Thursday, March 11, 2010

Understanding the Oil Royalty issue

What both Hafarizam Harun and Rahman Yakub failed to take into consideration were the United Nations Convention on the Law of the Sea on what constitutes Territorial Waters and the international agreement on the Exclusive Economic Zone of each country.


Raja Petra Kamarudin

Kelantan is not entitled to claim oil royalty outside its territorial waters because the Emergency (Essential Powers) Ordinance 1969 is still enforced, said a law practitioner.

Datuk Mohd Hafarizam Harun said provision No.7 of the Ordinance stipulated that the state’s boundary which is the state’s land mass and its territorial waters stretched three nautical miles measured from the low-tide water mark.

However, two oil wells disputed by the Kelantan state government are located outside the ‘area’.

“To my knowledge, the Emergency (Essential Powers) Ordinance 1969 is still in force and has not been abolished by the government. In fact, there are Ordinances formulated at that time, such as ESCAR (Essential (Security Cases) Regulations 1975), which are still in force,” he said when contacted by BERNAMA, here today.



Hafarizam Harun is a lawyer. I am not. So certainly Hafarizam Harun’s interpretation of the law must be more accurate than mine. Or so the common perception would be that. Nevertheless, I am of the ‘unqualified’ opinion that Hafarizam Harun did not take into account many other factors in his assumption.

Hafarizam Harun said that the oil wells are outside Kelantan’s three nautical mile territorial waters. They are in fact 150 nautical miles from the Kelantan coast. Therefore, argues Hafarizam Harun, Kelantan is not entitled to any Oil Royalty.

One-time Chief Minister of Sarawak Rahman Yakub in turn argued that Sabah and Sarawak are entitled to the Oil Royalty, but not Kelantan (and he was silent on whether Terengganu too is not entitled to the oil Royalty just like Kelantan) because Queen Elizabeth had declared in 1954 that the East Malaysian state’s territorial waters extended beyond the three-nautical-mile limit.

What both Hafarizam Harun and Rahman Yakub failed to take into consideration were the United Nations Convention on the Law of the Sea on what constitutes Territorial Waters and the international agreement on the Exclusive Economic Zone of each country.

Malaysia’s Territorial Waters is 12 nautical miles from its coast while its Exclusive Economic Zone is 200 nautical miles, as is so for all countries. This overrides what Queen Elizabeth ruled in 1954, before Malaya gained independence in 1957 and the creation of Malaysia in 1963. In 1954, Sabah and Sarawak were British Colonies. That has since changed. Can Malaysia argue that detention without trial (a 1960 law) is illegal because the Queen said so in 1954? Since Merdeka in 1957 Malaysia has introduced many new laws that replaced the pre-Merdeka laws.

We must remember that when Malaya was created there was an agreement that certain matters are federal matters while certain matters are state matters. Resources are state matters. That is why the states decide on matters such as land, timber, water, tin, gold, and what have you. In that sense, oil and gas are state matters since these are also resources.

If oil and gas are not included as state matters and if the federal government can automatically take over all the oil and gas in the state, why then the need to introduce the Petroleum Development Act in 1974? The federal government can just take all the oil and gas in the various states without introducing a new law allowing them to do so.

But no, the federal government had to introduce the Petroleum Development Act in 1974 because oil and gas belong to the states. And as long as it is within 200 nautical miles from the coast then the federal government can’t touch it. It is the property of the states.

Basically, the Petroleum Development Act of 1974 was aimed at making it legal for the federal government to take over the oil and gas that actually belonged to the states. If not it would be illegal for the federal government to do so. But they also provided for the states to be paid 5% of whatever the federal government took from them.

Then they made all the states sign an agreement with Petronas. The Petroleum Development Act alone was not good enough. The states could still refuse to allow the federal government to take its oil and gas. So they forced all the states to sign an agreement with Petronas, which they did although reluctantly.

In 1976, Petronas signed a Supplementary Agreement with all the states. This Supplementary Agreement made it clear that the 5% that Petronas paid the states was to be called Royalty and that payments would be made in cash, twice a year, in March and September.

All this was not mentioned in the Bernama report above.

What the Queen did in 1954 is no longer relevant. Other things have since happened in 1957, 1963, 1973, 1974, 1976, 1982 and 1997. These are the new arrangements. Since then the Territorial Waters have been extended to 12 nautical miles. The Exclusive Economic Zone has been extended to 200 nautical miles. The federal government took over the oil and gas, which rightfully belonged to the states, through an Act of Parliament. Petronas signed two agreements with all the states in 1974 and 1976. And this means the oil and gas, which is 150 nautical miles offshore, and which therefore belongs to the states, was taken over by the federal government, and the states are entitled to a 5% payment twice a year that is to be called Royalty.

As I said, I am no lawyer and it would be foolish of me to rebut the opinion of a lawyer. But then this lawyer failed to take into consideration many other factors in his opinion. So that does not make him a very good lawyer if a non-lawyer like me can shoot his opinion full of holes.

Read also: Ku Li: PDA supercedes all pre-Merdeka oil contracts


Exclusive Economic Zone

A maritime zone adjacent to the territorial sea that may not extend beyond 200 nautical miles from the baselines from which the breadth of the territorial sea is measured. Within the exclusive economic zone (EEZ), the coastal state has sovereign rights for the purpose of exploring, exploiting, conserving, and managing natural resources, both living and nonliving, of the seabed, subsoil, and the subjacent waters and, with regard to other activities, for the economic exploitation and exploration of the zone (e.g., the production of energy from the water, currents, and winds). Within the EEZ, the coastal state has jurisdiction with regard to establishing and using artificial islands, installations, and structures having economic purposes as well as for marine scientific research and the protection and preservation of the marine environment. Other states may, however, exercise traditional high seas freedoms of navigation, overflight, and related freedoms, such as conducting military exercises in the EEZ. Also called EEZ.


Exclusive Economic Zone

Under the law of the sea, an Exclusive Economic Zone (EEZ) is a seazone over which a state has special rights over the exploration and use of marine resources. It stretches from the seaward edge of the state's territorial sea out to 200 nautical miles from its coast. In casual use, the term may include the territorial sea and even the continental shelf beyond the 200-mile limit.

Generally a state's EEZ extends to a distance of 200 nautical miles (370 km) out from its coastal baseline. The exception to this rule occurs when EEZs would overlap; that is, state coastal baselines are less than 400 nautical miles (740 km) apart. When an overlap occurs, it is up to the states to delineate the actual boundary. Generally, any point within an overlapping area defaults to the most proximate state.

A state's Exclusive Economic Zone starts at the seaward edge of its territorial sea and extends outward to a distance 200 nautical miles (370 km) from the baseline. Thus, the EEZ includes the contiguous zone. States also have rights to the seabed of the continental shelf up to 350 nautical miles (650 km) from the coastal baseline, where this extends beyond the EEZ, but this does not form part of their EEZ.


United Nations Convention on the Law of the Sea

The United Nations Convention on the Law of the Sea (UNCLOS), also called the Law of the Sea Convention or the Law of the Sea treaty, is the international agreement that resulted from the third United Nations Conference on the Law of the Sea (UNCLOS III), which took place from 1973 through 1982. The Law of the Sea Convention defines the rights and responsibilities of nations in their use of the world's oceans, establishing guidelines for businesses, the environment, and the management of marine natural resources. The Convention, concluded in 1982, replaced four 1958 treaties. UNCLOS came into force in 1994, a year after Guyana became the 60th state to sign the treaty. To date, 158 countries and the European Community have joined in the Convention. However, it is now regarded as a codification of the customary international law on the issue.

While the Secretary General of the United Nations receives instruments of ratification and accession and the UN provides support for meetings of states party to the Convention, the UN has no direct operational role in the implementation of the Convention. There is, however, a role played by organizations such as the International Maritime Organization, the International Whaling Commission, and the International Seabed Authority (the latter being established by the UN Convention).


Territorial waters

Territorial waters, or a territorial sea, as defined by the 1982 United Nations Convention on the Law of the Sea, is a belt of coastal waters extending at most twelve nautical miles from the baseline (usually the mean low-water mark) of a coastal state. The territorial sea is regarded as the sovereign territory of the state, although foreign ships (both military and civilian) are allowed innocent passage through it; this sovereignty also extends to the airspace over and seabed below.

The term "territorial waters" is also sometimes used informally to describe any area of water over which a state has jurisdiction, including internal waters, the contiguous zone, the exclusive economic zone and potentially the continental shelf.

courtesy of

1 comment:

Chauncey Gardener said...

Will Hafarizam clarify further ???