Mahathir acted in bad faith in directing Petronas to violate its legal obligation to pay 5 per cent oil royalty to Terengganu State Government which he had himself acknowledged publicly two years ago


Speech at the Shah Alam PAS dinner dialogue on "Oil Royalty - Violation of Peopleís Rights"
by Lim Kit Siang 

(Subang Jaya, Monday): The Prime Minister, Datuk Seri Dr. Mahathir Mohamad, said today that "the present trend among opposition parties is to deliberately breach the law and invite action against them".

Mahathir cannot be more wrong as his description best befits himself, as  when he acted mala fide and directed Petronas to violate its solemn legal obligation to pay five per cent oil royalty to the Terengganu state government so that the Barisan Nasional Federal Government could hijack the PAS Terengganu State Governmentís oil royalty as part of its political revenge against the people of Terengganu for voting in a PAS state government in the last general election.

In this instance, Mahathir deliberately broke the law and challenged the PAS Terengganu State Government to take action against him and the Federal Government.  The question is who dare to go to the courts on this  matter?

The legal position and rights of the Terengganu state government to five per cent oil royalty is crystal-clear and had in fact been acknowledged by the Federal Government and every Prime Minister and Finance Minister for the past two decades.

In 1974, Parliament passed the Petroleum Development Act 1974 to provide for  the "exploration and exploitation of petroleum whether onshore or offshore" and vested in Petronas "the entire ownership in and the exclusive rights, powers, liberties and privileges in respect of the said petroleum, and to control the carrying on of downstream activities and development relating to petroleum and its products".

Section 4 of the Petroleum Development Act 1974 stipulates that "in return for the ownership and rights, powers, liberties and privileges vested in it" by the Act, Petronas "shall make to the government of the Federation and the government of any relevant State such cash payments as may be agreed between the parties concerned".

On 22nd March 1975, Petronas signed an agreement with all states including Terengganu spelling out the "cash payments" under section 4 of the Petroleum Development Act 1974.

In the agreement signed between  Petronas and the Terengganu State Government in March 1975, "in return for the ownership and rights, powers, liberties and privileges in respect of the petroleum vested by the Government in Petronas", Petronas made the following commitments:

Although the legal obligation of Petronas to pay 5% cash payments of petroleum earnings to Terengganu was not called "royalty" until a supplementary agreement in 1987, it was clearly a legal right of the Terengganu state and not a "compassionate" or "goodwill" payment. In fact,  in the past two decades, every Prime Minister and Finance Minister had recognised it as an  "oil royalty" which is legally binding on Petronas on behalf of the Federal Government.

Only two years ago, on 23rd October 1998, Mahathir himself publicly acknowledged that the payment to the Terengganu state government was "royalty" and not "compassionate" or "goodwill" payment when he tabled the following report in Parliament:

This is from the Economic Report 1998/1999, which bears Mahathirís signature and  was tabled in Parliament  during the 1999 Budget presentation on 23rd October 1998, as Mahathir was then the Finance Minister after he had arbitrarily and unjustly sacked Datuk Seri Anwar Ibrahim as Deputy Prime Minister and Finance Minister.

How can Mahathir now disown his own public admission  in Parliament on October 1998 that the five per cent payment to Terengganu was "oil royalty"?

Even the two-time Finance Minister, Tun Daim Zainuddin, publicly acknowledged Terengganu state governmentís right to oil royalty in his retabling of the 2000 Budget in the Dewan Rakyat on February 25, 2000, when the Economic Report 1999/2000 he retabled in Parliament said:

The very fact that every Finance Minister in the past two decades had recognised Terengganu state governmentís right to oil royalty is fully borne out by  the Economic Report 1978/1979 presented by the Finance Minister Tengku Razaleigh Hamzah in Parliament in October 1978, which is most significant as it was Razaleigh who signed the 1975 Petronas agreement with the Terengganu State Government when he was the President and Chief Executive of the national oil corporation.

The 1978/1979 Economic Report said:

Petronas should be  fully aware of its legal obligation to pay five per cent oil royalty to Terengganu state government, and this was why at the  press conference on 29th June 2000 to announce the national oil companyís best-ever annual  results  with  a 83 per cent surge in pre-tax profit to RM21.6 billion for the year to March 31, 2000, Petronas president and chief executive officer Tan Sri  Mohamad Hassan Marican said Petronas would continue paying five per cent oil royalty to Terengganu  on offshore oil and gas to Terengganu based on the agreement signed in 1975.

He said:

Petronas probably now  feels that its  hands are tied from fulfilling its legal obligation to the Terengganu state government  once the Prime Minister issues a directive to stop paying Terengganu state government the five per cent royalty.

This is because the Petroleum Development Act stipulates that Petronas "shall be subject to the control and direction of the Prime Minister who may, from time to time, issue such direction as he may deem fit" (section 2) and that the Prime Ministerís  direction "shall be binding" on Petronas (section 3).

Although the Prime Minister has the powers to issue directives to  Petronas which is binding on the national oil corporation, the Prime Minister has no powers to  issue a directive which is mala fide and bad in law as  requiring Petronas to act illegally to break its solemn legal commitments to Terengganu - especially  as every Prime Minister and Finance Minister in the last two decades  had recognised Terengganu state governmentís legal right to five per cent oil royalty, including Mahathirís October 1998 budget presentation in Parliament and Daimís retabling of the 2000 Budget in Parliament in February 2000.

What Mahathir and the Barisan Nasional Federal Government had done in deliberately breaking the law with regard to Petronasí legal obligation to pay five per cent oil royalty to the Terengganu state government is the latest and most serious blow to national and international investor confidence, as it has aggravated increasing concerns about the devastating erosion of the rule of law and the integrity of the government in Malaysia.
 
 

(6/11/2000)


*Lim Kit Siang - DAP National Chairman