Kelantan says Putrajaya meddling in oil royalty suit

By Shazwan Mustafa Kamal, The Malaysian Insider

The federal government has filed an objection to Kelantan’s suit against Petronas, Datuk Husam Musa said last night.

Husam, who is in charge of the Kelantan government’s economic and financial planning, said the application for the objection will be heard this coming January 27.

“Originally the state only named Petronas as the sole defendant; I guess the federal government was not happy with that,” claimed Husam.

The Kelantan state government claims Petronas owed the state RM800 million per annum from the Kelantan-Thailand offshore area since 2005.

The Kelantan government filed a suit last year at the High Court here against the oil giant for breaching the Petroleum Development Act (PDA) 1974 by failing to pay the state oil royalties.

Petronas and Putrajaya have continued to argue that Kelantan is not entitled to oil royalties, preferring instead to offer only a token goodwill payment.

The Kelantan administration, however, contends that under the PDA, Kelantan Petroleum Agreement and Kelantan Grant, Petronas is obliged to make cash payments twice a year for all oil obtained from Kelantan’s offshore.

The PDA states that in return for vesting of petroleum ownership in the company, Petronas would pay cash payments to the federal government and state governments where petroleum was found.

On May 9, 1975, Petronas had entered into an agreement with Kelantan where it agreed to make cash payments yearly amounting to the equivalent of five per cent of the value of petroleum obtained onshore and offshore Kelantan. In consideration of Petronas’s payments, it was granted exclusive rights and privileges of obtaining petroleum in the state under the Kelantan Grant.