Any State forming the Peninsular of Malaysia that has any drilling platform at sea not exceeding three nautical miles (5.46km) has the right to claim oil royalty from the Federal Government.
Terengganu and Kelantan are not the only Peninsular states that are gifted with petroleum blocks. As a matter of fact, all states are, including those on the West coast.
Terengganu entered an agreement with PETRONAS on the 22nd March, 1975. In fact, oil was first discovered offshore Terengganu by Esso Exploration Inc in 1973.
Had PETRONAS not entered an agreement with Terengganu, the latter would still be backwards in economic nature, as Esso had only entered a production-sharing contract (PSC) with PETRONAS for winning oil beyond Terengganu’s territorial waters.
This agreement, said the then-Terengganu’s PAS Government Exco member, Mustafa Ali in November 2000, “did not specifically refer to the payments as oil royalty.”
However, the then-PAS-led State Government claimed that a letter in 1987 confirmed the agreement of a “royalty” of some sort. This is the same basis that the PAS-led Kelantan state government is claiming the “royalty” payment based on an agreement the State also signed with PETRONAS in 1975.
The only difference between Kelantan and Terengganu is that, PETRONAS uses the latter as its production and storage base, while there isn’t a single refinery built in the former.
The 1975 agreement between PETRONAS and Terengganu states:
Petronas shall make to the government cash payment in the form of yearly sum amounting to the equivalent of five percent of the value of the petroleum won and saved in Terengganu and sold by Petronas or its agents or contractors during the period provided in Clause 2.
Therefore, Terengganu has a better locus standi than Kelantan does in asking for some form of payment.
The act of PETRONAS giving payment to any state for oil won beyond the state’s territorial waters can therefore be seen as a token rather than a royalty, bearing in mind that anything beyond the three-nautical mile limit belongs to the Federal Government.
Logically, if the oil belongs to the Federal Government, then the state has no right to ask for the payment for transferring to PETRONAS something that does not belong to it. Not unless the state is either Sabah or Sarawak.
There is also no guiding principle anywhere within the Petroleum Development Act that the number must be five percent of the value of petroleum won and SAVED IN ANY STATE as mentioned in the agreement between PETRONAS and Terengganu and Kelantan.
The oil won beyond the territorial waters of these states were never, and will never be the States’ God-given oil and gas as claimed by some.
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