Will China allow Sarawak the 20% oil royalty?

China's military maneurvres affecting neighbouring nations and region the past 40 years are centred on hydro-carbon deposits

China’s military maneurvres affecting neighbouring nations and region the past 40 years are centred on hydro-carbon deposits

It is amazing Sarawakian elected representatives are focused on getting the 20% oil royalty from Federal Government but completely overlooked more pertinent issues relating to the source of these hydrocarbon black gold.

The Star story:

Published: Tuesday May 6, 2014 MYT 7:33:00 PM
Updated: Tuesday May 6, 2014 MYT 7:47:04 PM

Sarawak Assembly passes resolution calling for 20 percent oil royalty



KUCHING: The Sarawak Legislative Assembly has unanimously voted in favour of a resolution to request the Federal Government for an increase in the oil royalty from 5% to 20%.

A motion on the increase was originally tabled by Chong Chieng Jen (DAP-Kota Sentosa) but an amended motion, which included seeking more development grants from the Federal Government aside from the royalty, was subsequently tabled by Abdullah Saidol (BN-Semop) and approved.

Abdullah said his motion was in line with Chief Minister Tan Sri Adenan Satem’s recent statement in support of an increased royalty.

“We plan to invite the Federal Government to revisit the royalty arrangement, which includes reviewing the relevant legislation. The Chief Minister’s statement was not mere political rhetoric but a representation of the genuine sentiment of all Sarawakians.

“This motion is about our desire to review the royalty rate to a quantum more favourable to us. It can be also construed as a request for more development funds which we can channel to rural areas where basic needs like electricity, clean water and roads are still needed,” he told the House on Tuesday.

Abdullah added that the state wished to mutually negotiate a revision of the royalty with the aim of achieving a better deal in order to accelerate development.

“We don’t want the Federal government to accommodate our request on humanitarian grounds but must be able to impress upon them that we have the right to be treated equally as a partner when we jointly formed Malaysia,” he said.

However, he said the pursuit of a higher royalty rate must not affect the close working relationship, mutual respect and cordiality between the state and Federal governments.

Meanwhile, Chong said he did not mind that his motion had been amended by a Barisan backbencher.

“Once a motion is passed, it is the House motion. It does not matter who originates the motion. This day we will make a unanimous decision and give our full support even if the motion comes from Barisan.

“What is important is that our state gets this money,” he said.


The more pressing issue that Sarawak politicians should pay attention is China’s more aggressive maneuvres based on their claim of the imaginary Nine-Dash-Line in the South China Sea.

ASEAN EEZ Vs China's imaginary 'Nine Dash Line' claims over South China Sea

ASEAN EEZ Vs China’s imaginary ‘Nine Dash Line’ claims over South China Sea

These maneuvres include Peoples’ Liberation Army Navy (PLAN) of China deploying a fully armed task force and ‘staked the claim’ of James Shoal (Beting Serupai), which is 50 nautical miles off the coast of Saarwak.

Areas within this Nine-Dash-Line are where the untapped oil and gas fields are.

Make no mistake about what China’s primary wish on the quest to stake the claim in the South China Sea, on the undefined Nine-Dash-Line. It is about hydrocarbon.

China already started to erect an oil exploration platform 120 miles off the coast of Vietnam, which is deep in Vietnamese EEZ area (as defined under UNCLOS).It is a point of grave controversy, which would reflect China’s oil interests elsewhere.

Forbes story:

ENERGY | 5/08/2014 @ 8:00AM |1,803 views

China Thwarts U.S. ‘Containment’ With Vietnam Oil Rig Standoff

Comment Now Follow Comments
Two weeks ago on his trip to Asia, President Obama drew another red line, declaring that a group of islands, claimed by both Japan and China, were covered by America’s security treaty with Japan. In the Philippines, Obama inked a 10-year agreement to increase U.S. forces there.

Though the president made a point of not visiting China on what some dubbed a “China containment tour,” he insisted “We’re not interested in containing China.”

The Chinese don’t appear to believe him. This week Beijing decided to assert its aggression in the region.
On May 3, China’s state-controlled oil giant Cnooc moved a deepwater drilling rig to a spot just 120 miles off the coast of Vietnam, smack dab in the middle of oil and gas exploration blocks that Vietnam claims as its own and where PetroVietnam and ExxonMobil have discovered big oil and gas reserves.

Vietnam has demanded that Beijing call it off. In the past day Chinese and Vietnamese vessels have been in a standoff near the rig, with Chinese ships reportedly spraying water at the Vietnamese. On May 4, Chinese ships reportedly rammed Vietnamese vessels.

Chinese media quoted a government spokeswoman as insisting that not only had the rig been positioned in Chinese waters near the Paracel Islands, but that Beijing urged Vietnam to stop interfering.

U.S. State Department spokeswoman Jen Psaki said Tuesday that Cnooc’s actions were “provocative and unhelpful to the maintenance of peace and stability in the region.”

China’s spokeswoman said, according to Xinhua news service, that the U.S. is in no position to make irresponsible remarks on China’s affairs.
The $1 billion Cnooc 981 rig was the first advanced drillship built in China. ((AP Photo/Xinhua, Jin Liangkuai, File)

Indeed how could anyone seriously believe that the Obama Administration would do anything to thwart the Cnooc rig’s operations. Obama failed to take action when his own red line was crossed in Syria. Vladimir Putin’s cronies laugh at U.S. sanctions imposed after the Crimea takeover. Iraq is hurtling toward civil war. Iran is ever closer to the bomb.

Ernest Bower and Gregory Polling of the Center For Strategic & International Studies summed it up in their analysis yesterday (see their entire piece, with maps, here):

The implications of these developments are significant. The fact that the Chinese moved ahead in placing their rig immediately after President Obama’s visit to four Asian countries in late April underlines Beijing’s commitment to test the resolve of Vietnam, its ASEAN neighbors and Washington. Beijing may also be attempting to substantially change the facts on the seas by moving while it perceives Washington to be distracted by Russian aggression inUkraine, developments in Nigeria, and Syria. If China believes Washington is distracted, in an increasingly insular and isolationist mood and unwilling to back up relatively strong security assertions made to Japan and the Philippines and repeated during President Obama’s trip, these developments south of the Paracel Islands could have long term regional and global consequences.

Analysts in China see it pretty much the same way. In an op-ed in China Daily, Liu Weidong wrote:

Although Obama claimed the U.S. was not trying to contain China, what he has done shows clearly it is. …

The U.S.’ intention of returning to the Asian-Pacific region is to achieve a balance in favor of the US, and that was the main goal of Obama’s Asia trip this time. But this is an unbalanced approach because it is in favor of the countries that have disputes with China, so China is forced to seek a counterbalance. Obama’s unprecedented promise to support Japan in the territorial dispute with China over islands in the East China Sea is enough to show the US’ concern over China’s new legally established Air Defence Identification Zone in the East China Sea. Also facing frustrations in Syria and Crimea, the US is becoming unreasonably tough with China in a bid to maintain its image as the undisputed global leader.

Objectively speaking, the U.S.’ rebalancing strategy in the Asia-Pacific region is aimed at achieving a strategic balance between China and Japan that will prevent war between them but also prevent their reconciliation. It will also make both countries woo the US, which will help reinforce the U.S.’ dominant position as an “offshore balancer”.

It’s not the first time China has invaded the Paracel Islands with a drilling rig. It did the same thing back in 2012, at which time Cnooc Chairman Wang Yilin said, “Large deepwater drilling rigs are our mobile national territory and strategic weapon for promoting the development of the country’s offshore oil industry.” Taking him literally, it means that Cnooc’s drilling rigs are akin to ships in the Chinese Navy.

No one expects the Obama administration to respond to China’s aggression. But it’s worth keeping in mind that in its $19 billion acquisition of Canada-based Nexen last year, Cnooc acquired some 200 exploration leases in the Gulf of Mexico. Those leases were altered as a condition of U.S. approval of the deal, with Cnooc forced to give up operatorship of the blocks. But if Cnooc really considers its drilling rigs “mobile national territory” then perhaps the Federal Bureau of Ocean Energy Management should apply some special scrutiny when Cnooc and its partners request permits to drill off U.S. shores.


Probably Sarawak elected representatives should be more concerned in providing the Federal Government the full support to ward of China’s claim on what is clearly part of Malaysia’s EEZ as defined by the United Nations Convention Law of the Seas (UNCLOS). Rather than trying to gain political mileage of being champion against the formula which Sarawak already proven to immensely benefitted.

Kelantan, which is under PAS control, is reaffirming their stake for the 20% oil royalty after the Sarawak State Assembly resolution.

Sin Chew Jit Poh story:

After Sarawak, Kelantan now seeks 20% oil royalty

News 2014-05-08 13:47

The country’s first inland oil well on Canada Hill, Miri, Sarawak. Photo courtesy: Sin Chew Daily

Translated by DOMINIC LOH
Sin Chew Daily

May 7, Sin Chew Daily — The Sarawak state legislative assembly passed a resolution to seek to increase the current oil royalty from the federal government from 5% to 20%, and this has set a precedent for other oil-producing states which are seeking to do the same.

Kelantan state assemblyman Datuk Husam Musa said the Sarawak motion was a courageous landmark move and he believed other states would soon follow suit, asking the federal government to increase their oil royalties to 20%.

“There are four oil-producing states in the country, namely Kelantan, Terengganu, Sabah and Sarawak. These four states have helped create tremendous wealth annually for the federal government, collectively contributing some 48% of the government’s revenue. However, these four states remain the poorest, which is ironical.”

The Salor state assemblyman cum PAS vice president told Sin Chew Daily it is time for the federal government and Petronas to review the oil revenue distribution structure. Besides higher oil royalties, Husam said these four states should also be entitled to shares in Petronas.

“Currently Petronas is 100% controlled by the federal government. We want the federal government to distribute the company’s shares to the state governments.”

Petronas stopped disbursing oil royalty to the Kelantan state government since 2005, owing the state government some RM1.7 billion of oil royalty every year.

Husam said there are several oil producing areas in Kelantan, and based on the state government’s estimates four years ago, the Kelantan/Thailand offshore area alone generates some US$8.5 billion (RM25.1 billion) in oil revenue annually. If the state government is entitled to 5% of oil royalty, that would be approximately RM1.7 billion every year.

On August 30. 2010, the state government filed a suit at the High Court against Petronas and the federal government for breaching the contract while pursuing the unpaid royalties owed by the federal government since 1998. Petronas signed the agreements in 1974 with all state governments to pay 5% oil royalties to the state governments annually.

“I believe the number of MPs from these four states is enough to get the Parliament to amend the relevant act,” Husam said.



The irony is that unlike Sarawak’s oil and gas fields, areas where oil being extracted off the coast of Kelantan, is not part of China’s claim on the Nine-Dash-Line.

In the final analysis, no one in Malaysia would benefit from Sarawak politicians’ insistence for the seemingly ‘Penny wise, pound foolish’ on the controversial oil royalty issue when where this reside which is part of Malaysia’s EEZ would be taken away lock, stock and barrel by China through the means of deadly force.

Published in: on May 8, 2014 at 22:30  Comments (20)