This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

IN recent years, the devolution of power over Sarawak’s oil and gas (O&G) resources has become a significant point of discourse with Putrajaya. Armed with the Malaysia Agreement 1963 (MA63), Sarawak’s late chief minister Tan Sri Adenan Satem made the first move towards getting the state’s rights back.

And Premier Tan Sri Abang Johari Tun Openg is making sure Adenan’s effort continues. In 2020, the state took Petroliam Nasional Bhd (Petronas) to court to recover RM1.3 billion in outstanding state sales tax (SST) and penalties from the national oil major.

The 5% SST on all petroleum products sold in Sarawak was introduced in January 2019. The Sarawak government, looking to exercise full autonomy over its rich resources, had mandated all O&G corporations in the state to comply with its Oil Mining Ordinance 1958 and Gas Distribution Ordinance 2016 from July 1, 2018, challenging the legislative authority of the federal Petroleum Development Act 1974.

The imposition of the SST led, however, to a dispute with Petronas, which had refused to pay, claiming it was unconstitutional — hence the RM1.3 billion civil suit by Sarawak against Petronas, which later saw the Kuching High Court rule that Sabah and Sarawak had the right under the Federal Constitution to impose SST on petroleum products.

Petronas had initially filed an appeal in court but the state and the oil corporation reached an agreement in May the same year, in which both sides dropped their legal suits against each other.

In an interesting turn of events, Petronas and its subsidiaries fully settled the payment of arrears of the SST for 2019, amounting to RM2.96 billion, in September 2020.

As a result, coupled with a surge in oil prices, Sarawak’s O&G collections increased to a whopping RM4.82 billion in 2020, up from just RM138 million in 2019.

Last year, Sarawak’s revenue was a record RM11.9 billion. Tax revenue contributed RM6.7 billion, or 56%, of total revenue, while the other categories made up 44%.

SST, meanwhile, contributed 84%, or RM5.6 billion, of total tax revenue collected. Taxable products under SST include O&G products, oil palm products and aluminium.

By asserting its rights under MA63, Sarawak has been able to use its resources effectively and uncover new avenues for revenue. With a robust financial surplus of RM1 billion last year, the state has set its sights on economic enhancement and improved living standards for its residents by taking over control of MASWings Sdn Bhd from Malaysia Aviation Group Bhd (MAG)and Bintulu Port from the federal government — which it hopes will take place by the second half of next year.

The takeover of the airline is to better connect the rural areas in the state and “stabilise airfare costs” between the peninsula and Sabah and Sarawak.

In its bid to grow a digital economy, Sarawak in April this year purchased a 4.95% stake in Affin Bank Bhd through its State Financial Secretary after failing to secure a digital bank licence.

In terms of sustainable future revenue growth, Abang Johari has outlined the Post Covid-19 Development Strategy 2030 (PCDS 2030) to fast-track development to elevate Sarawak, with a focus on key sectors such as manufacturing, commercial agriculture, tourism, forestry, mining and social services.

And to better manage its O&G resources, Sarawak instituted Petroleum Sarawak Bhd (Petros), a state-owned enterprise, in 2017. 

Abang Johari underscores the need for the state to diversify from O&G to other sustainable income sources such as exporting methanol and hydrogen, carbon trading and green solutions. He foresees this new income stream to boost the state’s annual GDP growth of 8%, surpassing RM280 billion by 2030.

Abang Johari also sees potential in carbon trading as a new revenue source. Sarawak is the first state to enact legislation for carbon and nature venture businesses. Notably, amendments to the Forests Ordinance and Land Code allow Sarawak to undertake activities that reduce greenhouse gas emissions, mitigating climate change. Sarawak is shifting from logging to forest carbon activities to become a sustainable, green economy by 2030 through carbon trading benefits.

Education forms a significant part of Abang Johari’s growth strategy for Sarawak. Recognising the critical role of a highly educated talent pool in taking the resource-rich state to high-income status, he has advocated for greater autonomy in the state’s education system.

The existing model, which relies heavily on the federal government, risks disruption in children’s education, owing to inconsistent policies and unpredictable appointments in schools, especially those in rural areas. To ameliorate this situation, Abang Johari has prioritised autonomy in Sarawak’s education system in talks with the federal government.

Crucial to his vision for education in Sarawak is the use of English as a medium of instruction in schools. Given the global rele­vance of English, Abang Johari stresses the need to enhance proficiency in the language for communication at international forums and to comprehend literature, which is mostly in English. At the same time, Bahasa Malaysia, he assures, will remain mandatory.

Unlike in Peninsular Malaysia, Sarawak avoids controversy by recognising the internationally accepted Unified Examination Certificate used in Chinese independent high schools.

Still, Abang Johari’s concerns extend to the inability of the public sector to attract graduates from Chinese independent high schools, which he would consider a failure to draw talent to the state government.

The premier calls for adherence to Paragraph 17 of the Inter-Governmental Committee Report, which mandates consultation with the state on education policy. He attributes the need for state-specific intervention to complement federal education policies on the lack of adherence to this provision.

Under Abang Johari’s tenure, Sarawak has seen the number of graduates rise more than 5% to 327,000 in 2021 from the previous year’s 311,000. STEM (science, technology, engineering and mathematics) graduates, however, have yet to meet the national target of 40%, a milestone that the premier aims to achieve by 2025.

Plans to establish five international schools using the Cambridge syllabus also underline Abang Johari’s efforts to raise the quality of secondary education in Sarawak. 

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