Putrajaya Says Petronas Not Legally Bound To Pay East Coast States

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KUALA LUMPUR, Sept 24 – Petronas is not legally bound to make cash payments from petroleum in any state in the East Coast of Peninsular Malaysia.  This is because, as of today, no oil has been found in the east coast states of Peninsular Malaysia which include Pahang, Kelantan dan Terengganu. It was based on the term “in the state” in the Settlement Agreements which refers to state land and state territorial waters of not more than three nautical miles measured from the low-water line offshore from the state coastline. This definition is based on international and domestic laws, according to the Finance Ministry in a statement issued today.

Under the Settlement Agreements Petronas signed with Kelantan, Terengganu and Pahang, the states receive only 5% of the value of the petroleum dicovered in their territories and produced by the company. The government has decided today to announce the findings of the Special Committee to Determine Cash Payments from Petroleum in the East Coast of Peninsular Malaysia to the rakyat. The Finance Ministry said this was to enlighten the rakyat and prevent them from being fed with incorrect and misleading information over the claim. This has to be done to protect national interests so that the rakyat could understand the government’s stand based on a study carried out by a special committee to cast aside various accusations and misconceptions levelled against the government.

The special committee had briefed the Cabinet on its findings on August 28 last year. It was set up to dwell on questions set out in the Terms of Reference set by the government and had submitted its views to the federal government. According to the ministry, the special committee, headed by a former chief justice, was not set up under any law and its findings were not legally binding on the Federal government, state governments and Petronas. Members of the special committee will have to give their views freely, fairly and not in favour of any party.  Three of the six members of the special committee represent Kelantan and Pahang while another is supposed to represent Terengganu, apart from a former chief secretary to the government and an expert in constitutional law.

However, Terengganu did not name any representative to the special committee while the Kelantan representative was not present when the committee finalised its report and findings. The ministry said the special committee was given the mandate to consider two key questions. The main question is to identify whether there are states have the right under the law to receive cash payment from petroleum revenue in the east coast of Peninsular Malaysia. It is also to determine the formula and method for the cash payment to the states involved. The ministry noted that, however, the findings of the special committee are among the issues being challenged in the court, which has not ruled on the matter as the Kelantan state government’s legal battle over unpaid oil royalty payments is ongoing. Any decision or finding of the special committee should therefore not be construed as having an influence on the court’s decision of the case.

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