Prime Minister Najib Abdul Razak's claim that Kelantan is not entitled to oil royalty for the petroleum and liquefied gas extracted beyond the state's shores might result in a problem for other oil rich states such as Sabah and Sarawak.

Najib announced in Parliament yesterday that the federal government will give 'compassionate payments' to the PAS-ruled state of Kelantan beginning next year from revenue the federal government earns from the state’s offshore oil operations.

Much to the disagreement of members of Parliament from Kelantan, the prime minister stated that Kelantan was not entitled to royalty as the petroleum source was not in their waters.

A state's waters is defined as waters located not more than three nautical miles from the low watermark or offshore. Najib said in petronas petrol oil facility in terengganu kerteh 141108 02 Kelantan and Terengganu’s case, the oil was being extracted beyond this limit.

PAS parliamentarians Hatta Ramli (Kuala Krai) and Khalid Samad (Shah Alam) today said that the prime minister’s announcement had serious implications as oil exploration and extraction in other states were being done beyond the indicated limit and yet these state were getting royalty payments.

“Kelantan and Terengganu are not worthy of receiving royalty but they (the federal government) came short of including Sabah and Sarawak,” said Hatta.

“We know that all the oil production including petroleum and gas, in Sarawak especially, is being conducted beyond the three nautical mile line,” he said.

“This means that the royalty payments these two states have been receiving all this while can now be re-classified as ‘compassionate payments’ despite Petronas clearly recognising Sabah and Sarawak as oil-producing states,” said Hatta to reporters in Parliament.

Alarming interpretation

The implication, he explained, was that while oil royalty payments had to go directly to the Sabah and Sarawak state governments, ‘compassionate payments’ could instead be taken over and be disbursed by federal government agencies.

“Which means that they will be at the mercy of the federal government. In fact they may or may not give (the ‘compassionate payments),” said Hatta.

He said if representatives from the two East Malaysia states did not oil world market 141008 04 question the prime minister’s announcement and are in agreement with his interpretation of Section 144 of the Petroleum Development Act 1974, the states were at risk of having their oil royalty payments being converted to ‘compassionate payments’.

According to the Petroleum Development Act 1974, 50 percent of the oil revenue from an oil-producing state is to be given to that state.

“This also means that oil profits can now be distributed according to the whims and fancies of the federal government,” said Hatta.

Khalid, meanwhile, reiterated that the prime minister’s interpretation of the Act was alarming as oil-producing states will have their oil royalty payments reclassified as in the case of Kelantan and Terengganu.

Khalid said leaders representing the people of Sabah and Sarawak will have failed to defend what is rightfully theirs if they do not speak up on the matter soon.