KUALA LUMPUR – On the surface, relations between Petronas and Petros seem cooperative, but a courtroom battle behind closed doors paints a different picture.
Petronas is pushing back against what it calls an “unlawful” move to make Petroleum Sarawak Bhd (Petros) the sole authority for gas distribution in Sarawak, sparking a high-stakes legal battle affecting Malaysia’s oil and gas landscape.
In an affidavit filed on November 5, 2024, the national oil and gas heavyweight claims its rights under the Petroleum Development Act 1974 (PDA) make it the legitimate aggregator of natural gas supply, including domestic distribution.
Petros, however, argues otherwise, dragging Petronas to court over a RM7.95 million bank guarantee dispute.
The Kuching High Court suit, initiated on October 15 last year, centres on Petronas’ demand for the guarantee issued by Maybank. Petros alleges that the claim is illegal, pointing to Petronas’ failure to secure a gas distribution licence under the Distribution of Gas Ordinance 2016 (DGO 2016).
Petronas defends its actions, insisting that the unpaid sum is linked to gas supplied under the Sarawak Gas Sales Agreement (SGSA).
In its affidavit, Anuar Ismail, head of Petronas’ integrated carbon management division, raises a red flag over the legality of the DGO 2016 and subsequent amendments, questioning if they conflict with federal laws like the PDA.
The controversy deepened when Petros was named the state’s gas distribution authority under the amended DGO 2016 and the Distribution of Gas (Appointment of Gas Aggregator) Order 2024, effective February 1 last year.
Anuar insists that untangling the legal web requires a full trial and serious examination of the laws involved. He maintains that the DGO 2016 does not override Petronas’ rights under the SGSA, stressing that Petros has continued to accept gas without paying for it.
Petros was appointed as the single point authority for gas distribution in Sarawak under Section 7A of the DGO 2016 following amendments to the ordinance in 2023 and the Distribution of Gas (Appointment of Gas Aggregator) Order 2024 (DG Order 2024), which came into force on February 1 last year.
The PDA is the federal law that grants Petronas – as a national entity vested with Malaysia’s entire hydrocarbon wealth – ownership and exclusive rights to explore and exploit petroleum resources in Peninsular Malaysia as well as in Sabah and Sarawak.
“…the enforceability and any alleged non-compliance of the DGO 2016’s provisions cannot be simply resolved without a serious examination and viva voce (oral) trial of all the applicable legal provisions.
“The DGO 2016, as amended, does not invalidate Petronas’ rights under the SGSA and the plaintiff (Petros) has continued to benefit from gas supply under the same,” Anuar said.
Noting that Petros has continued to affirm the SGSA and accept the gas supplied by Petronas “without objection” while “defaulting on payments” due for the gas supplied, Anuar accused Petros of “clearly breaching” the SGSA by continuously refusing to pay Petronas.
He also asserted that despite other demands dated between September and October last year seeking for Petros to fulfil payments totalling RM45.55 million, the Sarawak state-owned entity has “still failed” to pay the said sum.
“Without Petronas, (Petros) cannot physically supply or sell gas to customers/buyers at all material times…Accordingly, any assertion that Petronas is not entitled to payment for gas supplied, is misconceived.
“The fact is that gas supplied by Petronas had been accepted by (Petros) and yet, (Petros) is refusing to pay now by alleging illegality,” Anuar said, affirming Petronas’ stance denying allegations against it on illegality, criminal activities and violating licencing requirements.
Touching on the SGSA, in which both Petros and Petronas on December 30, 2019, agreed for the former to purchase and receive gas from the latter at delivery points, Anuar highlighted that the sale and business transfer agreement related “purely to downstream gas sales”.
He asserted that any reference to Petros acting as an “aggregator”’ was only in anticipation of Petros’ potential appointment as an aggregator responsible for downstream gas sales and business – with downstream meaning from the outward flange of the gas processing plant.
Stressing that ongoing discussions between the two companies are “irrelevant” to the enforceability of the SGSA and Petronas’ rights under the agreement, Anuar said that Petronas has not acted in bad faith or unconscionably “in the circumstances”.
On January 14 this year, Prime Minister Datuk Seri Anwar Ibrahim said the DGO 2016 does not supersede the PDA, the Federal Constitution, or other federal laws, emphasising that Petronas’ position remains unaffected by Petros appointment as the sole gas aggregator in Sarawak.
“Petronas retains its authority nationwide but allows Sarawak control over gas distribution for domestic purposes. This exemplifies cooperation between the two entities,” the prime minister added, in apparent contradiction with the basis of Petronas’ affidavit in opposition.
Petronas’ current legal challenge mirrors its 2018 attempt to obtain a Federal Court declaration as the sole owner and regulator of Malaysia’s petroleum resources under the PDA.
However, on June 22 that year, the court dismissed the bid, with then Chief Judge of Malaya Tan Sri Ahmad Ma’arop ruling that the case belonged in the high court. – January 22, 2024