Oil Royalty Warrants Review

Kota Kinabalu (20 November 2008): State Government has been urged to initiate a review of the 1976 Petroleum Agreement between the State and Federal Government with the view to revise the oil royalty from five percent to no less than 20 per cent.

Luyang Assemblywoman Melanie Chia, who relinguished her post as Assistant Finance Minister in September, said under normal circumstances of contract, 32 years is a long time.

“If we take the five year review period allowed under the Article 1120 of the Federal Constitution for the Special Grant, we could already have had six reviews,” she said.

“In the interest of Malaysians in Sabah, I urge the State Government to review and revise Sabah petroleum royalty to not less than 20 per cent.

“I seek the support from members of the House for the interest of the people in Sabah,” she said to thumping of tables by her two opposition colleagues, Datuk Liew Teck Chan (likas) and Jimmy Wong (Sri Tanjung).

At the same time, Chia asked who is representing Sabah in the National Petroleum Advisory Council as allowed under Section5 of the 1976 Petroleum Development Act.

She said in the 2009 Budget, revenue from the sales tax of crude palm oil and oil royalty totaling about RM1.5 billion represented 58 per cent of the State’s total revenue.

Any changes to the prices of these commodities would affect the revenue estimates for next year, she said, adding she wanted to know what is the revenue forecast formula and if there is any contingency plan to cushion any changes in the forecast.

Perhaps, she said, it would be an opportune time for the State government to review its sources of revenue, especially through the direct revenue and grants from the Federal Government.

She said the Special Grant given under Schedule 10 Part IV Section 2 (I) was reviewed by the Sabah Special Grant (first review) Order, 1970 and had since remained at RM26.7 million per year in 1973 until today.

“Although the Constitution allows a review every five years, it has not been done since 1973. It seems the formula for deriving the amount has also never been clearly spelt out”, she said.

Chia said since the formation of Malaysia, the Federal Government in exchange for development funds, had assumed the collection of income tax, customs duties, sales and services tax, stamp duty, road tax and others such as petroleum revenues, premium/bonuses in addition to royalties and licence fees.

She said the Special Grant stipulated under Schedule 10 Part IV Section (I) states that “in the case of Sabah, a grant of an amount equal in each year to two-fifths of the amount by which the net revenue by the Federation from the Sabah exceeds the net revenue which would have been derived in the year 1963…”.

“It seems there are many parameters here. Perhaps, the Government can enlighten us and hope the State Government will be able to get a very good revision to the RM26.7 million fixed since 1973,” she said.

Also, the revision should take into account the discrepancies in the State’s socio-economic status and higher cost of living, she added.

Chia said Malaysians in Sabah do not take note that Federal spending in Sabah had been increasing over the Malaysian Plans but it is also noted that the major portion of these allocations went to the operating costs of the Federal Departments and agencies in Sabah to the extent of more than 60 per cent.

She called on the State Government to inform the House on the total number of Federal departments and agencies in Sabah at this moment and their personnel as well as their annual operating costs.

Chia also raised the Kimanis-Bintulu gas pipeline project issue, saying she disagreed with the statement that sending the gas to Bintulu and using the rest of the supply to support the downstream industry at the petrochemical plant in Kimanis was the only practical approach.

Instead, she said the first thing that needed to be considered was the setting up of the petrochemical plant.

Meanwhile, Chia said the commotion involving the Queen Elizabeth Hospital (QEH), which is located within her constituency was saddening because the Government should have prioritized the interest and be sensitive to the needs of the people.

Based on the QEH Master Plan that began in 1995 and implemented in stages that was to be done in two phases up to 2010, it was planned in a way to give the hospital a prominent role in the 21st century.

“But the fact is the plan was implemented properly causing the healthcare service sector to be upside down,” she said, adding that the present scenario gave a negative impression on the quality of life in Sabah due to the failure of the Federal Government in fulfilling its responsibility.