Entire petroleum resources of the country are vested in Petronas which is given exclusive right to explore and exploit the resources — Hafiz Hassan

Malay Mail

03-05-2025

MAY 3 — Unbeknown to many, the rights of ownership of the Federal Government and the various States in the Federation of Malaysia to the petroleum resources in onshore land and offshore land have been examined at length by V. K. Moorthy more than 40 years ago in 1982.
The learned writer was a distinguished member of the Kuala Lumpur Bar. He read law at Lincoln's Inn and was called to the English Bar in 1965. He returned to Malaysia and was admitted as an Advocate and Solicitor of the High Court of Malaya in 1966.
He worked first for UMBC Bank and subsequently for Esso Malaysia Bhd from October 1966 as their first Legal Advisor. In January 1978, he moved to Melbourne, Australia where he taught law at Monash University before returning to Malaysia in 1982, setting up his own law firm VK Moorthy & Co.
His article 'Changes in the Federal-State Ownership and Exploitation of Petroleum Resources in Malaysia' (1982) Malaya Law Review 186, written with much aplomb, is now a must read.
The article traced the gradual changes in the ownership of the petroleum resources in favour of the Federal Government, culminating in total or absolute Federal ownership in 1974 with the enactment of the Petroleum Development Act 1974 (PDA).
Two major pieces of federal legislation relevant to the petroleum industry enacted in 1966 – that is, the Petroleum Mining Act 1966 (PMA) and the Continental Shelf Act 1966 (CSA) were also examined, albeit briefly.
V.K. Moorthy wrote:
'The entire legal framework for the petroleum production was completely altered by the [PDA]. Firstly, with the assignment of the entire petroleum resources to Petronas, the Federal Government achieved its ultimate goal of removing the petroleum industry from the control of the States.
Petronas is the only unit of Government that has any involvement in the petroleum industry after the enactment of the Petroleum Development Act, which was moved in Parliament by the then Kota Samarahan MP who later became the fourth Sarawak chief minister, the late Tun Abdul Taib Mahmud who served from 1981 to 2014. — File picture by Hari Anggara
'Secondly, Petronas was vested with the exclusive rights to explore for and exploit petroleum deposits in the country. The only unit of Government that has any involvement in the petroleum industry after the enactment of the [PDA], is the Federal Government through Petronas.
'The role of Petronas is not one of a regulatory nature but of direct participation in the exploration and extraction of petroleum. By this means, the Federal Government has taken absolute charge of the petroleum exploration and exploitation operations which were previously under the control of the Oil Companies.
'The Minister for Primary Industries [who moved the Petroleum Development Bill 1974 in Parliament] has made it clear that the Government expects that [Petronas] shall have and be responsible for the management of petroleum operation....
'The Government has also spelt out the terms upon which Petronas shall engage the Oil Companies for the exploration and mining operations.'
Guess who the Minister was?
He was then MP for Kota Samarahan, who went on to become the fourth Chief Minister of Sarawak (as it was then known).
The learned writer then summarised the effect of PDA as follows:
(1) A National Oil Corporation known as Petronas was established.
(2) The Federation vested its right of ownership to petroleum resources under its control and jurisdiction in Petronas.
(3) Petronas compulsorily acquired the rights to the ownership of petroleum resources of the various States and caused such rights to be vested in it.
(4) All proprietary interests acquired by the oil companies under the production agreements or exploration licences and other forms of title were compulsorily acquired by the Federal Government and vested in Petronas.
(5) The Federation and the States ceased to have the usual regulatory role in the petroleum industry. The PMA became a dead letter.
(6) The Federation, through Petronas, entered the commercial arena of petroleum exploration, production and marketing and plans shortly to manufacture and distribute petroleum and petro-chemical products.
(7) All proprietary concepts, such as leasehold interests, licences and profit a prendre are no longer applicable to the Malaysian petroleum industry because the entire petroleum resources of the country are vested in Petronas which is given the exclusive right to explore and exploit these resources.
(8) The Federal Government approved the use of oil companies as contractors to assist Petronas in the exploration and exploitation of petroleum and adopted the Indonesian Production Sharing Contract system. The oil companies accepted this arrangement in lieu of monetary compensation.
So, why the reported legal notice by Sarawak's utility and telecommunications ministry alleging that Petronas subsidiary, Petronas Carigali Sdn Bhd has violated Section 7(e) of the state's Distribution of Gas Ordinance 2016 (DGO)?
* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.