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AN issue that may arise during this election period is the Federal Government’s claim over the Sabah’s continental shelf and all its natural resources.

A continental shelf is a part of a continent’s land mass that is submerged beneath the sea, extends outwards and ends either at the continental drop (in layman’s terms – where there’s a cliff) or after 200 nautical miles. 

In Sabah, the continental shelf surrounds the entirety of Sabah’s terrestrial land mass and extends roughly 90km off Sabah’s West coast at its furthest and approximately 18-20km at its narrowest (in the South, near Tawau / Darvel Bay).

The reason why Sabah’s continental shelf has attracted so much attention over the years is because of the abundant presence of oil, natural gas and other natural resources. Present estimates put Sabah’s continental shelf oil reserves at approximately 1.5 billion barrels. 

Natural gas reserves stand at around 11 trillion cubic feet (or 15pc of national reserves). In context, Sabah accounts for approximately 40pc of Malaysia’s current oil production and 8pc of its natural gas supply.

With so much potential wealth at stake, it worth examining the legal position and controversies surrounding Sabah’s continental shelf.

The Emergency 1969

The 1969 race riots in West Malaysia occasioned the enactment of various Emergency laws under the Declaration of Emergency 13.5.1969. Subsequently in November of 1969, the Emergency (Essential Powers) Ordinance No. 10 1969 was enacted under the Emergency Declaration which, extended the jurisdiction and effect of the Federal Continental Shelf Act 1966 and the Petroleum Mining Act 1966 to Sabah and Sarawak. 

What did Federal petroleum mining rights and the jurisdiction over Sabah and Sarawak’s continental shelves have to do with quelling race riots in urban West Malaysia?

Well, nobody seems to know. It is opined, however, that the use of the Emergency Declaration to extinguish Sabah and Sarawak’s jurisdiction over its maritime boundaries and continental shelves while vesting the same in the Federal government represents a gross abuse of power on the part of the Federation. 

That aside, however, it is important to note that prior to the Emergency Declaration, Sabah had control over its continental shelf by virtue of the pre-Merdeka North Borneo (Alterations of Boundaries) Order in Council 1954 which, was enacted under the UK Parliament’s Colonial Boundaries Act 1895. The 1954 Order in Council vested North Borneo (now Sabah) with rights over all of the sea bed and subsoil of the continental shelf, ‘contiguous to the Colony.’

However, upon the Emergency Ordinances taking effect, the power to explore and exploit oil and gas resources contained in Sabah’s continental shelf vested in the Federal Government and away from Sabah. Subsequently in 1974, the Petroleum Development Act 1974 purportedly vested title in and the exclusive ‘…rights, powers, liberties and privileges of exploring, exploiting, winning and obtaining petroleum, whether onshore or offshore, in Petronas.’ 

In 1976 the Petroleum Development Agreement was signed where Sabah agreed to waive all rights to royalties from ‘any oil mining lease’ in exchange for a cash payment from PETRONAS amounting to 5pc of the gross value of oil extracted. The 1976 Agreement, however, does not give PETRONAS the right to operate in or on Sabah land as regulated under the Sabah Land Ordinance.

Legal Questions Arise from the 1976 Agreement

In June 2012 the Emergency Powers enactments ceased to have effect by operation of law (the Emergency Declaration had expired and was not renewed). Therefore, the effect and operation of the 1954 Order in Council resumed, along all with all Sabah’s territorial rights over its continental shelf. This opened the door for questions to be asked regarding how Sabah’s petroleum assets were vested during the Emergency.

One question regarding the 1976 Agreement is this: Can a Chief Minister agree to waive Sabah’s rights under the 1954 Order in Council and the Sabah Land Ordinance without any new enabling or supporting legislation being enacted by the Legislative Assembly?

As a matter of law, if Sabah has both statutory and constitutional rights of ownership over its land and continental shelf, then it follows that a Chief Minister cannot simply sign away such rights without formally surrendering the same formally through the legislative process. A mere executive act – such as signing the 1976 Agreement – is woefully insufficient.

What must also happen is that there must be a corresponding amendment to Sabah’s land laws as well as a formal amendment to the Ninth Schedule to the Federal Constitution: to the State List. 

This can only be accomplished through corresponding Acts in both the Sabah Legislative Assembly and the Federal Parliament. The Chief Minister, therefore, simply could not, in 1976, sign a document and thereafter, bind the state of Sabah in perpetuity to the terms of the 1976 Agreement without the Legislative Assembly and Federal Parliament first enacting laws enabling him to do so.

In this sense, the Chief Minister in 1976 appears to have performed a legislative act when he was not empowered to do so.

It is therefore opined that the 1976 Agreement may not have the binding legal effect and import that Petronas has relied upon all these years. This is because the 1976 Agreement appears to have breached the separation of powers doctrine and may well have been a document, the execution of which, was beyond the Chief Minister’s powers. 

Sabah’s Boundaries Changed Under the Emergency - Petroleum Development Act 1974

Other consequences that the Emergency Declaration had on Sabah’s boundaries under the 1954 Order in Council include the definition of Malaysia’s territorial waters being re-stated as 12 nautical miles and the limitation of Sabah’s territorial sea to only 3 nautical miles for the purposes of extending federal powers over Sabah under both the Continental Shelf Act 1966 and the Petroleum Mining Act 1966 (See: Emergency (Essential Powers) Ordinance No.7 1969, Emergency (Essential Powers) Ordinance No. 10 1969 and Emergency (Essential Powers) Ordinance No. 11 1969). 

This took away Sabah’s rights to explore and exploit its oil and gas assets on the continental shelf and vested the same in the Federal government for the period of the Emergency.

Upon the expiration of the Emergency Declaration in 2012, the Federal government enacted the Territorial Seas Act 2012 to extend the effects of the Emergency Declaration as it pertained to Sabah’s maritime boundaries and rights over its continental shelf.

As a matter of international law, the United Nations Convention on the Law of the Sea (UNCLOS) entitles Malaysia to claim as its territorial sea, an area up to 12 nautical miles from its coastline (or its baseline under international law).

Recognised maritime formations comprising an area beyond the 12 nautical mile limit may not be counted as part of Malaysia’s territorial waters but instead, form part of its Exclusive Economic Zone for the purposes of development and exploitation – this would include Sabah’s continental shelf under international law. 

However, as a matter of domestic Malaysian law, the Territorial Seas Act 2012 cannot override the provisions of the 1954 Order in Council, the Sabah Land Ordinance and the Federal Constitution. Although the Territorial Seas Act 2012 limits Sabah’s territorial waters to 3 nautical miles, it does not, however, limit the effect of Sabah’s rights over its continental shelf since the same is not considered a part of the state’s territorial sea but rather a component of its exclusive economic zone. 

The continental shelf is also part of Sabah’s land mass for the purposes of domestic law pursuant to the 1954 Order in Council read with Section 4 of the Sabah Land Ordinance (as amended in 2018). As such, the Federal Parliament does not have the legislative competence to enact laws affecting Sabah’s land rights. 

Therefore, any provision under the Territorial Seas Act 2012 that purports to regulate Sabah’s continental shelf must be read down in accordance with the State List contained in the Ninth Schedule to the Federal Constitution. 

Unless and until there is dual legislation in both the Assembly and the Federal Parliament relinquishing Sabah’s rights over the continental shelf by legislation, it is opined that the state retains all of its rights over the submerged land beyond 3 nautical miles, notwithstanding any purported limits placed upon the state by the Territorial Seas Act 2012.

Therefore, technically, Petronas requires a mining licence and Sabah’s permission under Section 24(1) of the Land Ordinance to operate its oil fields on the state’s continental shelf. However, no action in this direction has been taken by Sabah and it remains a live issue until today.

To wrap up, there are, of course, many more arguments and analysis available on this subject. However, for now, it is hoped that this article provides a framework through which further questions from the public may be asked.

Tengku Fuad is a senior lawyer specialising in commercial and public law and has, and continues to, act for the Sabah Government in complex cases. In 2021 Tengku Fuad was appointed as a member of the Federal Government’s Special Task Force to review legal matters related to the sovereignty of Batu Puteh, Middle Rocks and South Ledge and, in 2022, was also appointed to the Federal Government’s Special Task Force to resist the Sultan of Sulu’s (heirs) claim against Malaysia. Prior to establishing his firm, Tengku Fuad served as a public company director and was involved in the corporate sector. 

The views expressed here are the views of the writer and do not necessarily reflect those of the Daily Express. If you have something to share, write to us at: Forum@dailyexpress.com.my