Dying pleas of Tun Razak for 5 pct cash payment and Petronas

I.History

Under the 4 dying pleas of PM Tun Razak, struck down by serious terminal leukaemia, predicted to survive till the end of December 1975 by the Harley Street Doctors, London, Tun Rahman, the YAB Chief Minister of Sarawak then, as the Head of BN Sarawak under extreme pressure of human compassion and political alignment to BN Federal most reluctantly succumbed to PM’s dying pleas on grounds of national interest.

However there were other considerations. Originally Tun Rahman decried publicly in the media when he knew the Bill on the Petroleum Development Act 1974 (PDA 1974).

“I then instructed the State Attorney General [Datuk Jemuri] to write to the Federal AG to say that if PDA (1974) Bill is not withdrawn, I would take the Federal Government to Court!”, fumed Tun Rahman who never requested to form Petronas nor asked only for 5 per cent cash payment. With respect, Tengku Razaleigh (Kuli) should not rewrite ‘history’ incorrectly in the Daily Express in Sabah.

“What is this taking the Federal Government to Court?” demanded Tun Razak.

“Sarawak oil and gas belongs to Sarawak” explained Tun Rahman. “Sarawak’s position would be very different from Kelantan and other States of Malaya…” Only Sarawak and North Borneo (Sabah) have the respective British Order in Council 1954 (OIC) on respective (Alterations of Boundaries) where the boundaries of the respective continental shelf would be

600 feet or operational depth, and(laterto 350 nautical miles under UNCLOS 1982). Those OIC were 3 years before Merdeka of Malaya on 31st August 1957 which never had that OIC, unknown to Tan Sri Kadir, the Federal AG then.

Indeed Tun Razak and the Federal AG were convinced that Sarawak would easily win the Declaratory Judgment in the Privy Council, still allowed then, with a strong Bench in the Privy Council of Lord Wilberforce, Lord Fraser and Chief Justice Barwick of Australia often hearing the appeals from the Commonwealth after reading the legal opinions of the QC from London, the ex-federal AG of Australia, an expert on the international law of the sea and natural resources from Cambridge University, and a retired Judge.The PDA 1974 was ultra vires, void basically against the 7 entrenched federal provisions of the Federal Constitution (7 FCs) and illegal, unenforceable against the 7 protective laws of Sarawak (7 PMs).

So PM Tun Razak proposed the 5 per cent cash payment and Petronas to be the national oil corporation under his dying pleas to Tun Rahman below.

II. The Four Dying Pleas of Tun Razak to Tun Rahman.

(i) 1st Plea: Sarawak should have 5 per cent cash payment for its O&G based on their sales prices instead of royalty.

‘Cash payment’ must replace the definition of royalty in Item 3 Part V 10th Schedule of the FC to mean 10 per cent ad valorem (production costs at site).

That 5 per cent was never intended to be reasonable nor adequate compensation money under Article 13 of the FC, applicable only to the States of Malaya, as compulsory acquisition was absolutely forbidden under Articles 76(4), 95(D), Items 2(d) and 2(a) of the State List. Sarawak has the exclusive right to issue all the exploration licenses and O&G’s leases (PSCs or RSCs) under Item 2(c) of State List and 8(j) of the Federal List, under the 9th Schedule, reinforced by the amended Sarawak Oil Mining Ordinance 1958 (OMO 1958) and Sarawak Land Code 1958 (SLC 1958) (rendering leases invalid unless registered under Section 112) with 7PMs and 7FCs.

(ii) 2nd Plea: Tun Razak accepted and pleaded with Tun Rahman to abort the intended Declaratory Judgement in the Privy Council that the PDA 1974 would be unconstitutional and void, illegal and unenforceable.

So, Tun Razak assured Tun Rahman under Article VIII of MA 1963 that in consideration of aborting that appeal to the Privy Council on the PDA 1974, the Federal Government, not Petronas which pays the official 5 per cent cash payment under Sarawak Oil Agreement of 27th March 1975 (SOA), would pay an additional, unofficial but orally 5 per cent cash payment as additional fund, not grant, for development.

Tun Rahman requested for a side letter on that additional 5 per cent cash payment. Tun Razak refused because that could be leaked out to Tun Mustapha and Tun Fuad who would also ask for the same. PM explained that Sabah has already 40 per cent rebate as grant back to Sabah for all Federal Incomes received from Sabah. Sarawak was not entitled under Item 2(1) of Part IV, 10th Schedule.

However, in return for that unofficial additional 5 per cent cash payment Tun Razak wanted Tun Rahman to execute the vesting instrument without DUN’s approval to Petronas by the Sarawak Government stipulated under Section 2(2) of PDA 1974, namely to assign all Sarawak’s rights of its O&G in perpetuity, allowed under Section 13(1)(a) of SLC 1958, because Tun Razak wanted to show it to Tun Mustapha and Tun Fuad while trying to convince them that Sarawak has already executed on the 5 per cent cash payment and that Sabah legislature should also accept 5 per cent and amend Section 48 of the Sabah Land Ordinance from 99 years to 999 years in perpetuity.

In fact Tun Razak and

Tun TSS had deliberately misrepresented to Tun Rahman and DCM Tan Sri Stephen Yong KT (Tan Sri SY) negotiating for Sarawak well before the execution of that vesting instrument and SOA that Sabah had already agreed to the cash payment of 5 per cent which was untrue. But Sarawak negotiators genuinely believed that and were thereby misled to agreeing on that 5 per cent.

The Memoirs of Tan Sri SY, ‘A Life Twice Lived’ on page 132 corroborated that:

“Our position in negotiations concerning the oil and gas royalties was considerably weakened when the Chief Minister of Sabah, Tun Mustapha, agreed to a paltry

5 per cent settlement [cash payment].”

Tun Mustapha and Tun Fuad countered 5 per cent as ‘pittance’.

Both PM and Tun Rahman knew that the PDA 1974 and the vesting instrument without DUN’s approval were also unconstitutional and void, illegal and unenforceable; one day those issues would have to be settled in court. Tun Razak further assured Tun Rahman that the cash payments would be increased when Petronas would be cash rich later, unfortunately used mainly for ‘salvaging’ or developing federal projects.

YAB Tun Fuad resisted until his fatal air crash on 6th June 1976 with investigation report still gagged. Luckily just before that flight Datuk Harris requested Tengku Kuli and Tun Rahman to sit in the other NOMAD aircraft ‘to see his cattle farm in Banggi’. So Tan Sri Harris Salleh as the new Chief Minister executed the Sabah Oil Agreement on the 5 per cents cash payment on 14th June 1976, 8 days later or 6 months after Tun Razak’s death on 14th January 1976.

(iii) 3rd Plea:The Federal Government and Petronas must have all the balance of the proceeds after the cash payments and contractors’ portions, absolutely necessary needed to fulfil the Federal and other States’ needs and the total commitments under MA 1963, corroborated by the Memoirs on page 132.

“The Prime Minister then appealed to Sarawak to follow suit [Untrue representation of 5 per cent agreed by Sabah] on the grounds of ‘national interest,’ arguing that the Malaysian Royal Navy would have to bear the expense of safeguarding the continental shelf. We reluctantly accepted the terms, and to many Sarawakians this was tantamount to giving away our precious natural resources [crown jewel].”

(iv) 4th Plea: The 4th plea was to make Petronas as the national oil corporation to kick start the O&G industry on grounds of national interest as Tun Razak wanted to transform Malaysia to a developing nation in The Third World under the PM’s sole control under PDA 1974, but outside the hands of the civil servants, to be run by oil professionals. That was a wise critical move for the success of Petronas.

But now sections 6 and 7 of PDA 1974 must be amended to make Petronas less political but more commercial

Page 132 of the Memoirs has confirmed that: “I remember an incident in one of the state supreme council (state cabinet) meetings on May 23rd 1974, when Abdul Rahman flared up on being told that federal treasury had not sent the necessary funds for security operations in Sarawak. He said that if the funds did not arrive by May 27th, he would not support the formation of the Petroleum National Berhad (Petronas), and would let Chong Hon Ngian, the then secretary general of the treasury, take over the security situation in Sarawak. That really got the bureaucratic wheels in motion and the funds came in on time.”

III. No answer to dying plea of national interest by PM

When the dying Prime Minister appealed on grounds of national interest it would be extremely difficult for Sarawak negotiators to reject the 4 dying pleas. So they reluctantly accepted that in considerations of the followings:

(i) 4 dying pleas of PM of the nation and Federal BN Chief on political alignment, human compassion and grounds of national interests.

(ii) 5 per cent cash payment for Sarawak (Should be quarterly not yearly nor 6 monthly) officially from Petronas under SOA of 27th March 1975.

(iii) An additional 5 per cent cash payment or 50 per cent from the Federal Government (not denied) out of the 10 per cent gross to be paid by Petronas before cost recoveries as the unofficial payment for aborting the Declaratory Judgement of PDA 1974 in the Privy Council, assured by PM under Article VIII of MA63.

Tengku Razaleigh has unfortunately glossed over this unofficial 5 per cent cash payment as the official 5 per cent, as if there was only 5 per cent cash payment paid by Petronas directly.

(iv) Future State Sales Tax (SST) would be enforceable on O&G and all petroleum products say 5 per cent to 10 per cent [No limit under Item 7 Part V 10th Schedule], as an alternative if the Federal Government refuses to increase the cash payment (royalty).

Tun Rahman and Tan

Sri Adenan were briefed on this above-mentioned SST’s flexibility by the writer. For the oral history, the writer has legally verified numerous times with Tun Rahman on the PDA 1974 and part payments of the unofficial 5 per cent cash payment before his death on our numerous golf trips, meetings in his house, corroborated by Tun TSS, Tan Sri SY and Tan Sri Kadir.

During the colonial days when ‘God Save The Queen’ was played at the end of the party, everybody has to go home as a convention.

Similarly, when the ‘toast of national interest’ was raised in the meeting, that discussion must end.

IV. Tun Rahman really believed that the Federal Government would fulfil that oral assurance on the additional and unofficial 5 per cent cash payment.

Indeed Sarawak would get 10 per cent cash payments and 5 per cent SST under State Sales Tax Ordinance 1990 totalling 15 per cent. After a few cash payments, the Federal Government stopped that additional and unofficial 5 per cent cash payment though Petronas made billions. Tun Razak did not foresee that the Federal Government would renegade on that.

V. Shares of Petronas were thrown in as a mere red herring, a ploy to give hope only.

“During the period when I was part of the coalition government in Sarawak, our relationship with the federal government was generally fairly good. Obviously there were some conflicting views, and one of these concerned the ownership of our oil and gas reserves, most of which are found on the continental shelf off the coast of Sarawak. We in Sarawak maintained that all the rights belonged to the state, but the federal government, for obvious reasons, thought otherwise. We put up a strong fight, to extent of referring the issue to court and obtaining the opinion of a Queen’s Counsel from Britain.

This matter was partially resolved by a proposal to share the royalty from oil and gas extracted, with Sarawak to be given a certain amount of equity in Petronas when it was established. Abdul Rahman Yakub and I had numerous discussions with Prime Minister Tun Razak and Finance Minister Tan Siew Sin about the amount of royalty, but we made little progress.”: on page 132 of the same Memoirs.

a. Tun TYT Pehin Sri Taib who was the pertinent federal minister was told by PM not to get involved on the negotiations on Sarawak O&G. Petronas’s/ Federal Government’s bonanza profits/revenues could never be shared nor public listed after OPEC with oil tripled to around US$18bbl in 1973/75 up to US$120bbl in 2000 with about 35 per cent split barrels (s/b)/share profits (sp) of O&G fraudulently omitted in the Petronas annual audited accounts filed with ROC/SSM. In 2017, there was a confirmed, undenied colossal discrepancy of RM19.298 billion net profit, when Petronas is a public company.

VI. Why the assurance of all offshore oil revenues of Sarawak O&G was unfulfilled by the Federal Government and

Petronas?

In early 1966, because of the vast deficits in the federal budgets, that was why Tun TSS and Tun Razak, assured Sarawak through YAB Datuk TawiSli, to inform the Sarawak Cabinet that all the offshore oil proceeds of Sarawak would be given to Sarawak provided the Sarawak Capitation Grant of RM27 million [actually only 10 per cent less than the previous year is allowed under Article 109(1) of the FC] was to be reduced to RM12 million and the Special Grant (balancing) of RM5.8 million to be waived. This was confirmed in ‘The Rising Moon,’ by Michael Leigh.

VII. In 1969, that Annual Special Grant of RM5.8 million was abolished but not replaced by another grant under Article 112D(1) nor any offshore O&G proceeds was received by Sarawak under the above mentioned assurance.

The Annual Escalating Grant was revised once with the last payment of RM16 million in 1973 and not renewed every 5 years nor at all till today.

“I have to grind and bear, cut here and patch there... never enough for the total deficit budgets,” as Tun Tan Siew Sin had confirmed to the writer. Sulu attacks in Sabah were costly. Traditional exports and sources of revenues without O&G would be a foregone conclusion, namely unable to build up Malaysia as today, but at the price of neglecting the development of the Borneo States until recently.

In fact the Petroleum Mining Act 1966 and the Continental Shelf Act 1966 [repealed in 2011] were passed as the first move to take over unconstitutionally and illegally the dominion (ownership) of Sarawak’s O&G fortified by Emergency Legislations No.7, 10 and 11 1969 with PDA 1974, Act 354 1976, EEZ Act 1984 and the Territorial Sea Act 2012 (TSA). The Federal has only imperium, administrative and supervising powers, though it has sovereignty in international level between nations only. The communists were in the Sarawak jungle not inside nor outside its territorial waters.

So, the Sarawak negotiators obtained for Sarawak, namely (a) and (b):

a) The 5 per cent cash payment based on the selling price of O&G

b) The 5 per cent oral unofficial and additional cash payments which Tun Razak refused to put that assurance under a side letter. But this assurance is still enforceable under Article VIII of MA 1963, Customary International Law and Article 3(a) of the Vienna Convention on the Law of Treaties 1959 as MA 1963 is also a multilateral treaty. Proof of past payments and receipts are traceable under equity of tracing and Discoveries of documents in court. The balance is over RM25 billion accruing daily at about 858,000 bbl/boe.

They knew Sarawak is always entitled to impose 5 per cent to 10 per cent SST on Sarawak’s O&G and Petroleum products, recently confirmed by the courts. That is why the Federal Government had to fudge Article 95B(3) and Item 8(J) of the Federal List 9th Schedule (unchallenged).

Now the restitution of the short-changed cash payment of about 35 per cent SB/SP on Sarawak’s O&G amounting to billions excluded in the Petronas accounts filed in ROC/SSM for 44 years with discounts and staggered payments would be in order.

In brief Sarawak would have attained 15 per cent (Cash payments 10 per cent, the short-changed quantum plus 5 to 10 per cent SST) totalling 15 to 20 per cent quite close to 20 per cent cash payment (royalty) unanimously endorsed by DUN under YAB Tok Nan’s watch and knowledge, subject to Federal Government’s agreements or court decisions.