Malaysia

Terengganu drops oil royalty suit

By Shannon Teoh
April 23, 2012

KUALA LUMPUR, April 23 — Terengganu has decided to settle out-of-court a RM2.8 billion suit over oil royalties filed against Putrajaya and Petronas when PAS was in power 11 years ago.

According to The Edge Financial Daily today, the state oil company said Terengganu, which Barisan Nasional (BN) regained in 2004, withdrew its civil suit on March 21 but declined to provide details of the settlement.

“We arre not in a position to explain the settlement terms as these are under the purview of the federal government and the Terengganu government,” the financial daily quoted Petronas as saying.

But it also cited a senior lawyer who has been tracking the dispute as saying there will be pressure on the federal and state governments “to disclose the details of the settlement and how the payments due to the state under the royalty payments were spent”.

The recent confidential settlement between Tan Sri Tajudin Ramli and national asset management firm Danaharta over RM589 million owed by the former Malaysia Airlines chief also drew criticism from the public and lawmakers across the divide.

The Edge Financial Daily reported that Terengganu’s legal adviser Datuk Noorhabri Baharuddin declined to comment but another senior state government official said details are being ironed out with the Attorney-General’s Chambers.

Petronas had signed a profit-sharing deal shortly after being incorporated in 1974 where the states of the federation receive five per cent in royalties for fossil fuel discovered in their territories and sold by Petronas.

But when Terengganu fell to PAS in 1999, then prime minister Tun Dr Mahathir Mohamad ordered Petronas to rescind oil royalties in September 2000 on the grounds that the opposition party did not have the ability to manage the funds of over half a billion ringgit annually.

The royalties were instead channelled through wang ehsan (goodwill payments) which opposition leaders and some BN politicians have claimed were mismanaged and directed to prestige projects such as the Monsoon Cup and the Crystal Mosque.

Datuk Seri Abdul Hadi Awang’s administration filed the suit in March 2001 insisting the federal government’s orders were illegal as the state’s agreement was exclusively with Petronas.

The case has not proceeded significantly and in 2009, Putrajaya decided to reinstate the royalty payments to the state which had already returned to BN rule.

But the east coast state still demanded RM2.8 billion in compensation for the nine-year lapse, rejecting the federal government’s offer of RM1.7 billion.

Terengganu received RM7.13 billion in royalties for the 22 years up to March 2000 when Petronas halted the payments.

During this period, global oil prices averaged at just over US$20 (RM61) per barrel but in the last six years, it was US$87.

In August 2010, PAS-controlled Kelantan launched a suit against Petronas for failing to pay royalty for oil and gas extracted within its territory including the overlapping areas with Terengganu, Thailand and Vietnam which has seen joint-development deals with the federal government.

It says it is owed RM800 million annually since 2005 but Putrajaya has disputed the state’s claims over the territorial waters where the joint development projects are located.