The federal government will give 'compassionate payment' from offshore oil operations to the PAS-ruled state of Kelantan beginning next year, Prime Minister Najib Abul Razak announced in Parliament today.

However, he denied that the payment was related to the possibility of a snap polls being called.

NONE "What's that got to do with election? What snap election?" he retorted when the question was posed to him during a press conference later.

"To ensure that the money is enjoyed directly by the people of Kelantan, the

allocation will be in the form of development projects and poverty eradication

programmes and will be channelled directly by the federal government after

discussion with the state government," he said.

Earlier, the prime minister told the Dewan Rakyat that the government has reviewed in detail the claim for oil royalty by the Kelantan state government.

From the legal aspect, Najib, who is also finance minister, said both Kelantan and Terengganu were not entitled to make such a claim.

He said based on the law, Kelantan and Terengganu were only entitled to claim royalty if there was a petroleum source in their waters.

A state's waters was defined as waters located not more than three nautical miles from the low watermark or offshore, he added.

Fair and equitable consideration

"Currently there is no petroleum production in the waters of Kelantan and Terengganu. So from the legal aspect, the Kelantan state government is not entitled to claim royalty and neither is Terengganu.

"Although this legal provision is clear, the federal government had previously given compassionate payment to Terengganu by taking into account the petroleum production outside the state's waters, also based on development and the income of the people," he added.

The federal government had been paying oil royalties to Terengganu until PAS took over the state in 1999. Then premier Dr Mahathir Mohamad stop the payments and instead set up a separate fund called 'wang ehsan' which is controlled by the federal government.

The money was later reverted to state government control after BN regained the state.

petronas Najib said that the compassionate payment will be disbursed to Kelantan through development and poverty eradication projects.

Najib was responding to questions from PAS MPs Salahuddin Ayub (Salahuddin Ayub), Siti Zailah Mohd Yusoff (Rantau Panjang), Kamaruddin Jaffar (Tumpat), Mohd Hatta Md Ramli (Kuala Krai) on when the oil royalty claims by the Kelantan state government will be paid by Petronas.

PAS MPs: 'We are not begging'

However, PAS MPs from Kelantan saw red, with Salahuddin asking why Kelantan was slated for charity when the BN-ruled state of Terengganu received royalty.

NONE "Under Section 144 of the Petroleum Development Act 1974, the royalties paid to Terengganu are not special allocation. How can the government give royalty to Terengganu?

"The people of Kelantan are not begging. The people want their rights," he stressed.

Responding, Najib urged the opposition not to politicise the issue.

"What is important is that we have prepared the allocation for the benefit of the people... I assure you that the Kelantan government will profit (from the payment) just as Terengganu," he said.

A heated argument then unfolded as PAS MPs bombarded the prime minister with questions.

Kamaruddin asked why the federal government suddenly decided to offer the payment after all these years, and wanted to know what guarantee is there that the money will reach the state government.

To which Najib replied: "All these years, the Kelantan government did not have the right to accept the money!"

Transparent talks will be held

During his press conference later, the premier once again stressed on the benefits the payment will bring to the people in the state.

Najib also explained that the amount of the compassionate payment will "depend on the level of off-shore production."

"But the initial (gas and petroleum) production will not be that high. The important thing one has to realise is that it is a decision made to help the people of Kelantan," he said.

NONE According to Najib, Kelantan is getting more than RM7 billion in compassionate payment under the Ninth Malaysian Plan "even without this issue raised."

"So this is an additional amount that we will give the Kelantan people at the start of next year," he added.

Najib said the amount of production will be calculated using the same principle used by other oil-producing states including Terengganu.

To make this happen, he added, the federal government will be in talks with the Kelantan government to sort out the matter.

"We will discuss this with the Kelantan government and we will make it (the discussion) very, very transparent," he said.

oil world market 141008 04 The PAS-led state government has been seeking RM1 billion in oil royalty, claiming that the money constituted five percent of the earnings from petroleum and liquefied natural gas extracted from offshore Kelantan since 2004.

The federal government earlier argued that Kelantan was not entitled to the oil royalties as the areas are not located within the state boundaries.

According to Deputy Finance Minister Awang Adek Hussin, one was in international waters close to Vietnam and 250km off the Kelantan coast while the other was in the common waters of Malaysia and Thailand 150km offshore Kelantan.

The Exclusive Economic Zone (EEZ) of a country extends up to 200 nautical miles (about 370km) offshore.

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