KUALA LUMPUR – The legal dispute between the Petronas and state-owned Petros over the control and regulation of oil and natural gas resources should be settled through the courts to establish a clear and definitive legal framework, two lawyers said.
Datuk Seri Rajan Navaratnam said the parties remained free to negotiate an out-of-court settlement, but doing so could leave fundamental legal and constitutional questions unresolved and vulnerable to future challenges.
He said the dispute centred largely on whether the Malaysia Agreement 1963 (MA63) and Sarawak’s Distribution of Gas Ordinance 2016, or the federal Petroleum Development Act 1974 (PDA 1974), should take precedence in governing the control, regulation and distribution of petroleum and natural gas in the state.
“It does not just concern which Act takes precedence and should apply, but it also overlaps and goes into the realm of the intent, spirit and interpretation of the Malaysia Agreement 1963,” he told Scoop.
Rajan said the dispute could also raise constitutional questions involving equality, territorial rights and the scope of federal powers over Sarawak.
While acknowledging that the Federal Government, Sarawak, Petronas and Petros were legally entitled to negotiate an amicable settlement, he cautioned that such an agreement might not conclusively resolve the underlying legal questions.
“The downside of this would be that the legal issues raised and debated upon would remain open, unresolved and may be revisited and subjected to future challenges,” he added.
Rajan said a negotiated agreement could itself be challenged if it were subsequently argued that its terms were inconsistent with existing laws.
“What if tomorrow somebody comes and challenges it and says, ‘Yes, you all entered into this agreement, but this agreement cannot be valid and binding because it offends the law?’ So, isn’t it better then for the court to decide?” he asked further.
He said the judicial process would ultimately allow the matter to reach the Federal Court, the country’s apex court, where the disputed legal issues could be conclusively determined.
“In this sense, there would be finality and certainty,” he said.
However, Rajan acknowledged that litigation would take time and could prolong the dispute, with possible implications for the commercial interests of both parties.
“It’s basically a balancing act,” he said, adding that a court ruling would nevertheless give both sides a clearer basis on which to move forward.
At the same time, Lawyer Datuk Seri Jahaberdeen Yunoos similarly stressed the importance of distinguishing between resolving the immediate dispute and settling the underlying questions of law.
He said there was nothing preventing the Federal Government, Sarawak, Petronas and Petros from negotiating a settlement, but an agreement between the parties could not conclusively determine constitutional matters or define the extent of federal and state legislative powers.
“Parties can compromise their differences, but they cannot by agreement conclusively determine the meaning of the Federal Constitution or the extent of federal and state legislative powers. Ultimately, those are questions for the courts,” he said.
Jahaberdeen said this was particularly relevant given differing interpretations of the PDA 1974, Sarawak’s laws and the respective licensing and regulatory powers of federal and state authorities.
A negotiated settlement could resolve the immediate disagreement but leave the broader legal questions open to future litigation involving Petronas, Petros, their subsidiaries or even a subsequent government, he said.
“A settlement may therefore solve today’s dispute while leaving the underlying legal questions to arise again in another case,” he added.
Jahaberdeen said a definitive judicial ruling would instead establish the legal boundaries between the Federal Government and Sarawak.
“Once the legal boundaries are established, both sides remain free to negotiate practical and commercial arrangements within those boundaries,” he explained further.
He said the matter should not necessarily be viewed as a choice between litigation and cooperation, as the two could serve different purposes.
“The courts determine what the law is; the parties can then negotiate how best to work together within that legal framework,” he stressed.
Jahaberdeen added that establishing the legal boundaries would ultimately benefit all parties, even if the court’s ruling did not favour one side.
“Sometimes it is better for everyone to know where the legal boundary lies, even if the answer is not the one that one of the parties had hoped for,” he said.
The comments come amid the continuing dispute over the respective powers of the Federal Government and Sarawak in regulating and distributing oil and gas resources in the state.
Both lawyers said a negotiated settlement could address immediate commercial differences, but a judicial determination would provide greater legal certainty and reduce the likelihood of the same constitutional and statutory questions resurfacing in future cases. – September 18, 2026