Former Petronas chairman Tengku Razaleigh Hamzah has rubbished reasons given by the federal government over its dismissal of the Kelantan state government’s claim on oil royalties and says that the national oil company is obligated by law to pay up.

The Kelantan state government has claimed that is is owed RM1 billion in royalties from oil that has been extracted in an offshore area bordering Thailand.

In response, Information Communication and Culture Minister, Datuk Seri Rais Yatim had said that the Kelantan demand for oil royalty had no legal basis and was made to earn political mileage.

According to Tengku Razaleigh however, the vesting deed agreement, which he signed on behalf of Petronas as founding chairman and CEO, entitles the state to five per cent of any revenue derived from hydrocarbon deposits found on or offshore of the state.

“If I am chairman still of Petronas, I will pay without all the fuss,” he told The Malaysian Insider in an interview earlier this week. “And I feel all the more it should be paid because I signed the agreement! There is no two ways about it. It must be paid.”

The former finance minister declined to comment on whether political considerations played a part in the decision not to pay Kelantan oil royalties but noted that Terengganu oil royalty payments were suspended when it was under the opposition but was reinstated when it returned to Barisan Nasional rule last year.

“I don’t know what kind of politics they are playing,” he said.

He also agreed with the view that the government is currently overdependent on Petronas oil revenue and that it needs to scale down expenditure. (read here)

Berikut adalah senarai semasa platform di perairan ‘offshore’ Kelantan,

• Bulan Alpha / Jenis unmanned platform / Kontraktor Carigali Hess / Kedudukan Utara 07 13.07 Timur 103 02.24.
• Cakrawala / Jenis fix platform / Kontraktor carigali Hess / Kedudukan Utara 07 10.00 Timur 103 05.50.
• Puteri Cakrawala / Jenis Fuel Storage Offshore (FSO) / Kontraktor Carigali Hess / Kedudukan Utara 07 09.10 Timur 103 06.50.
• Suriya Alpha / Jenis unmanned platform / Kontraktor Carigali Hess / Kedudukan Utara 07 06.38 Timur 103 11.11.
• Bumi Alpha / Jenis unmanned platform / Kontraktor Carigali Hess / Kedudukan Utara 07 08.57 Timur 103 14.55.
• Bunga Orkid A / Jenis fixed platform / Kontraktor Talisman / Kedudukan Utara 07 12.20 Timur 103 48.36.
• FSO Orkid / Jenis Fuel Storage Offshore / Kontraktor Talisman / Kedudukan Utara 07 12.93 Timur 102 52.54.
• Roger W. Mowell / Jenis jack up platform / Kontraktor Talisman / Kedudukan Utara 07 13.30 Timur 103 49.08.
• Harvey H. Ward / Jenis jack up platform / Kontraktor Talisman / Kedudukan Utara 07 03.56 Timur 104 07.20.
• Bunga Raya Alpha / Jenis fixed platform / Kontraktor Talisman / Kedudukan Utara 06 58.60 Timur 104 10.70.
• FSO PM3 – CAA / Jenis Fuel Storage Offshore / Kontraktor Talisman / Kedudukan Utara 06 56.10 Timur 104 09.30.

Saya akan letakkan kedudukan ini di dalam peta terkini eksplorasi dan eksplitasi di Pantai Timur Semenanjung Malaysia dan siarkan di blog ini dalam masa terdekat.

English version of YBM. Tengku Razaleigh Hamzah’s letter as translated by the Tengku’s office in Kuala Lumpur. For the Malay version please clickhere.

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

KELANTAN

Bismillahirrahmanirrahim

Y.A.B. Dato,

KELANTAN STATE’S CLAIM FOR OIL ROYALTIES

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% from 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)

The below documents were made available by The Tengku’s office,