National petroleum body Petronas acted discriminatorily when it denied Terengganu monies derived from oil revenues, the Kuala Lumpur High Court was told today.

Despite its failure to make the said cash payments to the Terengganu state government, Petronas continued to make similar cash payments to other state governments and in particular to the state governments of Sabah and Sarawak, said the Terengganu state governments lawyer Tommy Thomas.

Such conduct on part of Petronas constitutes unfair discrimination which has resulted in severe financial loss to the state government and will continue to do so, Thomas told High Court judge Arifin Zakaria.

Thomas said Petronas had since September 2000 failed to make payment on some RM850 million worth of revenue from oil extracted off the coast of Terengganu.

The legal wrangle erupted when the federal government at the time proposed to pay wang ehsan (goodwill money) instead of oil royalty to the state government. The proposal meant that the revenue would be diverted from the state coffers to federal agencies.

The Terengganu government then filed a suit filed on March 8, 2001 to contest the move which it said reneged on an agreement made in March 1975.

In the agreement, the federal government was to pay the Terengganu government a five percent royalty of its total revenue from oil extracted off the states coast.

Bad faith

Thomas also stated that the government had acted in bad faith when it directed Petronas to desist from making any more payments to the state government.

According to the Petroleum Development Act 1974, Petronas is subject to the control and direction of the prime minister who may from time to time issue such direction as he may deem fit.

The federal government, acting through the prime minister and members of the cabinet, brought to bear the issue of party politics in the wake of the 1999 general elections results which saw the replacement of the BN [Barisan Nasional] government of Terengganu with that by members of a rival political party, PAS, said Thomas.

The actions of the federal government and its agents and servants were oppressive, arbitrary or unconstitutional, he added.

Thomas also questioned why Petronas, being a multinational corporation, could not honour a contract with the Terengganu state government when it could do so with other countries.

However, he revealed that the basis of the suit did not hinge entirely on the contract itself but could stem from the doctrines of Estoppel and legitimate expectation.

The Estoppel doctrine is a bar or impediment which stops a person from asserting a fact or prevents one from denying it.

In this case, Thomas said, Petronas cannot deny that until recent years, it had been making payments which amounted to more than RM7 billion over two decades.

You (Petronas) paid for 22 years, [so] you are stuck [to it], he added.

Not sovereign state

However, senior federal counsel Azahar Mohamed while arguing for the government, repeated their stand at yesterdays hearing that Terengganu was not a sovereign state with power to claim ownership over oil located in its continental shelf.

Legislation did not confer rights upon the Terengganu state government, nor did it have the power to ratify international conventions which would have given it such rights, Azahar said.

At the end of the hearing, justice Arifin announced that he would be giving his ruling on the preliminary issues at a later date.

Should the High Court judge decide the preliminary objections in favour of the federal government and Petronas, then the suit filed by the state of Terengganu would be thrown out of court.

However, should Arifin decide in favour of Terengganu, the case would then go for a proper court hearing.

Thomas was assisted by S Selvaratnam while Azahar was assisted by Mary Lim and Azizah Nawawi.

Petronas was represented by Cecil Abraham, Rishwan Singh and RS Nathan.