KUCHING (Oct 1): National oil company Petroliam Nasional Bhd (Petronas) and Sarawak state-owned oil firm Petroleum Sarawak Bhd (Petros) were back in the High Court on Tuesday over their gas supply payment dispute.

The two parties had sought a one-month adjournment back in August to make way for talks with the aim of bringing matters to resolution. However, no update was provided on the status of the negotiations when the hearing resumed.

The two companies are in court after Petros attempted to stop Petronas from calling its bank guarantee, as part of payments claimed for gas supply in the state.

Petros filed an originating summons disputing the claim, among others, on grounds that Petronas does not have a licence to operate in Sarawak under the state law — Distribution of Gas Ordinance 2016 (DGO) — and its amendment in 2023.

In its submission on Tuesday sighted by The Edge, Petronas said that it does not need a licence from the Sarawak authorities to supply gas there.

Petronas also submitted in court that it is “not required to be licensed due to its existing rights under the Petroleum Development Act 1974 (PDA)”, and as such the licensing requirement under state law does not apply.

While PDA, a federal law, grants Petronas the rights over onshore and offshore petroleum nationwide, the state law DGO designates Petros as the sole gas aggregator in Sarawak, the largest gas-producing state in the country.

The dispute continues despite the signing of a joint declaration between the federal government and Sarawak on May 21, recognising both the PDA and the DGO. 

In Petronas' submissions, the company claimed that the DGO provisions that require Petronas to be licensed is in conflict with the PDA, adding that Article 75 of the Federal Constitution stipulates that federal law prevails over state laws if there are inconsistencies.

“It is pointed out that the PDA and the DGO 2016 (2023) are not necessarily inconsistent, as they can be read harmoniously to give effect to both.

“However, in the event that the DGO 2016 (2023) is to be interpreted as prevailing and requiring Petronas to be licensed as contended by Petros or Sarawak Attorney General (AG), this interpretation cannot stand as the PDA takes precedence over the DGO 2016 (2023),” Petronas, represented by lawyers led by Datuk Dr Cyrus Das and Khoo Guan Huat, said in the submissions.

“The DGO 2016 cannot amend or repeal provisions of the PDA, as it is a federal law enacted post-Malaysia Day. Any licensing requirement imposed by the DGO 2016 on Petronas would be ultra vires (beyond the powers) the PDA,” Petronas added.

It is noted that during the hearing in August, Petros and the Sarawak AG submitted that the Borneo States (Legislative Power) Order 1963, which was put in place before the PDA, affirms Sarawak’s power and authority for gas distribution.

Petronas also submitted that the company does not need to be licensed to operate in Sarawak under the Gas Supply Act 1993 (GSA), which governs gas licensing, supply, and pipeline infrastructure in the country, among others.

At the same time, the GSA “does not impose licensing requirements on Petronas due to its exclusive rights under the PDA”, it argued, in reference to Section 6(1) of the PDA.

That section stipulates that no person other than Petronas can engage in the processing or refining of petroleum or the manufacturing of petrochemical products without specific permission from the prime minister which gives Petronas the exclusive rights over all petroleum-related resources.

Referring to the DGO, Petronas said Section 7 on distribution of gas, which is defined as supply for personal use, does not apply to the national oil company. Petros, as a buyer, does not qualify as a "consumer" under the DGO, Petronas argued in the submissions.

In the suit, Petros sought an injunction to bar Petronas from utilising the RM7.95 million bank guarantee and a court declaration that the demand by Petronas on the bank guarantee is unconscionable or unlawful, and null and void.

Petronas lawyers argued that the demand for a bank guarantee is deemed lawful and enforceable as the bank guarantee is unconditional and requires only written demand for payments.

They also argued the ‘significant amount’ due — amounting to RM26.3 million as at Nov 8, 2024 before late payment interest — can be demanded as they fall under the Sarawak gas supply agreement (SGSA) inked in December 2019 between Petronas and Petros.

“Petronas maintains its rights and obligations under SGSA despite challenges posed by the DGO 2016,” Petronas said in the submissions.

“This follows that the SGSA remains valid and enforceable with Petronas entitled to payment for gas supplied,” Petronas said in the submissions.

The SGSA remains enforceable and should not be treated as illegal under the Contracts Act, the lawyers said, adding its legal position is supported by various case laws affirming the validity of contracts despite licensing issues.

The hearing before Judicial Commissioner Datuk Faridz Gohim Abdullah will resume on Nov 17, where Petronas will continue its submissions.

Representatives from the AG's Chambers, led by senior federal counsel Ahmad Hanir Hambaly @ Arwi, were also present.

Read also:
Sarawak accuses Petronas of breaching state gas law; Petronas defends rights under federal authority
Kuching High Court dismisses Petronas' applications to stay Petros' gas supply payment claim — report 

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