Who Owns the Oil in Sabah & Sarawak?

The retired Judge of the Court of Appeal explains the problem faced by Sabah and Sarawak, and suggests a radical solution to the East Malaysian states’ oil woes.

Initially, if oil was found within the boundaries of a State in the Federation of Malaysia, it is owned by the State. J.C Fong in his book Constitutional Federalism in Malaysia, wrote, on p. 98:

“But, the subject of ownership of petroleum (today, an important source of national wealth with current high global energy prices), found both on land and in the continental shelf of the States of Sabah and Sarawak which lies within the boundaries of Sarawak, was never a matter brought up to the Inter-Governmental Committee and hence, not included in its Report. Prior to Malaysia Day, the Borneo States exercised powers over petroleum found within its extended boundaries, i.e. the seabed and subsoil which lies beneath the high seas contiguous to the territorial waters of the respective states. With their boundaries maintained by virtue of Article 1(3) of the Federal Constitution, after Malaysia Day, the two states continued to exercise rights over petroleum found within its territories, including those found offshore.”

You will note that this passage I have quoted from J.C Fong’s book says “… the continent shelf of the States of Sabah and Sarawak which lies within the boundaries of Sarawak“. The footnote for this sentence is:

“20. See Sarawak (Alteration of Boundaries) Order 1954. A similar Order was made for North Borneo by the Queen in Council as both North Borneo (now Sabah) and Sarawak were colonies of Britain.”

Section 2 of the Sarawak (Alteration of Boundaries) Order in Council reads:

“2. The boundaries of the Colony of Sarawak are hereby extended to include the area of the continental shelf being the seabed and its subsoil which lies beneath the high seas contiguous to the territorial waters of Sarawak.”

The subject of ownership of petroleum was not thought of in the Malaysia Agreement, with the result that no safeguards were written into the Constitution of the Federation of Malaysia on the ownership of oil of these two East Malaysian States.

In the meantime, this happy state of abundant financial affluence was enjoyed by East Malaysia until the Petroleum Development Act 1974 was passed by the Federal Government.

Section 2 of this Act states:

“2.(1) The entire ownership in, and the exclusive rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum whether on-shore or off-shore of Malaysia shall be vested in a Corporation to be incorporated under the Companies Act 1965, or under the law relating to incorporation of companies.

(2)  …

(3) The ownership and the exclusive rights, powers, liberties and privileges vested shall be irrevocable and shall enure for the benefit of the Corporation and its successor.”

Section 3 is as follows:

3.(1) …

(2) The Corporation shall be subject to the control and direction of the Prime Minister who may from time to time issue such direction as he may deem fit.

(3) Notwithstanding the provisions of the Companies Act 1965, or any other written law to the contrary, the direction so issued shall be binding on the Corporation.

Section 4 is particularly interesting:

4. In return for the ownership and the rights, powers, liberties and privileges vested in it by virtue of this Act, the Corporation shall make to the Government of the Federation and the Government of any relevant State such cash payment as may be agreed between the parties concerned.

And section 5 provides as follows:

5.(1) There shall be established a Council to be known as the National Petroleum Advisory Council consisting of such persons including those from the relevant States as the Prime Minister may appoint.”

The corporation referred to in s. 2(1) of the Petroleum Development Act 1974 is, of course, the National Petroleum Corporation (PETRONAS). It is unproductive to muse over who is the chairman – whether former or incumbent – of Petronas. The point is, it is a creature of the ruling government which is the owner of all the oil in the country and the prime minister decides how the cake is to be shared.

Now you know why the BN cannot afford to lose the next general election.

Although Petronas owns the oil in Malaysia by virtue of the Act, surely it must still buy the land where the oil is found. I doubt Petronas had done that with offshore oil from the States in East Malaysia, probably on the assumption that the continental shelf is on the seabed – even though it is within the boundaries of Sarawak and Sabah – so that there would be no one for Petronas to buy it from, forgetting (as pointed out earlier in the passage from J.C. Fong’s book) that the East Malaysian States own the seabeds as well as the area within their own boundaries.

The distressing part is, the Petroleum Development Act 1974 itself cannot be challenged in a court of law because of the doctrine of separation of powers between the judiciary and the legislature which is fundamental in a parliamentary democracy (see Pickin v. British Railways Board [1974] AC 765). Unless, of course, the Act is intrinsically unconstitutional vis-a-vis the Federal Constitution which it is not.

The only way, it seems to me, is to kill the goose that lays the golden eggs – i.e repeal this Act of Parliament.


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Posts by NH Chan

NH Chan, a much respected former Court of Appeal Judge, is a gavel of justice that has no hesitation in pounding on Federal Court judges with wooden desks for heads. Retired from the Judiciary to become the People’s Judge. Wrote the explosive “Judging The Judges”, now in its 2nd edition as “How To Judge The Judges”. Once famously hinted at a possible “case match” between lawyer and judge by remarking that “something is rotten in the state of Denmark” (see Ayer Molek Rubber Company Berhad & Ors v Insas Berhad & Anor [1995] 3 CLJ 359). We need more people like NH Chan. That is why you should buy PASOC and his book.

Posted on 29 October 2012. You can follow any responses to this entry through the RSS 2.0.

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20 Responses to Who Owns the Oil in Sabah & Sarawak?

  1. NOTWITHSTANDING the learned former judge's opinion and the Petroleum Development Act passed by Parliament, there is an element of unconstitutionality in that it had the effect (together with the Emergency (Essential Powers) Ordinance No. 7/1969 of altering the boundaries (and territorial waters) of Sarawak and Sabah, WITHOUT the consent of their respective State Assemblies, which is directly against Article 2 of the Federal Constitution.

    The repeal of the Emergency Ordinance and the subsequent purported enactment by the Federal Parliament of the Territorial Sea Act is unconstitutional in so far as it purports to alter the boundaries of Sarawak or Sabah.

    PETRONAS has been operating illegally in Sarawak and Sabah waters for 40 years and these States have a good claim to all profits PETRONAS has derived from the petroleum resources illegally and unconstitutionally expropriated by the Federal Government.

  2. Fabian Wong

    Have we ever heard of Sarawak politicians raise the question of oil? Who raised the question? Has the matter been discussed in parliament? Name one Sarawak BN PM who raised it in parliament. My salute to him.

    • anon

      Sarawak politicians all in Malayan pockets whether Taib Gang or PKR Gang!

      • WATCHER

        BTW since Dr. John B Anthony joined DAP his voice has been silent……..over Sarawak rights. Wonder why? Toe the party line?

  3. 95-State 5-Putrajya

    OK instead repealing the act, how about produce another new one each one for Sabah and Sarawak?

    From there, establish also respective oil corporation eg. Petroleum Sarawak Bhd (Petrosar)…Petroleum Sabah Bhd (Petrosab)…

    Same thing goes to Kelantan, Terengganu etc.

    Isn’t it more interesting that whichever state govt got elected, it is one hell of mega billions resources to use (or abuse).

    He He He…suddenly federal govt now at the mercy of these states particularly the oil royalty rates also at danger being reversed – 5 pct for federal Putrajaya and 95 pct for the state.

    Still need to repeal the act too?

    • Awang Edris

      AGREED to the suggestion……we can do that Sabahans and Sarawakians, Stand up and fight…..

  4. Ryan

    Interestingly, a group of Sabahans has taken this issue to court – is the Petroleum Development Act unconstitutional? http://www.freemalaysiatoday.com/category/nation/…

    Moreover, the Federal Parliament cannot pass Acts of Parliament that affect the constitutional rights and interests of Sabah/Sarawak without the assent of the respective State Government. Did the respective state governments give their approvals to PDA?

    • NH Chan

      The Petroleum Development Act is not unconstitutional. After quoting from JC Fong's book, I pointed out that ownership of petroleum was not considered in the Malaysia Agreement 1963 and hence no safeguards was written into the Federal Constitution on oil.
      The PDA does not infringe the constitutional rights of Sabah/Sarawak.
      NH Chan

      • SARAWAK NATIONALIST

        Your Honour, I beg to disagree vehemently!

        With due respect, the PDA flagrantly infringes the 18/20 Points Agreement which specifically say that the countries of Sabah and Sarawak retained control of their finances and resources reflecting the Sabah Sarawak fears of being re-colonised and the need to safeguard their national rights and resources. .

        (What "national rights"? Please be reminded that Sarawak was an independent self governing nation and country from 1841 to 1941 and was recognised as such by the USA since 1850! It regain independence nominally on 22 July 1963).

        Thus because of such concerns the Malayan constitution was amended to mention some special relationship clauses with the 2 countries. However other than that the amendment merely legalised the annexation of Sabah and Sarawak as the 12th and 13th states of Malaya. We did not even get a new Constitution which was agreed to be done.

        Currently the legitimacy of Malaysian Constitution and the various Agreemenys are being challenged by the Sabah and Sarawak people as null and void.

        The 18/20 Points are therefore absolutely relevant to the interpretation of all subsequent legislations by the Malayan Parliament. as they reflect the concerns of the Sabah and Sarawak

        The literal interpretation of the Points Agreements is that we retained control of our territorial sovereignty under the agreement whereby we controlled immigration into Sabah and Sarawak.

        "Resources" cover our off shore oil fields (which UMNO recently illegally gave away some "blocks" to Brunei).

        The PDA in essence took away our oil rights! Sabah and Sarawak have been re-colonised and raped of their oil resources to develop Malaya and make many UMNO members and cronies billionaires from the rich contracts associated with Petronas.

        Let us not kid ourselves that Malaysia was created for Sabah and Sarawak's benefit. It was for UMNO Malaya's benefit!

        Sabah and Sarawak have been made the new colonies of Malaya! There were forcibly annexed as part of Malaya under the pretext of suppressing the Brunei Uprising and Sarawak guerrrilla independence war.

        But Sabah and Sarawak physically cultural and historically remain far far apart from Malaya!

        Annexation and colonisation is confirmed by the 49 years of looting Sabah Sarawak oil and making them the poorest states while Malaya was developed at their expense.

        This is "independence in Malaysia", a ponzi scheme designed by Britain in cahoots with their annointed Malayan successors. UMNO comfortably stepped into British colonial jackboots and stomped all over our rights including oil rights. They take all our oil and give back nothing. We have to beg for funds!

        The looting of our oil must be seen as defining the colonial relationship between Malaya and Sabah and Sarawak. The ruler and the colonised subjects.

        • SARAWAK NATIONALIST

          P.S. The only way to kill the golden goose is that Sabah and Sarawak leaves Malaysia like Singapore and regain their independence.

          SIngapore and Brunei which wisely refused to become part of the Malaysia ponzi scheme, are both doing very well as independent and self-governing states.

          Sabah and Sarawak are just colonies governed from Kuala Lumpur- held toegther by the Malayan occupation army and a few pieces of paper called the "law".

          • sabahan

            Your history is off.. by miles! Singapore never LEFT Malaysia! It was severed! by the federal gov! I dunno about Sarawak but even though I'm not the biggest fan of west Malaysia. Leaving Malaysia is a very bad idea. How long do you think we'll be autonomous? Sabah I give it a week before the Philipines colonise us. Sarawak will be part of Kalimantan maybe a month later. In a country we have our difference of opinions. Thats normal. Look at the states. The voting was almost 50/50, Yet you don't see California or Florida wanting to break off and form their own country. We disagree but in the end we are all still Malaysians.

          • Sarawak Nationalist

            LEFT OR SEVERED- SAME RESULTS – Singapore is free and independent from UMNO COLONIAL domination and good on the Singaporeans who went on to become one of the highest income countries in the world.

            For your informatiom Brunei wisely stayed out of Malaysia and has also done well.

            But Sabah & Sarawak have been occupied and plundered by Malaya for 49 years and reduced to be the most impoverished so-called states of Malaysia….colonies?

            WHO INVADED WHO?
            This British/Malayan invasion scare tactic surprisingly is still alive and being used today against arguments for Sabah Sarawak independence.

            This was a British invented rationale used to justify Malaysia which by saying Sabah and Sarawak would have security in Malaysia.

            Why scare yourself. The problem is are that those who argue this poiint are so weak kneed that we need Malaya's protection? Why sell out your country to foreign domination. Where is your pride?

            It may strike you that the British foreign invasion scare NEVER eventuated and either Indonesia or the Philippines have invaded vulnerable tiny size Brunei or Singapore. They would be easy targets!

            Yes the foreign invasion of Sabah and Sarawak was actually by Malaya under the cover of suppressing the Borneo armed resistance to Malaysia viz a viz the anti-Malaysia Brunei Uprising and Sarawak guerrilla war fought till 1990. Sabah and Sarawak were annxed as protectorates and colonies of Malaya in1963 with British help.

            The next invasion of Sabah and Sarawak was engineered by Malayan UMNO by the letting in the flood of "illegals" from Indonesia and Philippines.

            To all out there – why shy away from arguing whether or not Sabah and Sarawak are Malayan colonies?

            Too afraid of the truth?

        • NH Chan

          Dear Sarawak Nationalist,
          You may rave and rant against my article, indeed you can disagree with it entirely but the crucial fact remains that the Petroleum Development Act cannot be assailed in any court of law because of the doctrine of saparation of powers between the judiciary and the legislature which is fundamental in a Parliamentary democracy such as ours. So, please read the penultimate paragraph of my article carefully before disagreeing for the sake of disagreeing. The "20 points" suggested by you are not relevant to the argument because none of those points were written into the Contitution of the Federation of Malaysia, and therefore, the Petroleum Development Act is not unconstitutional. The only way, as I have pointed out, is to kill the goose that lays the golden eggs for the prime minister of the government in power. Who else would do that? Certainly not the present BN government who had been enjoying the windfall from East Malaysia oil since 974. So vote wisely at the next GE for the party or combination of parties that would repeal this law which have hijacked the oil riches of the East Malaysians.
          NH Chan

          • SARAWAK NATIONALIST

            DEAR JUDGE YOUR SYMPATHIES ARE UNDERSTOOD. NOTHING AGAINST THAT BUT WHY BE BE RESTRICTE TO SUCH A NARROW IINTERPRETATION?

            PEOPLE WHO WANT FREEDOM & INDEPENDENCE FROM MALAYAN COLONIAL RULE WON'T LET A PIECE OF "LEGAL" PAPER NOR THE MALAYAN COURTS STAND IN THEIR WAY!

            DON'T YOU DISAGREE THAT SABAH & SARAWAK ARE COLONIES OF MALAYA?

            YOU SAID THE PDA HIJACKED OUR OIL! YES STOLE ROBBBED RAPED PILLAGED & PLUNDERED!

          • Sarawak Nationalist

            Sorry —–my questions still awaiting replies!

            UMNO Petronas and Sarawak Taib PBB BN crime syndicates already done deal on Sarawak's new off shore oil finds.

          • teabagthis2

            How do you expect a decent reply if you treat Mr Chan without respect?Nonetheless your frustration is angled at the wrong person. If you wish to have an intellectual and engaging debate, then you owe it to yourself to do it the right way.

          • Sarawak Nationalist

            A JUDGE IS NOT A GOD. HE WAS TREATED WITH THE GREAT RESPECT HE DESRVES…

            JUDGES APPOINTED BY MAHATHIR AND AFTER MAHATHIR MAY HAVE INTEGRITY & CREDBILITY PROBLEMS.

            THE GOOD JUDGE WAS I BELIEVE BEFORE THE JUDICIARY BECAME A LAP DOG OF THE PARTY DICTATORSHIP (IN POWER BY FRAUD FOR OVER 55 YEARS IN MALAYA & 50 YEARS IN THE SABAH SARAWAK COLONIES.

          • teabagthis2

            Yes CAPS will assist in getting your points across better.