess or have any right whatsoever over the sea and submerged land beyond the territorial waters and the continental shelf adjacent to those states,” said Datuk Cecil Abraham.
He was speaking at the forum, “Oil Royalty: A Constitutional Right?” organised by the Bar Council to discuss the constitutional aspect of oil royalty payments to petroleum-producing states.
Abraham, who represented Petronas in the Terengganu government’s suit for oil royalty, also pointed out that the Kelantan’s case was similar to Terengganu’s.
“Now, it is not in dispute that Petronas has never won or saved petroleum in the state of Kelantan, which means inland. The issue really here [is] Kelantan’s desire to be paid royalty for oil and gas won and saved in the oil fields which are about 140km of the Kelantan coast,” he told the forum.
Kelantan is demanding the federal government pay a five per cent royalty for oil extracted off its shores.
But Putrajaya has maintained that the East Coast state is not entitled to the payment as the oil and gas was being extracted from waters beyond the three-nautical mile limit, prescribed as territorial waters under Malaysia’s Emergency Ordinance (Essential Powers) No. 7, 1969.
The federal government has instead promised to pay goodwill payment or “wang ehsan” through its agencies in the state.
Terengganu also experienced a similar fate in 2000, when the federal government ordered the oil royalty payment to the state halted after PAS took over the state administration a year earlier.
Abraham, however, did not explain the basis for oil royalty payment made to Terengganu prior to PAS taking over the government.
He pointed out the agreement with Petronas for cash payment in exchange for petroleum rights was also signed by the federal government.
“Just as the federal government cannot be expected to be paid cash payments for petroleum rights given to Petronas by a state, similarly the state government cannot expect to be paid cash payments for petroleum rights belonging to and surrendered by the federal government,” said Abraham.
“So the issue is what property right belongs to the federal government and what property right belongs to the state,” he added.
“If the petroleum belongs to the federation, the states have no right to the said petroleum and, accordingly, cannot expect to be paid cash payments for the transfer of the rights of such petroleum to Petronas,” said Abraham.
He cited provisions in the Petroleum Mining Act 1966 and the Continental Shelf Act 1966 to show that petroleum resources discovered beyond the three-nautical miles belong to the federal government.
“It is therefore quite clear that the Petroleum Mining Act recognises the states’ jurisdiction over its waters extended only to its territorial waters,” explained Abraham.
He added that Kelantan’s demand was also not backed by the Geneva Convention of Continental Shelf 1958, which established the rights of a sovereign state over the continental shelf surrounding it.
“Kelantan had not and could not ratify the Geneva Convention on the Continental Shelf 1958 prior to joining the Federation of Malaya in 1957, because it was never a sovereign state at that point in time. It may have been a sovereign state before but that is in dispute because, until 1909, it was a vassal state of Thailand,” said Abraham.
“The states of Kelantan, Terengganu and Pahang are not sovereign states as a matter of public international law, whether now or before it joined the Federation of Malaya; whether under the 1948 agreement or under the 1957 agreement,” he added.
In the case of Sabah and Sarawak, according to Abraham, the two states are protected by legislation and agreements prior to the formation of Malaysia in 1963.
“Sabah and Sarawak did not join the Federation of Malaya in 1957, they joined the Federation of Malaysia on Sept 16, 1963,” he said.
Abraham cited the colonial government’s Orders in Council 1954 “which gives rights to the continental shelf to these two states unlike the states in West Malaysia.”
Lawyer Tommy Thomas, who is advising the Kelantan and Terengganu governments in their fight for oil royalty, said territorial waters was not an issue.
“Making references to ten other acts is totally irrelevant, the Petroleum Development Act never once mention the doctrine of territorial waters,” said Thomas, citing the act which led to the formation of Petronas.
“If territorial waters meant so much, why [was it] from June 1978 to September 2000 Petronas paid RM7 billion to Terengganu?” he asked.
Thomas said the decision to stop the royalty payment was purely politically motivated.
On the position of Sabah and Sarawak, Thomas pointed out that it was not the colonial laws that ensured payments to the two states but their agreements with oil companies.
“Their right to royalty was derived from [their] agreement with Shell,” he said.
Thomas also explained that, after 1974, the Petroleum Development Act became the basis for payments to all oil-producing states.
“Sarawak’s basis is the PDA, Petronas’ obligation is the PDA,” he said.
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