KUALA LUMPUR (Jan 21): The spirit of federalism remains the guiding principle in Malaysia’s petroleum governance, said Minister in the Prime Minister's Department for Law and Institutional Reform Datuk Seri Azalina Othman Said, amid a prolonged dispute with Sarawak state-owned Petroleum Sarawak Bhd (Petros) over the oversight of oil and gas assets in the Bornean state.

According to Azalina, based on input from Petroliam Nasional Bhd (PETRONAS), such guiding principle ensures that the division of powers between the federal and state governments is carried out clearly and in an orderly manner under the Federal Constitution.

The Petroleum Development Act 1974 (PDA) remains the primary legislation governing petroleum management in Malaysia, vesting exclusive ownership, rights, powers, and privileges for exploration, production, and management of petroleum — both onshore and offshore — with PETRONAS, Azalina said.

“The Act (PDA 1974) provides a stable legal framework, ensures investor certainty, supports sustainable sector growth, and safeguards the continuity of the national energy industry,” Azalina said in a written parliamentary reply on Jan 20.

She was responding to Datuk Ali Anak Biju (PN-Saratok), who asked if the federal government was prepared to fully recognise Sarawak’s 1958 Oil Mining Ordinance (OMO) sovereignty without conditions or delays.

Azalina said while ownership and management rights remain with the federal government, the Sarawak state government continues to play a strategic role through cooperation under existing agreements, including the Commercial Settlement Agreement (CSA) signed on Dec 7, 2020.

She added that the federal government will continue to strengthen governance and policy implementation to ensure Malaysia’s natural resources are managed efficiently, transparently and in line with national interests, for the benefit of all Malaysians.

PETRONAS and Petros have been at odds in a prolonged dispute over the oversight of oil and gas assets in Sarawak. The state currently holds over 40% of Malaysia’s gas reserves and exports liquefied natural gas (LNG) through contracts managed by PETRONAS.

Prime Minister Datuk Seri Anwar Ibrahim and Sarawak Premier Tan Sri Abang Johari Tun Openg signed a joint declaration in May last year recognising both the PDA (federal law) and the DGO (state law enforced in Sarawak), but negotiations between the parties have reached an impasse.

PETRONAS earlier this month approached the Federal Court to clarify the legal position of its operations in Sarawak, naming both the federal and state governments as respondents.

Ali Biju also questioned why negotiations over a single gas aggregator in Sarawak have been prolonged.

To this, Azalina said the discussions have been ongoing to ensure a comprehensive, sustainable arrangement that aligns with Malaysia’s long-term strategic interests.

She noted that negotiations are conducted in accordance with federal law and the existing legal framework, guided by the joint declaration signed between the prime minister and the Sarawak premier.

Azalina said based on the declaration, PETRONAS continues to perform its roles under the PDA, covering the full value chain from upstream activities to the sale and export of LNG to international markets.

Petros, meanwhile, has been appointed as the gas aggregator for Sarawak’s domestic market, operating under the Sarawak Gas Distribution Ordinance (DGO 2016).

"Existing agreements or arrangements between PETRONAS or its subsidiaries with third parties for LNG sales, from upstream to export, remain valid and unaffected," she said.

“Therefore, investor confidence remains protected, as legal certainty, operational continuity and existing commercial commitments are safeguarded. PETRONAS remains committed to ensuring stability in the energy industry and fulfilling its strategic role in the national energy sector,” she added.

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