Sarawak gains full control over state's oil and gas sector as Malaysia election nears

Najib agrees to return state rights in move seen as attempt to secure Sarawak's loyalty to BN in polls

Sarawak Chief Minister Abang Johari Openg signing on a monitor to symbolically launch Petros. Also present were Deputy Chief Minister Douglas Uggah Embas (far left) and Petros chairman Hamid Bugo (third from left).
Sarawak Chief Minister Abang Johari Openg signing on a monitor to symbolically launch Petros. Also present were Deputy Chief Minister Douglas Uggah Embas (far left) and Petros chairman Hamid Bugo (third from left). PHOTO: BORNEO POST

Sarawak announced yesterday that it now has complete mining rights over its territory, making it the first state in Malaysia to form a state-owned oil and gas company.

Sarawak Chief Minister Abang Johari Openg said the formation of Petros, which was founded last year, was part of the promise made by the federal government to return eroded rights from the Malaysia Agreement 1963 (MA63), signed when the giant state agreed to become part of Malaysia.

"This gives Sarawak full regulatory authority of the upstream, downstream aspects of the oil and gas industry," said Datuk Abang Johari at an event to launch Petros in the Sarawak capital of Kuching.

The announcement comes after Malaysian Prime Minister Najib Razak gave assurances that Sarawak's longstanding demands will be met.

With the general election just around the corner, the Prime Minister is seen to be pulling out all the stops to ensure that the gas-and timber-rich state remains loyal to the ruling Barisan Nasional (BN) government.

Under the current arrangement, Malaysia's national oil and gas company Petronas has legal ownership and rights over oil fields nationwide. In return, Petronas makes cash payments to the federal and state governments, such as Sarawak, where petroleum deposits are dug up or processed.

The formation of Petros would allow Sarawak to earn its own revenues directly through exploration and in downstream activities, rather than solely relying on the cash payments. But the announcement does not affect Petronas' ongoing works in Sarawak involving 60 oil and gas producing fields.

One major sore point for Sarawak and Sabah is over the 5 per cent in royalty payments paid to them for their minerals, including oil and gas deposits. Sarawak is asking for 20 per cent.

After yesterday's announcement, Sarawak will have full financial control of all the petroleum works that Petros will undertake. The state's rich gas deposits are exported to countries that include Japan and South Korea.

Sarawak and neighbouring Sabah are often touted as secure, "fixed deposit" states for the BN, but a resurgent opposition led by former premier Mahathir Mohamad is making a play for votes in the two states by promising the return of their eroded rights.

The return of these rights is long awaited, with many among the 2.6 million Sarawakians griping about the state's wealth being taken by the federal government while its economy lags behind.

During Datuk Seri Najib's visits to Sabah and Sarawak last December, he outlined two conditions as prerequisites to restoring state rights.

"First, there should be no calls for secession, and the second red line is that they must support Barisan Nasional," he told delegates at a political event in Sarawak.

The MA63 agreement was signed between the Federation of Malaya with the British colonies of Sabah (then called North Borneo), Sarawak, Singapore, and the United Kingdom, leading to the formation of Malaysia. Singapore ceased to be a part of Malaysia in 1965.

Datuk Abang Johari's predecessor Adenan Satem had advocated for the devolution of administrative powers to the state that would lead to greater autonomy, besides calls for increased royalty fees.

Sabah too has been pushing to get back its rights under MA63 and to have greater autonomy.

Mr Najib has been visiting these two states frequently in recent years, with promises of highways, investments and jobs.

A common complaint in Sarawak is that the state - despite having rich hydrocarbon deposits - ranks third from the bottom in terms of poverty among Malaysia's 13 states. Sabah records the highest incidence of poverty among all Malaysian states.

"The idea (of the announcement) is to show the perception that Najib is more sensitive to Sabah and Sarawak and is open to discussions," said political analyst Awang Azman Awang Pawi from Universiti Malaya.

With the polls inching closer, both BN and opposition coalition Pakatan Harapan are vying for support in East Malaysia.

Sarawak has the most number of MPs in the federal Parliament, with 25 BN MPs and six from the opposition. BN currently has 132 seats in Parliament, buttressed by the 25 seats - nearly 19 per cent of the coalition's total.

Observers see Mr Najib securing Sarawak's loyalty with the rights move.

Sarawak's history and special rights

The state has been ruled by headhunters, the Brunei Sultanate, the white rajahs and Japanese occupiers before it entered a different era under the federation of Malaysia.

Large swathes of Sarawak were controlled by the Brunei Sultanate in the 1800s. British "adventurer" James Brooke was installed as rajah, or king, of Sarawak in 1841, for helping the sultan put down a rebellion and reducing piracy. Thus began the rule of the "white rajahs" for over 100 years.

The Brooke family greatly expanded Sarawak's territory. James Brooke's nephew, Charles Anthoni Johnson Brooke, took over in 1868, and he passed it, in 1917, to his son, Charles Vyner Brooke.

The Japanese invaded Sarawak in 1941, with Charles Vyner Brooke fleeing and only returning in 1946. He ceded Sarawak's sovereignty to Britain. In 1963, the British colonies of Sarawak, North Borneo (now Sabah) and Singapore joined the Federation of Malaya to form Malaysia.

Differences between the federal government and Singapore leaders saw Singapore cease to be a part of Malaysia in August 1965.

According to the Malaysia Agreement 1963, or MA63, these are among the rights granted to Sabah and Sarawak:

•Immigration: Malaysians from Peninsula Malaysia cannot freely enter Sabah and Sarawak. Sabah and Sarawak have their own immigration laws, with Malaysians not from these states required to show their identity cards upon entry. Those from Peninsula Malaysia who wish to work or study in East Malaysia must obtain a pass. On the other hand, Sabahans and Sarawakians can freely travel and work in the Peninsula.

•Judiciary: Only lawyers from Sabah and Sarawak can practise in these states. Those from Peninsula Malaysia are required to obtain a licence from the High Court of Sabah and Sarawak, and also a work permit.

•Royalty: The two states are entitled to royalty and export duty of all minerals, except tin, totalling 10 per cent of the estimated export value.

To empower the state's wealth and resources, Sarawak's government has set up:

•Petros: The wholly state-owned oil and gas company was set up last year. Sarawak Chief Minister Abang Johari Openg said Petros has "the same status" as Petronas.

•Development Bank of Sarawak: Newly operational, with a paid-up capital of RM500 million (S$169 million). It is expected to invest in the state's infrastructure development, oil and gas industry and telecommunications, among other sectors. The bank takes deposits from the state government and government-linked companies, and conducts commercial activities.

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A version of this article appeared in the print edition of The Straits Times on March 07, 2018, with the headline Sarawak gains full control over state's oil and gas sector as Malaysia election nears. Subscribe