S'wak licensing rule for Carigali ‘confrontational', sets ‘dangerous precedent', says analyst
Sarawak says Petronas Carigali's Miri Crude Oil Terminal (MCOT) must be licensed under the state's Distribution of Gas Ordinance 2016, failing which financial penalties will be imposed. (Facebook pic)
KUALA LUMPUR : Sarawak's attempt to compel Petronas Carigali Sdn Bhd to obtain a licence from the state for its Miri operations sets a 'dangerous precedent' in oil and gas governance across the country, says an analyst.
Earlier today, Utusan Malaysia reported that Sarawak's utility and telecommunication ministry had, in a letter dated April 30, accused the Petronas subsidiary of violating Section 7(e) of the state's Distribution of Gas Ordinance 2016 (DGO).
In the letter, Carigali was accused of operating its Miri Crude Oil Terminal (MCOT) without a state licence and given 21 days to rectify the matter, failing which it would face financial penalties under Section 21A.
Jamil Ghani, formerly of the Malaysia Petroleum Resources Corporation, warned that the move could lead to an unmanageable federal-state regulatory overlap.
Jamil Ghani.
'The MCOT facility has been operating under federal mandate for decades. If even Petronas now needs to apply for a state licence, what stops other states from demanding the same? This sets a dangerous precedent.
'You're looking at a scenario where every state might start creating its own terms. That's a regulatory nightmare,' he told FMT.
Jamil also said the letter undermined the essence of a federal-state agreement announced earlier this year.
'What the prime minister outlined in Parliament was a balanced arrangement where federal and state laws would coexist. This letter feels like a shift – from coexistence to confrontation,' he said.
On Feb 17, Prime Minister Anwar Ibrahim told Parliament that the federal and Sarawak governments had agreed on several key principles regarding gas governance in the state.
Among them, it was acknowledged that the Petroleum Development Act 1974 (PDA) would remain the overarching law as regards oil and gas activities across the country, including in Sarawak. Meanwhile, the state's aspiration to regulate downstream gas through the DGO was recognised.
It was also agreed that Petronas and its subsidiaries would retain all existing contractual obligations, including long-standing international supply agreements. Petronas entities were also exempted from having to obtain additional licences to conduct its operations in Sarawak beyond those outlined in the PDA.
Jamil said the deal was intended to ensure stability.
'It was meant to settle the issue – Petronas is governed by federal law (and) the DGO was to be read together with the PDA, not in opposition to it. It was about recognising Sarawak's role without undermining Petronas' legal footing.
'So when Sarawak turns around and says: 'You now need a licence or we'll fine you', it creates confusion,' he said.
Sarawak premier Abang Johari Openg has insisted that the state has full authority over gas distribution activities within its borders.
He said any arrangement entered with Petronas must not 'adversely affect the role of Petros as gas aggregator' or conflict with state law. He also said Sarawak's resources 'must be managed according to the laws passed by the Sarawak legislative assembly.'
Beyond legal concerns, Jamil said the ongoing dispute was sending the wrong signals to investors. 'Investors are watching this closely. If federal and state authorities are pulling in different directions, it undermines confidence in Malaysia's energy governance.'
The situation, if left unresolved, could escalate into a constitutional test case, he said.
'If Petronas challenges the enforcement in court, the judiciary will have to interpret whether the PDA overrides the DGO or vice versa. That would set a precedent for all oil-producing states.'
While Petronas has not responded publicly to the April 30 letter, sources familiar with the matter said the company was quietly engaging both federal and state officials to avoid escalation.
Jamil said only a joint federal-state clarification was necessary to restore confidence.
'There needs to be a clear, unified statement from both governments to clarify what was agreed. This isn't just about a licence – it's about protecting legal certainty in one of Malaysia's most important sectors.
'At stake is not just compliance with a state ordinance, but the very foundation of how Malaysia manages its oil and gas resources under a federal system. That cannot be left ambiguous,' he said.
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