Do Petronas subsidiaries need state licenses for gas operations in Sarawak?

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Petronas Subsidiaries' Licensing Status in Sarawak Under Scrutiny

Five subsidiaries of Petronas are seeking a judicial review concerning RM120 million in penalties imposed by Sarawak for alleged non-compliance with state licensing requirements. The core of the dispute lies in whether the Sarawak Distribution of Gas Ordinance (DGO) 2016, which mandates licenses for gas operations, applies to these entities, or if they fall under the purview of the federal Petroleum Development Act 1974 (PDA74). The Sarawak government contends that Petronas' subsidiaries are distinct legal entities that must adhere to state laws governing gas supply and distribution.
State's Position on Licensing Requirements

The Sarawak government asserts that the DGO 2016 applies to the operations of Petronas' subsidiaries, requiring them to obtain licenses for gas distribution activities within the state. This stance is supported by the argument that subsidiaries are separate legal entities from their parent company, Petronas, and therefore, federal regulations under the PDA74 do not automatically exempt them from state-specific laws. Furthermore, the state government cites a Federal Court decision which broadly interprets "distribution of gas" to encompass ancillary activities such as processing, separation, treatment, supply, transportation, pipeline maintenance, and licensing.
Subsidiaries' Argument Against State Regulations

The legal team representing the five Petronas subsidiaries argues that the DGO 2016 is not applicable to their specific operations. They contend that the Sarawak State Legislature may have exceeded its legislative powers by imposing licensing requirements for activities like gas treatment, processing, separation, and transportation, as well as gas pipeline construction and maintenance. Their primary contention is that as operating arms of Petronas, their activities should be regulated under the federal PDA74, not the state's DGO 2016.
Penalties and Legal Proceedings

The penalties, totalling RM120 million, were issued for failing to apply for licenses under Section 7 of the DGO 2016. Each of the five subsidiaries received eight notices, with a RM15 million penalty per notice, amounting to a maximum penalty of RM20 million per case as stipulated by Section 21A of the DGO 2016. The subsidiaries are seeking a judicial review to quash these notices and the imposed financial penalties. The High Court is scheduled to deliver its decision on the leave application for the judicial review on February 3.

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Do Petronas subsidiaries need state licenses for gas operations in Sarawak?

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