The Sarawak state government’s officials and legal team are seen here after a Federal Court’s decision on Petronas’ bid for leave in a legal challenge, in Putrajaya June 22, 2018.—Picture by Azinuddin Ghazali

PUTRAJAYA, June 22 — The Federal Court dismissed today Petroliam Nasional Berhad’s (Petronas) application for leave to proceed with its legal tussle with the Sarawak government for regulatory control of the oil-and-gas exploration and mining in the state.

Chief Judge of Malaya Tan Sri Ahmad Maarop, the sole Federal Court judge deciding on Petronas’ bid, said the matter should have been brought before the High Court instead.

“In my view, the declaratory reliefs sought by the applicant (Petronas) do not come under the ambit of Article 4(3) and Article 4(4), hence the declaratory reliefs sought by the applicant are not within the jurisdiction of the Federal Court,” he said.

Ahmad noted that Petronas had not specifically sought for a court declaration that a certain law is invalid, which was required for the matter to fall under the Federal Court’s jurisdiction.

Based on court documents, Petronas did not expressly ask for the court to declare a 1958 Sarawak state law as invalid, but instead asked the court to declare the state law as having been impliedly repealed by a 1974 federal law.

The Federal Court’s decision today is only on whether Petronas can commence its lawsuit there, and does not decide on substantial matters such as whether Petronas has exclusive powers to regulate petroleum activities in Malaysia or if Sarawak has such regulatory powers in the state.

Ahmad also ordered that Petronas pay RM50,000 costs.

When asked if a fresh challenge will be filed in the High Court, Petronas lawyer Datuk Malik Imtiaz Sarwar said he will have to seek instructions from his client on its next steps.

Earlier this month, Petronas filed its constitutional challenge by applying under Article 4(4) of the Federal Constitution for leave to start proceedings at the Federal Court against the Sarawak government.

Petronas is seeking a court declaration that only Parliament has exclusive legislative competence to make laws on upstream petroleum activities or the exploration, exploitation, winning and obtaining of onshore and offshore petroleum throughout Malaysia.

Petronas also wants a declaration that the Petroleum Development Act 1974 was duly enacted by Parliament and that the company has “exclusive regulatory authority” over upstream activities by virtue of PDA’s Section 7, several regulations and a related order.

The company also wants the courts to declare that the Sarawak Oil Mining Ordinance (OMO) 1958 to be implicitly repealed by the PDA.

The lawsuit arose after Sarawak informed Petronas in an April 13 letter that the state government would start regulating from July 1 upstream oil and gas activities in Sarawak under OMO.

The letter also notified Petronas that it would have to comply with OMO and apply for licences or leases after July 1 to avoid its upstream activities from being deemed illegal and action taken against them.

Petronas’s position is that that the PDA, which created the national oil company and vested ownership and exclusive regulatory authority over Malaysia’s oil and gas in it, effectively invalidated the pre-Malaysia OMO.

Among other things, the Sarawak state government’s position is that the formation of Malaysia did not invalidate the OMO, noting that the PDA did not specify that OMO was not applicable to Petronas.

The Sarawak government also argued that Parliament did not have exclusive authority to legislate upstream petroleum activities, as such authority is subject to the Sarawak state assembly’s right to pass laws on things such as oil prospecting licences and oil mining leases.

The Sarawak government is relying on OMO to regulate Sarawak’s upstream oil and gas activities under its newly-formed Petroleum Sarawak Berhad (Petros).

Sarawak launched Petros on March 6, where the state-owned company was envisioned to fully take over regulation of oil and gas activities in the state.

This is part of Sarawak’s efforts to seek the restoration of Sarawak’s rights under the Malaysia Agreement 1963, including devolution of powers from the federal government.