Petronas breaches Sarawak gas sales agreement, court told

New Straits Times

11-06-2025

KUCHING: Lawyers for Petroleum Sarawak Berhad (Petros) and the Sarawak government argued that national oil company Petronas had failed to comply with state laws as required under the Sarawak Gas Sales Agreement (SGSA) signed on Dec 30, 2019, and still sought to supply gas to Petros without a valid licence.
During a hearing on Petros' originating summons at the Kuching High Court today, in which the state-owned company seeks to restrain and nullify Petronas' demand under a RM7.95 million Maybank Islamic bank guarantee, described by Petros as "unconscionable, illegal, and therefore null and void", Datuk Seri J.C. Fong, appearing as amicus curiae (friend of the court) for the Sarawak government, said Petronas was attempting to bypass legal requirements.
"Petronas wants to continue supplying gas to Petros without a licence and does not want to recognise Petros as the gas aggregator in Sarawak. Petronas cannot approbate and reprobate," Fong told judicial commissioner Datuk Faridz Gohim Abdullah.
He cited Article 24.2 of the SGSA, which states that "nothing in this agreement shall entitle the parties, Petronas and Petros, to exercise the rights, privileges, and powers conferred on them which would contravene any written laws in force in Malaysia".
Fong also said that the Distribution of Gas Ordinance 2016 (DGO 2016), passed by the Sarawak State Legislative Assembly, was a valid written law in force in Malaysia.
He added that Article 2.3 of the SGSA further stipulated that should any new codes, regulations, or rules be issued that affect the sale and purchase of gas, both parties are required to take necessary steps to comply.
In 2023, the Sarawak assembly amended the DGO to include two key provisions: that only a gas aggregator may supply gas, and that the state cabinet has the authority to appoint the aggregator. Subsequently, Petros was officially appointed as the sole gas aggregator in the state.
Responding to claims of Petronas' "unconscionable conduct", Fong told the court that unchallenged evidence in an affidavit showed that Petronas was obstructing upstream gas suppliers, licensed under the DGO, from selling to Petros, thus hindering Petros from carrying out its statutory functions.
"Petronas's failure to comply with the DGO, its continued supply of gas without a proper licence, and its prevention of other licensed suppliers from dealing with Petros must constitute unconscionable conduct," he said.
On Petronas' argument that it was acting within its rights under the Petroleum Development Act 1974 (PDA74), Fong said the SGSA had no connection to the PDA or to Petronas' business under it, as those rights had been transferred to Petros.
"There is nothing in the SGSA to suggest that it was entered into pursuant to the PDA. It is purely a commercial agreement based solely on commercial considerations," he said.
Responding to Petronas' claim that Sarawak had relinquished its rights over petroleum and gas in return for annual payments, Fong said the "yearly payments" (oil royalty) were for "the purported vesting of petroleum in Petronas".
He said that this had no bearing on Sarawak's constitutional right to regulate the distribution of gas.
"There is nothing in the PDA or any agreements between Petronas and the Sarawak government, based on evidence before the court, to indicate that the annual payments were in exchange for Sarawak relinquishing its legislative and executive powers over gas distribution," he added.