KUALA LUMPUR – Petroliam Nasional Bhd (Petronas) has been accused of using its market dominance to block upstream gas producers from entering agreements with Petroleum Sarawak Bhd (Petros), the state’s sole authority for gas distribution since February 1, 2024.
According to court documents obtained by Scoop, Petros claims that Petronas is “actively prohibiting” the signing of new gas purchase agreements, in what the Sarawak-owned company describes as unlawful interference with its statutory duties as the sole gas aggregator.
“Petronas’ actions to prevent upstream gas producers from entering into gas purchase agreements with Petros is unlawful interference with the statutory duties of Petros as the sole gas aggregator.
“By preventing upstream gas producers from entering into (the agreements) with Petros, Petronas is also abusing its dominant position,” said Victor Maiyor, Petros’ senior vice president (downstream), in an affidavit filed on November 11, 2024.
Petros also alleged that Petronas’ actions amount to “instigating, aiding, and abetting” the violation of Sarawak’s Distribution of Gas Ordinance 2016 (DGO 2016), which grants the state exclusive control over natural gas distribution.
These accusations form part of Petros’ legal proceedings against Petronas concerning a dispute over an RM7.95 million bank guarantee, which Petronas claims is due to Petros’ non-payment under the Sarawak Gas Sales Agreement (SGSA).
Evidence of interference
Victor’s affidavit includes letters, dated between August 19 and October 1, 2024, as evidence of Petronas allegedly barring upstream gas producers from entering agreements with Petros.
In one such letter, dated August 28, Petronas informed Petros’ wholly owned subsidiary, Petroleum Sarawak Exploration and Production Sdn Bhd (PSEP), that it must secure Petronas’ “express consent” to avoid breaching terms of a production sharing contract (PSC).
The PSC requires gas sales to be conducted on a “joint dedicated” basis, Petronas explained, adding that the PSC remains in effect until Petronas and Petros reach a resolution on the Sarawak gas distribution arrangement.
Similarly, Sarawak Shell Bhd, in a letter dated October 1, informed the Sarawak Ministry of Utility and Telecommunication that it could not enter into agreements with Petros without Petronas’ consent.
Meanwhile, Petros also denied Petronas’ claim that Petros cannot physically supply or sell gas to customers without Petronas, highlighting that under the SGSA, Petronas has admitted that the gas is supplied by upstream gas producers who operate offshore gas fields.
“Petronas does not have the right to sell or supply the gas from other upstream gas producers as this would be in contravention of the DGO 2016. As for the sale of Petronas’ own gas entitlements, Petronas is required to obtain a gas retail licence to sell such gas to Petros.
“Until today, Petronas has not obtained any such licence,” Victor said.
Victor further asserted that Petronas has consistently been aware of the need for a new contractual framework to comply with the DGO 2016, but has acted “arrogantly, intentionally and deliberately” in violation of the ordinance.
He dismissed Petronas’ argument that the DGO 2016 conflicts with the Petroleum Development Act (PDA) 1974, calling it “misleading and without merit.”
Bank guarantee dispute
Victor also criticised Petronas’ RM7.95 million demand under the SGSA bank guarantee, describing it as “defective” and accusing Maybank Islamic Bank of acting prematurely in releasing the payment.
“Maybank Islamic Bank, which had seven days to make payment (under the bank guarantee), in unholy haste, wrongfully and unlawfully made payment to Petronas,” he said.
He also argued that while Petronas may have “stolen a march” on Petros by procuring payment from the bank, the “truth of the matter” remains that the money received by Petronas has yet to be utilised or spent.
Insisting that the money is still with Petronas, Victor said: “The money wrongfully received by Petronas is not spent. Petronas is not telling the truth by saying the money has been spent.”
When contacted by Scoop, Petronas declined to comment on how the court proceedings have affected negotiations with Petros over Sarawak’s gas distribution rights.
“As the legal proceedings involving Petros and Petronas are still ongoing, we believe all parties should respect and allow the legal process to take its due course,” the company said.
Prime Minister Datuk Seri Anwar Ibrahim said on January 15 that while Petros has been appointed Sarawak’s sole gas aggregator, Petronas retains nationwide authority.
In its November 5 affidavit, Petronas defended its position, asserting that its rights under the PDA make it the legitimate aggregator of natural gas supply, including domestic distribution.
The case is scheduled to be heard in the Kuching High Court on February 19. – January 24, 2025