IT has been more than a year since the joint declaration between Putrajaya and Kuching on the matter of oil and gas jurisdiction and business in Sarawak. Nevertheless, despite much promise of a resolution we have, instead, more confusions.
It is unresolved how Sarawak’s oil and gas ambitions, in the form of state-owned Petros, will square with the national agenda in the sector that is spearheaded by Petronas.
The earnest intention of the joint declaration unveiled in May last year is for a win-win resolution—for Petros, Petronas, Sarawak and of course, Malaysia—yet its implementation is saddled primarily with the complications of a Federal-State relationship.
It is fraught with politics, too. There is some muscle-flexing from Sarawak with the state being a crucial component of the current coalition in Putrajaya and likely to continue to embrace its role as kingmaker of future governments.
There is also some enmity in the federal-state relationship where the Petronas-Petros affair has turned into a contentious catch-all receptacle of grievances by some Sarawakians about everything that is wrong about being part of Malaysia, or so it seems, some 63 years now.
The joint declaration by Prime Minister Datuk Seri Anwar Ibrahim and Sarawak’s Premier Tan Sri Abang Johari Openg was supposed to be the light at the end of the tunnel for a resolution of the rights, role and responsibilities of the oil and gas found in the state between Petronas and Petros. Obviously, it has not resulted in such as seen by the cases that made their way to the courts.
The key issue is the differing interests between Petronas and Petros, and by extension between the nation and state, with arguments resting on competing legal frameworks.
Under the Petroleum Development Act, 1974 (PDA), Petronas is vested the exclusive rights over all petroleum products in the country. Sarawak, on the the hand, is invoking a colonial pre-Malaysia law, which is the Oil Mining Ordinance, 1958 (OMO), and its relatively recent Distribution of Gas Ordinance, 2016 (DGO) to demand full regulatory authority over the state domestic gas resources.
The key point of the joint declaration that seeks to harmonise the federal and state laws, is that it affirms Petros as the sole domestic gas aggregator in the state, responsible for procuring, supplying, and distributing natural gas to domestic industrial and consumer markets within Sarawak.
At the same time, it safeguards Petronas’ upstream role and liquefied natural gas (LNG) exports, so that existing contracts with customers remain uninterrupted. It also affirms its national mandate.
Both Petronas and Petros would also collaborate on joint investments, including in green energy ventures like the new business of carbon capture and storage.
While it is with the best of intentions, the implementation has been rather challenging, hence several court cases surrounding the Petronas-Petros affair.
For Petronas, which has invested over RM110 billion upstream and downstream infrastructure in Sarawak between 2018 and 2024, or half of its total national investment, any uncertainty in how it will be treated would be disastrous. It has already surrendered some of its gas business to Petros, and further disruption will not be good for it.
The court cases notwithstanding, there is now an effort to arrive at a negotiated resolution for a win-win outcome. Two retired judges have been appointed to arbitrate on the issues, and there have been suggestions that the parties should drop their cases.
Nevertheless, given that this one year-plus has shown the inability of parties to come together, presumably, even for the good of the nation, it is rather remote that a negotiated settlement will likely arrive any time soon.
Also, there is also the small issue of the supremacy of the national constitution. Should colonial era laws supersede the federal law?
The most significant development in this Petronas-Petros affair is the escalation by both parties of their cases to the Federal Court. The apex court granted Petronas leave in March this year to hear its argument that Sarawak’s laws, namely the DGO and OMO, exceeded the state’s powers. In response, Sarawak filed a counter-petition challenging, among others, the constitutional validity of the PDA.
This is a significant case, and a ruling by the Federal Court could offer a constitutional test on the laws of the land, and that of states’.
While a negotiated settlement would seem to be a friendlier approach to disagreements within the Malaysian family, it nevertheless seems best that a definitive ruling be accorded that will provide clarity to everyone concerned.
The possibility of different political forces at both the state and federal levels in future may not safeguard any negotiated settlements, but as a law-abiding nation we will adhere to the opinions of jurists.
Not just for Petronas or Petros, but the far reaching impact of what dual legal frameworks, especially when they are competing and contentious, have on business and how states behave in the federal environment requires certainty.
An opinion by the apex court will offer the parties, be they Petronas, Petros, Sarawak or Putrajaya, the clarity and certainty on how to move forward especially on matters requiring investments running into the billions.
It will also provide a precedent opinion that would be applied by other states or companies when operating in a dual legal framework environment.
In fact, a Federal court ruling on the Petronas-Petros issue will be the opportunity for the country to arrive at a more legally robust and lasting working environment for other parties facing similar quandary. – September 8, 2026
Datuk Zainul Arifin is the Chief Executive Officer of Big Boom Media, which publishes Scoop.my