The recent move by the federal and Sarawak governments to reaffirm the primacy of the Petroleum Development Act 1974 (PDA), and acknowledgement of Petroleum Sarawak Bhd (Petros) as the state’s sole gas aggregator was a tentative “step in the right direction”, said Bank Muamalat Malaysia chief economist Afzanizam Rashid.
While there is a measure of consensus on these issues, the devil is in the details and this has apparently spooked some O&G majors, service providers, and investors.
“The details (of its implementation) are still scanty at the current juncture.
“In any negotiation, it would involve making some concessions so that both parties will reach a common goal and can work together,” Afzanizam told FMT.
Prime Minister Anwar Ibrahim told the Dewan Rakyat recently the federal and Sarawak governments had agreed to Petronas and its subsidiaries retaining all existing contractual obligations, both domestic and international.
In clearing the air over Sarawak’s right to exploit its oil and gas reserves, Anwar said the two governments recognised the PDA as a federal law.
Subsequently, Sarawak premier Abang Johari Openg said Petronas and Petros will work together to advance both national and state interests. However, he added a caveat that Sarawak’s interests would take precedence.
He also confirmed that while Petronas’s existing contracts will continue in force, they must align with Sarawak’s regulatory framework and “must not in any way adversely affect the role of Petros as gas aggregator”.
It is not clear how this addendum would affect Petronas’ current export contracts.
To make things murkier, he also said Sarawak intends to request the right to explore for gas in areas off its coast and in the continental shelf.
More certainty needed
Afzanizam said that O&G companies, both local and international, would understandably prefer more certainty with regards to projects in and offshore Sarawak.
“It is paramount for investors to understand the parameters especially in areas which require approval from the relevant authority. This is especially true when competition to attract foreign investors goes beyond tax incentives. It also includes the degree of bureaucracy.
“Therefore, speedier approvals and how soon a project can be started is equally important and that would mean investors want greater clarity from the authorities,” he added.
The current uncertainty in Sarawak’s O&G sector is exemplified by a lawsuit filed by British oil firm Shell’s Malaysian unit, Shell MDS (Malaysia) Sdn Bhd, against both Petronas and Petros.
In January this year, the High Court granted an interim injunction to Shell MDS, temporarily restraining millions in payment for natural gas supplies in Bintulu.
Shell Malaysia, which has operated in Sarawak for 115 years, was concerned about the risk of disruption to the supply of gas to its gas-to-liquids plant, which Shell MDS manages in Bintulu.
Things came to a head last September when Shell MDS received invoices from both Petronas and Petros for August’s gas supply. Shell MDS contended the conflict over gas distribution rights in Sarawak might lead to double payment for gas and operational disruptions in Bintulu.