By Lian Cheng
“With the additional income from SST and other economic generators, we have been able to implement countless projects worth billions of Ringgit that will benefit the ‘rakyat’. With better deals from the Federal government through MA63, we will be able to develop Sarawak much faster.” Abang Johari (October 12, 2024)
OVER the past 60 years since Sarawak joined Malaya, Singapore, and Sabah to form the Federation of Malaysia, the State has played a crucial role in fuelling the nation’s economic growth. Contributing an estimated 60 per cent of Malaysia’s total oil and gas (O&G) output, Sarawak’s vast fossil fuel resources have been a driving force behind the country’s development. Disappointingly, a majority of the revenue generated from Sarawak’s O&G has been channelled towards the development of Peninsular Malaysia, while Sarawak itself, despite its immense natural wealth, remained underdeveloped and underserved.
The late Pehin Sri Adenan Satem, upon ascending to the role of Chief Minister of Sarawak in 2014, ushered in a wave of change by pushing forward a motion to request a 20 per cent royalty from the Federal government. The motion was tabled and passed at the Sarawak Legislative Assembly. Despite the subsequent persistent negotiations with its federal counterparts, the push for a higher royalty remained unresolved until the time of Adenan’s passing.
When Premier Datuk Patinggi Abang Johari Tun Openg took the helm of Sarawak, he continued to push forward the tide of change, with one of his first initiatives focused on reviving Sarawak’s rights to resume more control over its O&G resources, which for decades have been under Federal jurisdiction. This Federal control was made possible through the passing of the Petroleum Development Act 1974 (PDA74) whereby Petroliam Nasional Berhad (PETRONAS) was vested with the entire ownership and the exclusive rights, powers, liberties and privileges to explore, exploit petroleum resources onshore and offshore Malaysia.
The Sarawak Oil Mining Ordinance 1958
To secure a larger share of Sarawak’s O&G revenues, Abang Johari did not continue with the request for a 20 per cent O&G royalty. Instead, he identified a pre-existing piece of legislation that predated the PDA74—the Sarawak Oil Mining Ordinance 1958 (OMO58). On several occasions, he described this idea as a “divine inspiration”, a form of spiritual guidance revealed to him through prayer and reflection.
On July 10, 2018, the Sarawak Legislature took a historic step by passing the Oil Mining (Amendment) Bill 2018. This legislation strengthens Sarawak’s regulatory control over the exploration, prospecting, and mining of petroleum resources, both onshore and offshore, within the State’s continental shelf. When tabling the Bill, the then Minister of Industrial and Entrepreneur Development, Datuk Amar Awang Tengah Ali Hasan said the amendments would ensure that all parties in O&G operations within Sarawak complied with the State’s laws.
He cited Item 2(c) of State List (List II) of the Ninth Schedule of the Federal Constitution which states that “Permits and licenses for prospecting for mines; mining leases and certificates” are under the State’s jurisdiction and Section 2 of the Sarawak Land Code which affirms that Sarawak’s jurisdiction extends to its continental shelf. (The Ninth Schedule of the Federal Constitution outlines the legislative lists, dividing law-making powers between the federal and state governments. It includes the Federal List (List I), State List (List II) and Concurrent List (List III), specifying which matters fall under the exclusive jurisdiction of each.)
OMO58 versus PDA74
The Sarawak Democratic Action Party (DAP) had raised concerns that the OMO58 was inconsistent with the PDA74 and would attract consequences under Article 75 of the Federal Constitution which stipulates that in the event of inconsistency between Federal and State laws over matters in the Concurrent List, such as water supplies or housing, federal law shall prevail.
However, Awang Tengah pointed to Item 8(j) of the Ninth Schedule (Federal List) and again Item 2(c) of the State List, stating that any law made by Parliament on petroleum development has to be read, subject to the competency of the State Legislature to make laws on permits and licences for prospecting for mines, mining leases and certificates. On October 8, 2018, Datuk Sharifah Hasidah Sayeed Aman Ghazali, then Assistant Minister of Law, State-Federal Relations and Project Monitoring, clarified that Sarawak’s position was not a demand for 20 per cent royalty of profits from PETRONAS. Instead, the State was seeking total control over its resources, as outlined under the amended Oil Mining Ordinance (OMO) 2018.
With that, Sarawak officially imposed its State Sales Tax (SST) on petroleum and petroleum products effective January 1, 2019, as part of the Sarawak government’s efforts to increase its revenue. The SST applies to the upstream O&G sector, covering petroleum products extracted within Sarawak’s territorial waters. The tax is set at five per cent of the value of petroleum and its derivatives produced in the State. Following the imposition of SST, Sarawak received its first payments from PETRONAS in August 2019.
Sarawak’s Rising Revenue
The first payment was part of a negotiated agreement between Sarawak and PETRONAS. The full amount for 2019 was RM2.96 billion, which was paid in 2020 in instalments. From 2019 to 2023, Sarawak has accumulated a total of RM15.8 billion in SST from its petroleum and petroleum products.
This tax has become an important source of income for Sarawak, aligning with the State’s broader efforts to assert greater control over its natural resources and increase its financial autonomy. By 2024, the Sarawak government projected a revenue of RM14.2 billion for 2025. This includes RM6.2 billion from tax revenue, which accounts for 44 per cent of the total estimated revenue. Of this, RM5.1 billion is expected to come from SST, with RM4.1 billion anticipated to be generated from crude oil, liquefied natural gas (LNG), and other petroleum products.
PETROS to Manage Sarawak’s O&G
At the same time, Abang Johari took steps to establish Sarawak’s own local O&G company to manage its resources. He first shared his vision in June 2017, and by March 6, 2018, Petroleum Sarawak Berhad (PETROS) was launched. PETROS was created to ensure greater control and proper management of Sarawak’s O&G resources. Its primary function is to manage and oversee the State’s O&G assets, particularly in the wake of Sarawak’s push for greater autonomy over its natural resources.
The establishment of PETROS also aims to strengthen Sarawak’s position in the oil and gas sector, ensuring that the State benefits more directly and equitably from its resources. It operates in partnership with other industry players, including PETRONAS, to explore, develop, and manage O&G reserves within Sarawak’s jurisdiction.
The content featured here is an excerpt from the book “Rise of Sarawak: Abang Johari’s Era of Transformation”, published by Sage Salute Sdn Bhd.
