SAPP: How oil royalties can be increased

This press conference is called to explain how Petronas oil royalties can be increased from 5% to 20% and how it can be paid to Sabah. The latest disclosure of Petronas’s profits at RM 97.80 billion has added urgency to a fair sharing our Sabah’s oil resources. But the Sabah BN is failing in its duty to Sabah by not claiming 20% oil royalties. Instead, Sabah BN is engrossed in a "cold war" amidst "divide and rule" politics. If Sabah fights hard enough, we can succeed like the cancellation of the coal power plant and the closure of JPPS (federal department of development). With this information, SAPP hopes Sabahans will be confident of success and pressure the State Government to pursue this matter.

The Agreement between the Sabah State Government and Petronas signed on 14 June 1976 had fixed the cash payment (royalties) at 5% of the value of the petroleum extracted from Sabah. In order to obtain the 20% royalties, any one of the following methods will suffice:

1. Sign a new agreement, or amend the 1976 agreement, with Petronas so that the cash payment becomes 20%. In this case, the payment would be made by Petronas to Sabah,

2. The Federal Government can make cash payment equivalent to 15% of the royalties payable to Sabah. The original 5% continues to be paid by Petronas. As the federal government also receives 5% royalties from Petronas, the federal treasury actually has to fork out only the balance 10% from other revenue sources. One obvious source is the RM 30 billion in annual dividends received from Petronas. At today’s oil prices and production volumes, the 20% royalties amount to RM 3.2 billion which is well within the ability of Petronas to pay. It is also within the capacity of the federal government to give back RM 2.4 billion (15% royalties) to Sabah, which is the poorest state in Malaysia. After all, Petronas is making huge profits by piping our natural gas to their LNG plant in Bintulu.

SAPP knows that this method of cash payment in lieu of oil royalties can be done because of the precedent in 2000 whereby the federal government pays to the Sabah State Government an amount equivalent to the import and excise duties on petroleum and petroleum products that Sabah was entitled to under the Tenth Schedule of the Federal Constitution. When these import and excise duties were abolished on January 1, 2000 in compliance with the Asean Free Trade Area (AFTA) agreement, the federal government made a commitment to compensate Sabah’s loss of revenues. The commitment was made in parliament in December 1999 when both myself as MP for Gaya and YB Melanie Chia as Senator at the time raised this issue. This cash payment in lieu of import and excise duties is about RM 120 million per year. If Sabah had not demanded this ten years ago, the amount that would have been lost to Sabah by now is RM1.2 billion! In other words, it is legally and administratively possible for the federal government to pay the Sabah State Government an amount equivalent to 20% of oil revenues. 

Click here for: Petroleum Development Act, 1974, Agreement between Sabah Government and Petronas dated 14 June 1976, Parliament Hansard dated 23 Dec. 1999 and 28 Dec. 1999

Questions:

Q 1: Can the federal government afford 20% royalties to Sabah and other oil states?

A 1: Yes, with global oil prices staying high in the long term, Petronas will have no problem paying an annual dividend of RM 30 billion to the federal treasury. In any case, the royalty paid to Sabah and other states is subject to the global prices so, if Petronas’s profits fall due to lower prices, then the payments to the oil states will also be reduced. So, there is no real danger that either Petronas or the federal government cannot fulfill the 20% royalties to the oil states. 

Q 2: Why was this 20% oil royalties not raised when you were Chief Minister?

A 2: In the 1990s, federal power was at its peak. Neither the timing nor the political environment was conducive for a review of the oil royalties. Like the return of Labuan, any demand would have zero chance of success. Remember that the Prime Minister was Dr. Mahathir and the Deputy Prime Minister cum Finance Minister was Anwar Ibrahim. In Sabah, we had to settle for more grants that can match the oil royalties. But after the political power equation shifted in favour of Sabah and Sarawak caused by the March 2008 election results, it has become viable to press for more oil royalties and other Sabah rights which are long overdue.

Also, in the 1980s and 1990s, the 5% royalties payable to the State Government amounted to only RM 80m to RM 150 m per annum depending on global prices. In the 1990s, oil prices were only 20 to 35 USD per barrel. Recent oil prices were 80 to 100 dollars, sometimes reaching 140 dollars. Today, with increased production and higher prices, the 5% royalties amount to RM 800m. Roughly, every 1% of royalties equal to RM 160m. This means 20% royalties amount to RM 3.2 billion. These are substantial sums that so far have benefited only Petronas. 

Q 3: Has anybody else raised the oil royalties issue before? 

A 3: Yes, in the 1990 general elections, the PBS state government tried. PBS was the only State government in Malaysia to have joined the opposition Gagasan Rakyat coalition led by Tengku Razaleigh and Lim Kit Siang. The State government had pushed for an upward revision of the 5% oil royalty. I recall that Tengku did not agree to Sabah’s demand on the ground that such a move (to increase Sabah’s oil royalties) would have an adverse impact on federal revenues because oil royalties also involved Sarawak and Trengganu. I think Tengku promised the return of Labuan to Sabah, but not on oil royalties. But Gagasan Rakyat lost the elections. Only Kelantan followed Sabah’s move into the opposition. Even Sarawak and Penang returned the BN government. The rest is history. 

In October 2006, the 20% royalties issue was revived by Dr. Jeffrey Kitingan’s Tambunan Declaration. Pakatan leader Anwar Ibrahim made a commitment to me in May and in June 2008 that his government would honour the 20% royalty promise which was among SAPP’s Eight Points People’s Declaration For Change. But, we cannot assume that it is automatic that Anwar Ibrahim as Prime Minister will go ahead to give the 20% royalties to Sabah and other oil producing states. That is not how things work. How things work is, if the PM of the day needs your support, then he will fulfill his promise. History and bitter experience have taught us not to depend on charity and promises alone. We must have bargaining power, leverage and courage.

Q 4: Sabah DAP has said that SAPP has only two MPs and cannot make parliament amend the Petroleum Development Act 1974 to give Sabah the 20% royalties.

A 4: We do not have to touch the Petroleum Development Act 1974 which said nothing about percentage of royalties. Section 4 of the Act only stated that "cash payment" shall be made by Petronas to the state concerned in return for the ownership and rights in the petroleum. The percentage of royalties is stated only in the 1976 oil agreement. Payments to Sabah can be done through normal budgeting. If the federal government puts this 20% in the annual budget, then the entire budget will be approved by the parliament. If parliament does not approve the budget, then the government will fall, general elections will be held again. This is the law. There is no need for another law. At the moment SAPP does not have enough MPs. That is why we are working very hard so that after the general elections, with the people’s support, SAPP and Pakatan will have more MPs.

Q 5: But Sabah has only 25 MPs. Is that enough?

A 5: With Sarawak’s 31 MPs, Terengganu (14) and Kelantan (8), the oil producing states have 78 MPs. This is more than a third of the 222 MPs. All these states want the oil royalties to be 20% if Pakatan comes to power. Whether Sabah is under Pakatan or not, Pakatan will have to pay 20% to all the oil producing states. Look at Sarawak, they have just re-elected a non-Pakatan State government which are all Sarawak local parties. 

If Pakatan captures Putrajaya, the Sarawak state government would still be the state parties, except no more BN. Pakatan becomes government at federal level but opposition at state level, like Kelantan, Penang, Selangor and Kedah today, except for reverse roles. Do you mean to say that a Pakatan federal government will not honour its promises of 20% to oil states? 

Will Pakatan survive such a breach of promise? The answer is no. Look at the situation today, the federal and state governments belong to the same (BN) alliance. But still the 20% royalties is not fulfilled. Will Pakatan be different? Based on history and bitter experience, we know KL will not give 20% unless they have to. It is for their own survival that they have to give back to Sabah what rightly belongs to us.