How S’wak is benefiting from Sabah’s oil and gas
Published on: Sunday, November 01, 2020
By: John Lo
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THE idiom “a slap in the face” means a sharp rebuke or rebuff. Shell’s planned pull out is an extensive pull-down for Sabah fragile economy. 

Besides its promises, it has been and will continue to make millions from the pumping of our petroleum out of its two deep water wells. Shell is not pulling out of Malaysia. It is moving its upstream office out of KK and will build a new office to house them in Miri. The question is what are the underlying factors that have led to the Shell pull out.

Impotent words from Sabah politicians. Sabah political leaders have united for once to beat their war drums, showing their rage on this Shell pull out. 

Strong words from our politicians don’t mean a thing to Shell as their words are ineffectual. At best, they are for Sabahans’ consumption. Will their words change Shell’s mind? Will their words improve Sabah’s economy? Not one teeny weeny bit. I will buy them Teh Tarik if their words can impact Shell to reverse its decision. 

Like all other key issues that have major economic impacts on Sabah, when the bad political odour like this Shell pull-out has petered out, all is forgotten again.

This Shell pull-out issue will be truly forgotten within a week, at best two weeks. But the vacuum will continue to be felt for years. In Sabah, there is no consistency in protecting our economic rights and chasing after economic progress. Nor do we know how to leverage political development in Sabah’s favour like Sarawak.

Sabah has been deprived of our oil/gas for development. I have written many times that Sabah has been deprived from using our oil/gas resources to build our own industrialisation/economic development. Ownership of all our oil/gas and natural resources like land have been and are being taken out of Sabah’s control for the benefit of other states, to the benefit of non-Sabahans. Huge facilities have been and are being built in Malacca and Johor, both of which don’t produce a single drop of oil or a smidgeon of gas.

Who is to blame? Is it Shell’s fault or federal government’s fault that Sabah is in this sad state? Only to a small extend. Sabahans must place the blame on our leaders for allowing this to happen, for not having foreseen and prevented it, no policies and/or system to retain valuable investors like Shell. 

Over the years, they have been nothing but subservient while Sabah was being trodden and trampled left and right. 

Petronas pumped our gas to Bintulu for processing into LNG and is being used to fuel Sarawak’s development. Sabah was not even consulted when federal government [Badawi] handed over two oil rich blocks belonging to Sabah to Brunei in exchange for “no claim” on Limbang. Isn’t it ironic for Sabah? 

Sarawak’s Limbang problem with Brunei has been resolved at Sabah’s expense, Sabah having to give up two oil rich blocks. This “gift to Brunei” was not even tabled at Sabah Legislative Assembly. All these have been done as if Sabah does not exist. It is a roughshod pill that Sabah has to swallow. Why talk about equal partnership in Malaysia? 

Can we reset oil/gas position for Sabah? “Politics is the art of the impossible made possible” so said Von Otto Bismarck, famous for his success in unifying Germany in 1871 against numerous odds. To this question, YES, we can reset if Sabah can produce astute leaders who are savvy in politics and economic development. Continue to fight for higher royalties by all means. But there are other things that can be done. Here are some notable track records: - [a] Sarawak political leaders have to operate under the same Petroleum Act as Sabah. Why have they been able to produce so much more benefits from oil and gas for Sarawakians than our own leaders for Sabahans? This we got to be honest with ourselves. If Sarawak leaders can, why can’t ours? We can overlook our leaders’ poor performance if the difference is only marginal. How to keep our eyes shut when Sarawak is miles ahead. Our leaders should, in all sincerity, account for this gross negligence. [b] Tan Sri Harris was outstanding in setting up major oil/gas manufacturing and related facilities. To name a few of them [i] Sabah Gas. [ii] Sabah Energy. [iii] Sabah Hot Briquetted Irons. [iv] Asean Supply Base. Unfortunately, the next government sold them with the exception of Sabah Energy and Asean Supply Base which are still operating and are giving very impressive income streams for the Sabah government. Very sad that the subsequent government was not capable of managing Sabah Gas and Sabah Hot Briquetted Iron. Petronas has been making millions from Sabah Gas. Also, Lion Corporation which has sold the hot briquetted iron factory to a Singapore investor for RM546 million in June 2020. [c] Tan Sri Musa was rebuilding and expanding Sabah’s share in oil/gas industry [i] He had initiated Sabah into operating two FPSOs [Floating Production Storge and Offloading]. These are big fellows! He succeeded to contract them out to Petronas. [ii] He has also pioneered Ammonia and Urea factories in Sogip at Sipitang after completing construction of comprehensive infrastructures including a jetty. These are first-ever oil and gas factories on Sabah main land. These are huge investments. [iii] He has also secured for Sabah 25pc share for onshore oil and gas in comparison to only 5pc from Petronas for offshore production. [iv] He has got Petronas to set up facilities to train Sabahans for the oil/gas industry. [v] Most probably, Tan Sri Musa was the inspiration that has attracted Shell to site their upstream operation in KK.

I hope Datuk Hajiji will continue to implement Tan Sri Musa’s vision on oil and gas.

Transformation of attitude required.

Trying to shut the door after the horse has bolted out is a waste of time, cry no tears! No point to be rude to Shell, which is the 4th largest oil company in the world. Malaysia needs Shell, Sabah, needless to say, needs Shell even more. Once we have lost it, to get it back is not an easy task. Being rude is unhelpful and is sending out bad signals to other major investors.

Why has Shell decided to move to Miri? Several possible reasons: [a] Sabah has become less conducive for Shell. [b] Sabah has failed to build up supporting industry to service it. Sarawak has built up an impressive array of contractors and service personnel to support Shell’s operation, probably the best in Malaysia. What has Sabah got to offer? [c] Sarawak has established a first-class supply chain. Where is Sabah’s supply chain? [d] What are Sabah policies to entice Shell to continue in Sabah? [d] Sabah may have become overly costly for Shell to continue its presence in Sabah. 

Let this Shell pull out be a lesson for our leaders to pay detail and constant attention to economic matters to avoid a repeat of this Shell pull out by other investors. Much more important is to set up policies and system to attract and encourage major investors to invest in Sabah. Sabah leaders should learn to be savvy in dealing with big investors and compete for and retain investments from MNCs. 

Shell pullout is not the end of world.

Keep emotion in check. It is prudent to continue contact and cultivate relationship with Shell by Sabah’s top leaders even though it is going to pull out.

Life goes on. Sabah should not let this Shell pull out to drag us down. Let’s move on with life. Instead of blaming Shell, Sabah leaders should introspect and conduct an exhaustive post modem. It will turn out to be a valuable lesson that we need to learn. Our leaders have neglected economic matters too long. Dealing with major corporations is purely business driven. No such things as privileges and rights or condescending pollical conversations.

If our leaders can transform themselves by cultivating an investment inclined mindset, can set up conducive policies and implementation, there are many fishes in the ocean. For example, we can try to attract the two largest oil companies in the world. They happen to be Chinese! Their presence in Sabah can be much larger than Shell’s! And Sabah’s location is very attractive in the South China Sea where China has extensive oil and geopolitical ambitions. Forget politics. Roll up our sleeves and get down to work.

Moving on from the Shell issue, when we look at the oil and gas situation overall, definitely Sabah has got a rotten deal and I will tell you why. And this has also nothing to do with the 5pc royalty that all producing states are getting following the Petroleum Development Act 1974.

In fact, I – and all Sabahans – are curious what our Sabahan Ministers who held the post of Minister in the Prime Minister’s Department did for Sabah when Petronas came under their jurisdiction, not to mention also all other Sabahan Ministers who warmed their seats at the full Cabinet meetings.

Firstly, how come there are now Sarawakians on the Petronas Board but not Sabahans?

I recall one journalist friend telling me how one former Petronas CEO confided to him that all Petronas contracts when a certain Sabahan Minister was the Minister in the PM’s Department, went to the latter’s known company in Sabah. 

Our representatives in the Federal Cabinet, more so those under who Petronas came under, should have from day one demanded to set up a refinery in Sabah instead of having our petroleum resources being directed to Sarawak to be aggregated. 

Secondly, I understand this is linked to one of the reasons why Petronas today is having difficulty paying Sabah similar Sales Tax like Sarawak, which to add salt to injury, received a RM2b cheque from Petronas while Sabah was holding the State election in September and politicians again promising to address MA63 issues, including about oil.

I am told that it is not that Petronas is not willing to pay Sabah the Sales Tax which the Warisan-Plus government officially demanded in April, this year.

Initially there was apparently some legal impediments that although the Bornean states were entitled to sales tax under the MA63, there was nothing specific about which types of goods this tax should cover.

Hence, Federal decided to then opt for a commercial resolution and advised Petronas not to appeal against the High Court judgement that went in favour of Sarawak. 

But in Sabah’s case there is further disagreement as at which point exactly the sale occurred – at the point where the oil and gas comes out, or where it was processed or aggregated by Petronas or where it was redistributed by Petronas, including to Sabah. This is also to eliminate being taxed twice under their contracting model.

Sarawak does not have this problem legally speaking because all the aggregate facilities are there. Mind you, it was reported in the Daily Express that Sabah produced more oil and gas than Brunei since the beginning of this year. By right Sabah should have been entitled to half or more of the RM2b that Sarawak got from Petronas in Sales Tax in September based on last year’s production alone.. 

The sooner this anomaly is resolved the better. If this continues, Sarawak will be happily benefiting from what is taken out from Sabah. I’m sure something can be worked out and that Petronas would see that it is also in their best interests to resolve this as Sabah is said to have large untapped gas deposits.

I am hopeful for Sabah’s future under Datuk Hajiji who has vowed to give economic recovery his top priority. Let’s all work for it.




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