Sarawak challenges Petroleum Development Act 1974

Petronas Twin Towers — DayakDaily.com file pic. // Photo: Pixabay

KUCHING, Dec 20: The Sarawak government is challenging the constitutionality of the Petroleum Development Act 1974 (PDA 74), among its arguments, in the suit to claim RM1.3 billion of unpaid State Sales Tax and penalties from Petronas.

In a statement today, the Sarawak legal team said the civil suit has been fixed for hearing on Jan 13, 2020 at the High Court in Kuching.

The statement said the application filed by the Comptroller and the State Government holds that PDA74 is null and void by reason that it contravenes Article 13(2) of the Federal Constitution as being a law which seeks to deprive Petronas of property, namely Petroleum, found on State land within Sarawak, without adequate compensation.

The application filed further claims that if PDA74 is null and void, then Section 2 of PDA 74 which allows Petronas to mine Sarawak will cease to take effect.

It further asserts that apart from PDA 74, Petronas has to “comply with other written laws, including but not limited to the Oil Mining Ordinance 1958 and the Land Code of Sarawak which regulates the exploration, exploitation and mining of petroleum in Sarawak and the use and occupation of land for such purposes respectively.


“Among others, we are also seeking whether the Instrument titled ‘Grant of Rights, Liberties and Privileges in respect of Petroleum’ in the schedule of PDA 74, is unconstitutional, invalid, null and void,” said the statement today.

The statement said the application also questions whether the Petroleum Agreement or the cash payment agreement dated March 27, 1975 was “valid and subsisting”.

“We also seek the Court to decide whether upon a proper interpretation of Article 95B(3) of the Federal Constitution read with Article 74(3); Article 95B (3); firstly prohibits or disentitles the State Legislature from imposing state sales tax on petroleum products and secondly allows for State Sales Tax to be imposed on petroleum products where there is already a federal sales tax levied on petroleum products.”

The application also hope to determine whether section 28 of the State Sales Tax Ordinance 1998 and the certificate issued hereunder is unconstitutional for contravening the guarantees for fair trial access to justice and due process under Articles 5 & 8 of the Federal Constitution or violates the doctrine of separation of power.

“These questions have to be decided because Petronas in their defence pleaded that because of the Petroleum Development Act, 1974 (PDA) and the Vesting Instrument which ‘vested’ ownership of oil and gas in Sarawak territory on Petronas and the cash payment of five per cent made to the State since 1976, Petronas does not have to pay any other taxes, such as SST (State Sales Tax) to the State Government.

“The determination of these questions would decide if the vesting of petroleum under the PDA was constitutional or null and void, and Petronas’ liability to pay SST to Sarawak Government.”

The Comptroller of the State Sales Tax, Sarawak and the State Government have filed a Writ of Summons and Statement of Claim at the High Court registry here on Nov 21.

The claim against Petronas was to recover the 5 per cent State Sales Tax on petroleum and petroleum product which has been imposed by Sarawak under the Sales Tax Ordinance 1998 which is made effective beginning of this year.

Except for Petronas, other oil companies operating in Sarawak such as Murphy Oil and Pertamina have paid their dues.—DayakDaily