02 August, 2009

Tengku Razaleigh’s Letter to MB of Kelantan on oil royalties

TRH/U/Phb/Kel/18 Bh.9

30 July, 2009

8th Sya’ban, 1430

Y.A.B. Tuan Guru Dato’ Haji Nik Abdul Aziz bin Nik Mat

Chief Minister of Kelantan

Office of the Chief Minister

Block 1, 1st Floor

Kota Darulnaim

15503 Kota Bharu



Y.A.B. Dato,


My prayers to Allah, s.w.t. for your good health.

Thank you for your letter dated July 15, 2009 and conveyed to me by Y.B. Dato’ Hj. Husam Musa on July 17, 2009.

Malaysia was formed in 1963, in the teeth of armed opposition from a neighbouring country, without our having had time to clarify the demarcation between State and Federal jurisdictions offshore. This discrepancy eventually led the Sarawak State Government to dispute the Federal Government’s jurisdiction over waters offshore of Sarawak in respect of petroleum resources.

In talks between the State Government of Sarawak and the Federal Government, we solved this problem within the framework of the Petroleum Development Act of 1974. I represented the Federal Government in these negotiations. Instead of going by the complicated route of amending the Federal Constitution to demarcate State vs Federal jurisdictions, we applied Section 4 of the Petroleum Development Act to apportion the value of petroleum resources offshore (and onshore) between them. The same agreement was used for Sabah.

The Petroleum Development Act is thus of unusual significance. It makes possible an agreement whereby the State Government first vests irrevocably all its “powers, liberties and privileges” in respect of Petroleum lying onshore or offshore of its territory in PETRONAS. “In return” says a second agreement, PETRONAS “shall make to the Government a cash payment in the form of a yearly sum amounting to 5% of of the value of the petroleum won and saved in Kelantan and sold by Petronas or its agents or contractors.” The late Dato’ Haji Mohamed Bin Nasir signed on behalf of the State of Kelantan as Menteri Besar and I signed on behalf of PETRONAS as its chairman.

There is no ambiguity at all in this pair of agreements about the demarcation of jurisdictions on or offshore of Malaysia with respect to Petroleum. It is very clear that PETRONAS is bound to these agreements just as the State Government of Kelantan is, and therefore that PETRONAS must pay the Kelantan State Government the cash payment of 5% of the value of petroleum resources extracted from Malaysian waters offshore of Kelantan.

As I recall, in the 1960’s the Federal Government assigned a portion of the offshore area now being exploited by the JDA (Joint Development Authority) to an international oil company. That company returned the concession to the Federal Government after they found that the cost of extraction would exceed the market price of oil at the time.

I sought and obtained the consent of the Prime Minister, the late Tun Abdul Razak, to sign the same agreements under Section 4 of the Petroleum Development Act with each state in Peninsula Malaya for the sake of uniformity under the Act, and with a view to the fact that our East Coast states were less developed and would benefit from receiving these payments.

At the time we already anticipated finding oil and/or natural gas in Malaysian waters offshore of Kelantan, Terengganu and Pahang and looked forward to the benefit that such resources might bring to the people and to these states.

Thank you. Wassalam.

Yours sincerely

(Tengku Razaleigh Hamzah)



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