[Letter to the Editor] PETRONAS’ legal move risks inflaming Borneo–Putrajaya tensions

Letter to the editor. —DayakDaily.com file pic. // Photo by Free-Photos from Pixabay

Letter to the Editor

By Prof James Chin

As a long-time observer of Malaysian federalism, particularly the fraught dynamics between Putrajaya and the Borneo states, I feel compelled to weigh in on Petroliam Nasional Berhad’s (PETRONAS) move to seek judicial review of the Petroleum Development Act 1974 (PDA74) in relation to its operations in Sarawak.

On Jan 12, 2026, PETRONAS filed a motion at the Federal Court seeking clarity on the regulatory framework governing its upstream and downstream activities in the state. The court has set March 16, 2026, to decide on granting leave for this application, with both the federal and Sarawak governments named as respondents.

PETRONAS frames this as a quest for “regulatory certainty” to ensure compliance with the law, amid ongoing disputes with Petroleum Sarawak Berhad (PETROS) over gas distribution and licensing.

While the company insists this is not aimed at hindering PETROS, the action reeks of adversarial posturing that could unravel delicate federal-state relations.

My position is unequivocal: This judicial route is misguided and dangerous. PETRONAS should halt its legal offensive, and Prime Minister Datuk Seri Anwar Ibrahim must intervene to steer the matter back to the political arena.

Setting aside commercial imperatives for a moment, the real peril lies in the political fallout. Pursuing courtroom battles over PDA74 risks opening a Pandora’s box of historical grievances, potentially pushing Sabahans and Sarawakians in ways that could destabilise the federation.

To understand the stakes, one must grasp the regulatory framework at play. Enacted in 1974 under Prime Minister Tun Abdul Razak Hussein, PDA74 vested exclusive ownership and control of petroleum resources in PETRONAS, nationalising the industry and overriding pre-existing State laws.

This included Sabah and Sarawak, where oil and gas had been governed by colonial-era ordinances such as Sarawak’s Oil Mining Ordinance (OMO) 1958. The Sarawak government’s position is that the OMO became Malaysian law when the federation came into being in 1963, as stated clearly in the Constitution.

Under PDA74, states receive a mere 5 per cent royalty, a figure that has long fuelled resentment. Sarawak, however, has asserted its rights through the Distribution of Gas Ordinance 2016 (DGO), which grants PETROS regulatory authority over gas distribution within the State.

The conflict boils down to this: Does federal law (PDA74) pre-empt State prerogatives under the Federal Constitution’s Ninth Schedule, where petroleum falls under the Federal List but mining permits under the State List?

PETRONAS’ suit seeks to affirm its dominance, and Sarawak views it as an infringement on its autonomy, rooted in the Malaysia Agreement 1963 (MA63). This is no mere legal technicality; it is a tinderbox for political upheaval.

I issue this public warning to Putrajaya: Proceed with extreme caution, for what PETRONAS is doing could unleash uncontrollable forces. Already, there are calls in Sarawak for PDA74 to be debated in the State Legislative Assembly (DUS). If such a debate materialises, Sabah will almost certainly follow, given its parallel grievances.

Once Borneo states air these issues in their assemblies, it could cascade to Peninsular states such as Kelantan and Terengganu, which harbour their own historical complaints over oil revenues.

Imagine a domino effect of state legislatures challenging federal overreach—what starts as a Sarawak skirmish could fracture national unity and federal-state relations.

Delving into history amplifies the risk. Prior to PDA74’s implementation, there was fierce opposition from chief ministers in both Sabah and Sarawak. Tun Mustapha Harun opposed or delayed full cooperation, originally demanding higher royalties (for example, 20 per cent). Sabah was reportedly the last State to agree.

It is a matter of historical record that Harris Salleh signed up for PDA74 immediately after becoming chief minister following the tragic Double Six plane crash in June 1976 that killed his predecessor, Tun Fuad Stephens. One can speculate that if the Double Six tragedy had not occurred, the outcome may have been different.

Crucially, PDA74 was never tabled, debated or approved in either State’s legislative assemblies—a glaring constitutional oversight. Many constitutional lawyers argue this renders the Act’s application to Borneo problematic, as it bypassed State legislative consent required under MA63 safeguards.

If these details and other behind-the-scenes negotiations surface in open DUS debates, the revelations could spark widespread outrage, exposing how Borneo resources were effectively ceded without proper democratic process.

The repercussions? A surge in separatist sentiments, eroded trust in Putrajaya, and perhaps even calls to revisit MA63 entirely.

The prudent alternative is to honour the political understanding forged between Anwar and Sarawak Premier Datuk Patinggi Tan Sri Abang Johari Tun Openg. In May 2025, they signed a Joint Declaration acknowledging the coexistence of PDA74 and DGO, designating PETROS as aggregator for domestic gas while PETRONAS handles LNG exports.

This framework promised stability and mutual respect, allowing time for a durable resolution without upending investor confidence.

PETRONAS’ current legal gambit undermines this accord, signalling distrust rather than partnership. Anwar should enforce it, directing PETRONAS to de-escalate and negotiate in good faith. Everybody knows that PETRONAS only answers to the incumbent prime minister and does not report to anyone else. Hence, did PETRONAS receive the ‘okay’ from the Prime Minister to file court action against Sarawak?

From my conversations with Malayan politicians, a troubling pattern emerges: Many underestimate the depth of Borneo sentiments on these issues.

There is a persistent delusion that Sabah and Sarawak can be managed through financial incentives—a “cash is king” mentality—that dismisses Borneans as politically naive “hillbillies”. This arrogance is staggering.

How is it that Sabah and Sarawak cabinet ministers fail to convey the ground realities to their Peninsular counterparts? Or, more likely, are they simply ignored?

In Kuching and Kota Kinabalu, leaders know better: These matters unite about 90 per cent of locals across ethnic and party lines, transcending petty politics.

Anwar must exhibit statesmanship by prioritising political dialogue over litigation. Direct PETRONAS to stand down on its court action, and impress upon the Malayan establishment the political risks of this move.

Failure to do so risks a severe setback in federal-state relations, with echoes reverberating far beyond Sarawak’s shores. The federation’s strength lies in accommodation, not confrontation.

Heed this warning before it’s too late.

James Chin is a professor of Asian studies at the University of Tasmania, Australia.

This is the personal opinion of the author(s) and does not necessarily represent the views of DayakDaily. Letters to the Editor may be lightly edited for clarity.

— DayakDaily