Petronas has petitioned Malaysia’s apex court to deliver a clear verdict on how the current regulatory regime governs its oil and gas operations in Sarawak. In submissions to the Federal Court, the national oil firm seeks clarity on various constitutional and legal points arising from disagreements with the Sarawak state government.

Key questions Petronas asks the court to decide include:

1. Whether, under the Federal Constitution, the Petroleum Development Act 1974 (PDA) and the Oil Mining Ordinance 1958 (as preserved by the PDA), exclusive exploration, development, and production rights in Sarawak reside solely with Petronas.
2. Whether Sarawak’s State Legislative Assembly may enact legislation or grant licences regulating upstream and downstream petroleum activities, despite the PDA’s allocation of exclusive federal authority.
3. The implications of Sarawak’s 2019 decision to impose a state sales tax on crude oil, condensate, and petroleum products supplied by Petronas, and whether Petronas is contractually obligated under its existing Production Sharing Contracts (PSCs) to remit those taxes.

Petronas contends that by virtue of the PDA, all upstream entitlements in Malaysian waters and onshore have been vested in the company, overriding any pre-1974 oil mining statutes. The company maintains its PSC rights are contractual and immune from subsequent state tax measures unless the PSCs themselves were amended to include such obligations.

In contrast, Sarawak asserts it retains jurisdiction over hydrocarbon activities within its borders, including imposing a sales tax. The state relies on its own ordinance provisions and the constitutional guarantee that land and natural resources fall under state control.

Petronas has urged the Federal Court not only to confirm the exclusive ambit of its PDA-based rights but also to declare Sarawak’s 2019 tax notices unenforceable against it. The court’s decision will carry significant consequences for the federal–state division of powers over Malaysia’s oil and gas sector.


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