By Lian Cheng
“With the additional income from SST and other economic generators, we have been able to implement countless projects worth billions of Ringgit that will benefit the ‘rakyat’. With better deals from the Federal government through MA63, we will be able to develop Sarawak much faster.” Abang Johari
Over the past 60 years since Sarawak joined Malaya, Singapore, and Sabah to form the Federation of Malaysia, the State has played a crucial role in fuelling the nation’s economic growth. Contributing an estimated 60 per cent of Malaysia’s total oil and gas (O&G) output, Sarawak’s vast fossil fuel resources have been a driving force behind the country’s development. Unfortunately, a majority of the revenue generated from Sarawak’s O&G has been directed towards the development of Peninsular Malaysia, while Sarawak itself, despite its immense natural wealth, has remained underdeveloped and underserved.
The Push for Change
The late Pehin Sri Adenan Satem, upon taking on the role of Chief Minister of Sarawak in 2014, initiated a significant change by advancing a motion to request a 20 per cent royalty from the Federal government. This motion was tabled and subsequently passed at the Sarawak Legislative Assembly. However, despite ongoing negotiations with federal counterparts, the pursuit for a higher royalty was unresolved by the time of Adenan’s passing.
When Premier Datuk Patinggi Abang Johari Tun Openg took charge, he continued to advocate for change, with one of his first initiatives aimed at reclaiming Sarawak’s rights to have greater control over its O&G resources, which had been under Federal jurisdiction for decades. This Federal control was established through the Petroleum Development Act 1974 (PDA74), which granted Petroliam Nasional Berhad (PETRONAS) complete ownership and exclusive rights to explore and exploit petroleum resources onshore and offshore Malaysia.
Securing Sarawak’s Revenues
The Sarawak Oil Mining Ordinance 1958
To secure a larger share of Sarawak’s O&G revenues, Abang Johari shifted his focus from the request for a 20 per cent O&G royalty to a pre-existing piece of legislation that predates the PDA74—the Sarawak Oil Mining Ordinance 1958 (OMO58). On numerous occasions, he referred to this idea as a “divine inspiration,” a form of spiritual guidance revealed to him through prayer and contemplation.
On July 10, 2018, the Sarawak Legislature took a monumental step by passing the Oil Mining (Amendment) Bill 2018. This legislation enhances Sarawak’s regulatory control over the exploration, prospecting, and mining of petroleum resources, both onshore and offshore, within the State’s continental shelf. When presenting the Bill, the former Minister of Industrial and Entrepreneur Development, Datuk Amar Awang Tengah Ali Hasan, stated that the amendments would ensure compliance with the State’s laws by all parties involved in O&G operations within Sarawak.
Legal Framework and Challenges
He referenced Item 2(c) of the State List (List II) of the Ninth Schedule of the Federal Constitution, which indicates that “Permits and licenses for prospecting for mines; mining leases and certificates” fall under the State’s jurisdiction, as well as Section 2 of the Sarawak Land Code, which affirms that Sarawak’s jurisdiction extends to its continental shelf. (The Ninth Schedule of the Federal Constitution outlines legislative lists that divide law-making powers between federal and state governments, including the Federal List, State List, and Concurrent List.)
OMO58 versus PDA74
The Sarawak Democratic Action Party (DAP) expressed concerns that the OMO58 might conflict with the PDA74 and could lead to repercussions under Article 75 of the Federal Constitution, which states that in cases of inconsistency between Federal and State laws on matters within the Concurrent List, federal law prevails.
However, Awang Tengah highlighted Item 8(j) of the Ninth Schedule (Federal List) and reiterated Item 2(c) of the State List, asserting that any law enacted by Parliament regarding petroleum development must be viewed alongside the competency of the State Legislature to legislate on permits and licenses for mining activities.
Implementing the State Sales Tax
On October 8, 2018, Datuk Sharifah Hasidah Sayeed Aman Ghazali, then Assistant Minister of Law, State-Federal Relations and Project Monitoring, clarified that Sarawak’s position was not a demand for a 20 per cent royalty of profits from PETRONAS. Instead, the State sought complete control over its resources, as outlined under the amended Oil Mining Ordinance (OMO) 2018.
Consequently, Sarawak officially implemented its State Sales Tax (SST) on petroleum and petroleum products starting January 1, 2019, as part of the government’s efforts to bolster its revenue. The SST applies to the upstream O&G sector, encompassing petroleum products extracted within Sarawak’s territorial waters. The tax rate is set at five per cent of the value of petroleum and its derivatives produced in the State. Following the introduction of the SST, Sarawak received its initial payments from PETRONAS in August 2019.
Financial Growth and Future Projections
The initial payment was part of a negotiated agreement between Sarawak and PETRONAS. The total amount for 2019 was RM2.96 billion, which was paid in 2020 in installments. From 2019 to 2023, Sarawak has accumulated a total of RM15.8 billion in SST from its petroleum and petroleum products.
This tax has become a vital source of revenue for Sarawak, aligning with the State’s broader initiatives to assert greater control over its natural resources and enhance its financial independence. By 2024, the Sarawak government projected a revenue of RM14.2 billion for 2025, which includes RM6.2 billion from tax revenue, accounting for 44 per cent of the total estimated revenue. Of this, RM5.1 billion is anticipated from SST, with RM4.1 billion expected from crude oil, liquefied natural gas (LNG), and other petroleum products.
Establishing Local Control
PETROS to Manage Sarawak’s O&G
Simultaneously, Abang Johari initiated the establishment of Sarawak’s own local O&G company to manage its resources. He first outlined his vision in June 2017, and by March 6, 2018, Petroleum Sarawak Berhad (PETROS) was launched. PETROS was created to ensure greater control and proper management of Sarawak’s O&G resources, focusing on managing and overseeing the State’s O&G assets, especially in light of Sarawak’s push for greater autonomy over its natural resources.
The establishment of PETROS also aims to reinforce Sarawak’s stance in the oil and gas sector, ensuring that the State benefits more directly and equitably from its resources. It collaborates with other industry players, including PETRONAS, to explore, develop, and manage O&G reserves within Sarawak’s jurisdiction.
The content featured here is an excerpt from the book “Rise of Sarawak: Abang Johari’s Era of Transformation”, published by Sage Salute Sdn Bhd.
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Danny H is a real estate negotiator in Miri, specializing in residential and commercial properties. He provides trusted guidance, updated listings, and professional support through MiriProperty.com.my to help clients make confident property decisions.
