Copyright Notice

All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the author, except in the case of brief quotations embodied in critical reviews and certain other non-commercial uses permitted by copyright law. For permission requests, write to the author, at the address below.

Sakmongkol ak 47

Thursday 11 February 2010

Petro Ringgit and UMNO politics


A few weeks ago, Tengku Razaleigh Hamzah has spoken about the oil royalty issue for Kelantan. He is saying that Kelantan is entitled to a 5 % royalty on oil and gas revenues off the Kelantan coast. He spoke to a large crowd of some 40,000 people in a stadium in Kota Bharu. The talk ruffled a lot of feathers.
He is seen to have broken ranks with his UMNO brethren. The business-as-usual approach of UMNO people is to keep any fortuitous advantage as a tactical advantage. The fact that it has control over a very important economic asset, oil, is one such fortuitous advantage. Control over the petrol money allows UMNO and the federal government to dictate political outcomes on its terms.
But will this kind of control last long and win adherents to UMNO?
What Tengku Razaleigh has done is to expose a secret weapon that UMNO has. That has earned him the wrath of UMNO people. Some UMNO people are even calling for his expulsion. The UMNO president is more circumspect preferring to study the matter first.
The gulf that divides the thinking of TRH and the majority of UMNO people is much more significant than a difference over giving up of tactical advantage. It involves the correct reading of public sentiments that could yield long term political advantage and determine the longevity of UMNO itself.
What motivates the present generation and what did the previous generation are different. I have touched about this in a previous article. The 1st generation of leaders and followers were motivated primarily by a desire to get rid of colonialism. Leaders emerged naturally because there were external stimuli that moved people. After independence, that kind of stimulus isn't there anymore. Leaders and conscious followers didn't emerge naturally.
They are now moved by different urges.
What are these? Chief among these are the universal values of rule of law, efficient government, good governance, animosity against corruption and all these. These are the elements, when articulated and struggled for, win adherents and loyalty and respect.
So, between a Tengku Razaleigh who articulates these elements and the rest who speak about aged old urges, which one will earn adherents? UMNO must choose its issues carefully now.
TRH speaks about a subject on which he has direct knowledge. He is arguably among the few together with Tun Razak who has full knowledge on what took place in the early years of PETRONAS.
How will UMNO treat him? I say gingerly. UMNO will be foolish to discount him totally. Doing that would injure UMNO's credibility further. He represents the saner voice of reason within UMNO. He speaks on issues that could earn adherents to a rejuvenated UMNO.
Along that line, what UMNO needs to do immediately is to carry out a project with immediate social and political impact. One of them, in my mind, is dealing unequivocally with this oil royalty issue. It has no other choice but to set the record straight. If Kelantan is entitled to a 5% oil royalty, then it must be given that. No beating around the bush- no ehsan money or other political tongue twisters.
When PM Najib announced that he isn't interested in staying for the sake of just staying as PM, that statement strongly indicates his intention to make a difference. The difference being he is more interested in seeing results and performance. The difference being PM Najib is more interested to achieve those issues articulated by TRH. Let's help him along by giving him sound advice.
The fact is Kelantan is entitled to receive a portion of the oil revenue. This entitlement is clearly provided for in the vesting deed signed by the PETRONAS Chairman then (TRH himself) and the Chief Minister then. The same document also applies to other states in Malaysia where oil is found off their shores.
It was the wish of the late Tun Razak, our prime minister then, to see revenues from oil, applied on the poorer states. That was sound economics- the richer states carry the poorer ones. It's the strategy currently applied by China's SOEs; the richer ones carrying the poorer ones.
Oil is a national resource. It is inconceivable for a national resource to be enjoyed by only the states closest in proximity to that resource. If that is the case, it's no longer a national resource but state owned. It should then be treated as land which is under the full discretion of the state. Clearly this wasn't the idea of a national resource.
Turning it into a national resource was a wise move. Tun Razak even refused to name PETRONAS with the name The Malay Petroleum Company. Oil is to be the resource of One Malaysia, for Malaysians.
By treating it as a national resource whose revenue is shareable by all, the act of sharing neutralizes the accidents of geography. Those states whose offshore do not have oil can still enjoy some benefits from oil revenue. That is the real ehsan money. It wasn't contingent upon seasonal inclinations of government.
I think, the idea behind oil revenue, is that it must be applied for the benefit of all states independent of political expediencies. If this government refuses to apply the idea of ehsan money, it opens itself to charges of favoritism and politicking.
The idea behind the PDA should be that a federal government collects the revenues and apply them nationally. It's not even up to PETRONAS to see to it that it's done. Their duty as regards royalties is to pass on a sum of monies to the federal government which in turn dispenses the money to the states concern. To the state with oil and gas, a 5% share in the revenues, to those without oil, some portion of the oil revenue.
In so far as a state that is proximate to the source of oil, my understanding is that it is entitled to a 5 % royalty per year. Hence Terengganu, from which oil and gas are tapped, is entitled to 5%. If Kelantan qualifies as being proximate to the source, it is also entitled to oil royalties. Each particular state where oil is found thus is entitled to 5% of the oil revenues.
That still leaves 95% available to be applied for national purposes. This balance 95% from that particular source can be applied to states where no oil is found. The amount allocated to them is at the discretion of the federal government but it is a discretion that cannot be withheld.
Now whether that amount or any amount from the balance of which any state is entitled too has been applied appropriately, is another matter. States with no oil cannot expect to receive 5% oil royalties because they don't have oil and gas. For instance, in the case Pahang, it too can expect to have some contribution from this national resource. Pahang can also ask wang ehsan because it is in the bottom 4 states in Malaysia.
It seems to me, that Kelantan actually deserves two components of the oil revenues. Because it is close to where oil is extracted, it is entitled to 5% of the revenues collected from that oil source. As a poor state, within that classification envisaged by Tun Razak, it is entitled to a gratuitous amount to be determined by the federal government. This is the wang ehsan as defined by the government. It is distinct from oil royalties.
Hence if Kelantan is given wang ehsan of 20 million a year, it is still entitled to a 5% royalty on the oil that has been discovered off its coast. The first because it is comparatively a poor state. Second, because the oil fields are off its coast.
But how does our government handle this situation? It has done stupidly in this area. The oil royalties accrueable to Terengganu for example should be under Terengganu's absolute control. Applied as the state pleases. It's not for the Federal government to judge how the oil royalties are applied. Instead, the government imposes its will through the creation of some administrative device that resulted in the monies being controlled by those people close to Pak Lah.
As a result of that kind of arrangements, we saw some people constructing holiday homes. Mosques sprouted everywhere etc. You can't travel past a kilometer without coming to a new mosque in Terengganu. Yet the people of Terengganu are still poor. Look out from the windows of The Grand Continental Hotel in KT; you will know what I mean. Cast your eyes in turn to the other side, the Heritage Hotel and the homes built so that Jean Toddt and Miss Michelle Yeoh can set up home.
This government of Dato Sri Najib can correct that stupidity. Return the right to control the oil royalties to the Terengganu government. If the Terengganu government abuses the new found wealth, let the 'market forces' in terms of people's voting power does its suitable job.
Unfortunately it is set to repeat this stupidity in the case of Kelantan. The government stand is that, Kelantan is entitled to no such thing. They are willing to give a paltry sum of goodwill money of RM 20 million a year to Kelantan. Further the money will be distributed through federal agencies to carry out development in Kelantan.
You are going to repeat the same stupidity by creating artificial devices to channel petrol money. Just as when Pak Lah has his Patrick Lim and gang, this time around if PM Najib countenances the funneling of ehsan money through institutions other than state bodies, PM Najib is committing the same mistake as did Pak Lah. As with any funnel, the entry point is bigger than the exit point.
The people pushing for the funneling or petrol monies in this manner are the UMNO warlords. The behavior of the UMNO warlords is also full of hypocrisy. They are always motivated by the underlying interest of what's in for me? Their insistence on this method is dubious.
Oil royalties going direct to state government means UMNO warlords in Kelantan are marginalized. They have nothing to operate by. Wang ehsan going to federal development agencies offer warlords room to interfere and influence the direction and application of the funds. These agencies will be fertile ground to expand personal political agendas. With the majority of UMNO people, playing politics to retain and consolidate interests is the number one priority.
Our leaders must do the right thing. The petrol money, either royalties or wang ehsan should be committed to institutions of the government of the day. Too bad, in Kelantan, the state is ruled by our political adversary. But doing the right thing, affirms our commitment to the rule of law and our belief that governments change though the ballot box. We don't form a government within a legitimate government.


Anonymous,  11 February 2010 at 09:23  

What can I say...
Well written again, Dato.

It took the people 22 years to kick TDM out, 5 years to kick Pak Lah out and it will take shorter time to kick Najib out if he cannot fix things.

BUCK UP OR SHIP OUT, NAJIB and let TSM take over.


Unknown 11 February 2010 at 09:44  


You said;

"Control over the petrol money allows UMNO and the federal government to dictate political outcomes on its terms.
But will this kind of control last long and win adherents to UMNO?"

What Petrol Money may I ask.. Look at the following Figures:

In 2008 Malaysia Produced 727,000 bbl / d. The same year Malaysia consumed an estimated 547,000 bbl/d, leaving net exports of 180,000 bbl/d.

This net export of 180,000 bbl/d is now reduced by half and it is expected that we will soon be a NET IMPORTER of oil.

That's why DS Najib will be announcing soon that Petrol Subsidies will be Phased out until No Subsidies in place before we become a NET IMPORTER of Oil.

ahoo,  11 February 2010 at 12:21  

Doing the right thing is one thing that many people have yet to understand and need to learn. Many of us are living by doing things right after a wrong had happened.

If only more politicians are God fearing first, people's welfare with service as first choice instead of " what is there for me type " we will have pleasant place on earth to live by. Where else on earth can one find a place without natural calamities,.... except too much politiking by some goons.

Anonymous,  11 February 2010 at 12:29  

Well written.

With all the "talents" available in UMNO now, only TRH will make a better PM for the country at least for the moment. Najib does not even come close. You will see real changes taking place and not just rhetoric if he takes over the premiership.

TRH is a man of substance with vast experience. If UMNO Baru is sincere, take him, engage him for the benefit of the country. Sacking him or condemning him will backfire on UMNO.

One has to only read and analyse his many statements/opinions on economy, democracy, judiciary, corruption, education, UMNO culture etc....all are well thought with substance not like many of the current mediocre and half baked UMNO Baru ministers.

That is always the problem with UMNO Baru. Intelligent and smart people (like KJ) are sidelined all out of personal interest/vengeance and partly to please TDM who has shown his utter dislike for KJ. The interest of the people and the country is not in their mind at all.

God bless this country.

Anonymous,  11 February 2010 at 12:46  

Control over petrol as a means to control the country, politically? Wrong formula. Actually, it is disastrous. Petrol on our shores will dry up in the not too distant future. That means the control will run its course pretty soon (20yrs i.e. another 4 GEs or so). Malaysia is a relatively young country. In other words, most of us will live to see that happening! I am not concerned really because we have pakatan. We have an alternative to lean onto. So anarchy will certainly not come about with the demise of umno. [A little digression. My gut feeling is umno will not last very long. Hopefully not beyond this term.]

But what bothers me is the overly heavy dependance on petroleum for our economic well-being. NEP did malays (esp umnoputras) a great deal of disservice. They are now addicted to NEP and are totally afraid to face the withdrawal syndrom. This would not happened if tun razak's original proposal was adhered to. NEP was meant to be a short-term measure to kick start the malays and was not intended to be a long-term drip. We all know who converted the kick start measures into life-line drips. So, like the NEP, our economy is now on petroleum-drips. We are in a curse - petroleum curse. Our economic figures, our competitiveness, our productivity, our costs of production etc etc are all artificial and are being shored up by petroleum. That is frightening. 20yrs from now our children will have to bear the burden of this grave error. Its no wonder why people are migrating. Worse, those who moved are those who can make a difference to the country.

Lets pray that by then we discover uranium in the country.

Anonymous,  11 February 2010 at 13:35  


I enjoy reading on how you discuss on the distribution of oil royalties to the state i.e. 5% and balance of 95% goes to the federal government. However, that 95% of oil revenues does not belong to the federal government alone. Hence, your discussion do not paint the correct picture of the situation. You may want to dig deeper on this.

Red Alfa 11 February 2010 at 13:46  


Malaysia is a federation of state and that the agreed principles of federalism shall apply in all consideration. Since as long ago as UMNO has BN is the only federal government, Malaysia has become other than THAT federation!

UMNO has been doing all what it takes to be the Federal Government with absolute power (having control to all levers of power in executive, judiciary and legislative branches) that UMNO is and will always be blatantly self serving in implementing any national policy. UMNO knows and will want no other way. With that being the driving force, would any suggestion on ways for sharing anything equitably would ever take hold? As absolute power corrupts absolutely, is it any surprise for what has and will become?

eddy 11 February 2010 at 14:10  

Profound post Dato' and as far as the Kelantan oil royalty is concerned Tengku Razaleigh is spot on and your take on the stupidity in Teregganu is also true, however, I wonder if Dato' Najib have the political will to make the really tough decisions and to do what is right for UMNO and this country.

I just pray that Dato' Najib is surrounded by good advisors who can see beyond the UMNO warlords and their self interests into the not so distant future where UMNO's survival as numero uno party for the dominant Malays and the whole nation is really at stake.

walla 11 February 2010 at 18:28  

A: 'I think the flow of funds to Kelantan and later to Terengganu was influenced by the need to wield economic power to shape political agendas. It is hard to justify that since to the people it looks like blackmail of development for votes.'

B: 'That has precedent. There was this city where funds for infrastructure were held back from two places. The people there suffered. Businesses could not develop, roads were potholed and jammed, and the two places were a mess. Yet each election, the people there continued to vote for the opposition. Even today. So when the government realized the people wouldn't budge, they had a change of heart and pumped some money to spruce things up and make up for lost time. Within a short time, the two places started to develop. Today they have many housing estates, shops and eateries, and easier access to other areas which started to develop as well, including places which vote for the funds-holding party. It's a knock-on effect tapping synergies and symbioses. All it took was to eat humble pie once and remember that government is about serving the people not politics. After all, who can say that political lines and divides aren't just artificial constructs in the minds of a few against the needs of the many?'

A: 'Where's that city, Tun?'

B: 'You're standing on it, Sofea.'

A: 'Oh! But i bet the politicians must have felt that they were only indirectly strengthening the interest of the opposition by moving development into those locations.'

B: 'Sofea, look again at what one should understand by development. Any project has to be founded on sound reasons and practices. After all, it's the peoples' money any way you look at it, even if you're talking about oil revenue. Now, those reasons and practices are the same anywhere in the world. If a project is to succeed, the reasons and practices mustn't be shaken by any other consideration. Therefore, how can anyone say that funds should only flow to states which support the party if party support is not a factor that contributes to the success of a project?'

A: 'Unless of course if party support guarantees future funds flow, Tun.'

B: 'Then that would be diversion of funds for bailouts, political cronyism and malignant neglect by zero-sum on other states, wouldn't it?'

A: 'We can cite a considerable number of examples where those have happened in recent memory, Tun.'

B: 'So you see, what started as politics burrowing into economics ends up with the destructive creation of practices which diminish the success of projects and development of states when good sense dictates that it should be economics independent of politics ending in creative destruction of bad practices.'

A: 'Can i take five to think about that, Tun?'

B: (grins and winks)'Me too. I need to figure out what i just said (tongue rolls out).'

..five later..

walla 11 February 2010 at 18:28  

A: 'I think it's more than coalition interests. Also federal versus state. Putrajaya would certainly like everything to be national. Makes sense for more cohesive planning and resource deployment. But states also want their own say on what to develop.'

B:'It's constitutional. Also we are not so uniformly developed that we can have the luxury of generating inter-state competition like you see in Liga Perdana. Only a few places in this country may we say there has been some sustainable development. The key word, Sofea, is sustainable. We tend to start a project and then it fizzles out. Or we build something and then it turns white as an elephant.'

A:'Hmm. Your zoology is quaint, Tun. Back to what our dear blogger has so cogently written. Do you think Putrajaya should double the funds to Kelantan?'

B: 'Of course, Sofea. So Nik Aziz's group is a bit thick around the ears on what to do. Putrajaya can provide advisory support with the additional funds. Just professional evaluation to supplement whatever the state can muster on its own. There can be many projects for Kelantan. If, say, Nik Sapieaa can have the state's biggest fishing fleet, the fishing industry in that state can go upmarket and i don't mean just fish paste.

My point is that if Kelantan does well, then Terengganu can also do well. Meanwhile one can engineer some positive percolating effect across the border to help the muslims in southern thailand.

Just as we shouldn't see political divides, we shouldn't also see geographic divides, especially when peace can be the result.'

A: 'I sense you have some philosophy behind what you're saying, Tun.'

B: (guffaws)'i wouldn't go that far. Just plain common sense and a yearning to believe the Almighty works to teach us important lessons.

Let me illustrate. This morning i bought a pair of slippers to replace the old pair which is threadbare. The lady besides was selling at ten ringgit. But i bought the same from the Sikh boy who sold it for fifteen. Why, you ask? Because i saw pain in his eyes. I gave him twenty, he returned four and was rummaging for the last note. I said since you've been standing in the sun, buy yourself a drink. After that, i went somewhere else and parked. Somehow, i got free parking when it should have cost me a ringgit. Sofea, i like to believe that He returned the compliment. Because when i looked into the eyes of the sikh boy, i felt pain and although the extra ringgit was no anodyne, i was impulsed to give.'

A: 'Umno will say you blew six ringgit.'

B: 'Haha. We cannot go through life being too calculating and selfish. If ever He has taught me anything so far, it's the unimportance of things we mortals think are important. Maybe it's our societal pressure to excel by certain measures. Well and fine. But i think it shouldn't be at the expense of some inner yearning to a higher calling. Especially when we ourselves are paining and should therefore be able to empathize with those in pain.

Sofea, the people of Kelantan are in pain. They must be helped. So too the poor in the other states. Trying to be legalistic because there is a nautical definition will not remove the poverty already there for too long.

Not that i think very much of the quality of our national developments in the first place.'

A: 'It remains to ask this post is for who?'

B: 'Hmmm. You surprise me, Sofea. This post? for that stunning jururawat in KBGH who nursed me back in '71. She smiled, the fever vanished.'

A: 'And if she had held your hand instead?'

B: 'The thermometer would have melted.'

A: 'Why am i no longer surprised you would say that, Tun?'

B: 'Because there can be no more than twenty five of us at any one time, perhaps?'

Donplaypuks® 11 February 2010 at 19:37  

I read somewhere that some years ago Norway created a Sovereign Fund to invest its O&G Income and has managed it quite successfully.

That way, there is transparency in the usage and application of these moneys. I believe that's what has influenced Terengganu's decision on what to do with its Wang Ehsan, though I'm suspicious now that Najib's Govt has hijacked it at the Federal level.

That way too, O&G money will not become the whipping boy for everything from Rolls Royce engines to bailout of failed state enterprises, and when the oil runs out we will have nothing to show for it but rusting derricks and gaping holes in the ground!

We are all of 1 race, the Human Race

Pak Zawi 11 February 2010 at 21:00  

Well said.
On the other hand if PM Najib were to do the right thing now, it will only prove to the world that his mentor TDM did the wrong thing when he introduced Wang Ehsan.

Anonymous,  11 February 2010 at 22:56  

Your view that Kelantan state must get the oil royalty, will become a reality only if:

a. PAS distances itself from Pakatan and accepts UMNO's 'leadership' to form the unity government...OR
b. PAS joins BN

But knowing PAS, the above two will not happen.

So, continue writing on this till the cows (not cow heads) come home.


Anonymous,  11 February 2010 at 23:04  

But why aren't Petronas saying anything about this. Afterall, Petronas is a party to this agreement, not the federal government. Perhaps this is one reason why Hassan Merican's contract is not extended?

ex-Oil&gas Accountant,  12 February 2010 at 08:45  

I used to calculate the PSC statements/accounts and still have the formulas at my fingertips. Yes, 5% goes to state and 5% goes to Federal Govt; the remaining balance goes to (1) pay off production cost (Cost Oil)between 20-50%,(2) the remaining balance (Profit Oil) is then split between Petronas (70%) and Contractor (30%). The formula varies slightly for Deep Water areas. Facts of the matter are:
1. the state has absolute rights on the 5% (never been an issue for S'wak & Sabah)of the total production; btw I used to thumb thru the PDA and the rights was explicitly mentioned.
2. Petronas makes a lot of money as a money-collecting agency for the govt. Unfortunately this money (huge share of profit from PSCs made at zero cost)is never distinguished from other Petronas revenues; not surprisingly Petronas profit margin is the highest among O&G companies. All the biz writers/reporters totally blind about this!!! The collection from PSCs (which had nothing to do with Petronas other commercial interests)should be channelled direct to Fed Govt without being "masked" as dividends.
3. Fed Govt make more money from Petroleum Income tax and export duties paid by Petronas & Contractors. In addition it gets dividends from Petronas. For 1976 PSC terms Fed Govt collect 67% of total production!
4. No point shouting for higher royalty rates as often raised by some ignorant quarters. The moment this rate is raised then Contractors will have less share of profit and will shift operations elsewhere. These contractors are not your average contractors; these are the like of ExxonMonbil, Shell, Murphy, Talisman, Newfield etc who are mammoth transnational companies.
5. Malaysia has huge gas reserves which dwarfed our oil reserves. The govt should do smthg better with this reserves.
6. Petronas commercial interests have been well run by professionals; don't get politicians to be involved!

Anonymous,  12 February 2010 at 16:51  

Aku fed-up ler bila org PR ni cakap pasal "transparency" tapi bila kena batang hidung sendiri, semua nak disorok selagi boleh..

Lepas tu ada pulak nak dilayan adil dan saksama, ialah adil dan saksama bila kena bagi ke dia saja dan saja...Uitm pun depa dengki nak join belajar sama, last2 habis hak melayu pun tergadai.

Tapi apa pasal dalam pada nak bagi hak sama, depa buat majlis maulidul rasul di pulau pinang di batalkan.. betul ke tak ni...ada sapa2 boleh confirmkan?

La ni hak pun ntah ke mana, nama aja negara majoriti islam..Aku heran tang hal camni boleh pulak depa buat yer? Aku risau ler melihat keadaan ini. Naik semak hati aku.

Tak de sapa ke yg berusaha utk memperbaiki keadaan. Kenapa dibiarkan gini.

Suci Dalam Debu 12 February 2010 at 23:49  


I truly dread the day when we don't have any surplus oil for export.

Looking back, we did squandered quite a lot of petro-dollars and we are still doing it.

Another well-written piece Sir.

  © Blogger templates Newspaper III by 2008

Back to TOP