Thursday, February 11, 2010

Petro Ringgit and UMNO politics

Thursday, 11 February 2010  -  A few weeks ago, Tengku Razaleigh Hamzah has spoken about the oil royalty issue for Kelantan. He is saying that Kelantan is entitled to a 5 % royalty on oil and gas revenues off the Kelantan coast. He spoke to a large crowd of some 40,000 people in a stadium in Kota Bharu. The talk ruffled a lot of feathers. 

He is seen to have broken ranks with his UMNO brethren. The business-as-usual approach of UMNO people is to keep any fortuitous advantage as a tactical advantage. The fact that it has control over a very important economic asset, oil, is one such fortuitous advantage. Control over the petrol money allows UMNO and the federal government to dictate political outcomes on its terms. 

But will this kind of control last long and win adherents to UMNO? 

What Tengku Razaleigh has done is to expose a secret weapon that UMNO has. That has earned him the wrath of UMNO people. Some UMNO people are even calling for his expulsion. The UMNO president is more circumspect preferring to study the matter first. 

The gulf that divides the thinking of TRH and the majority of UMNO people is much more significant than a difference over giving up of tactical advantage. It involves the correct reading of public sentiments that could yield long term political advantage and determine the longevity of UMNO itself. 

What motivates the present generation and what did the previous generation are different. I have touched about this in a previous article. The 1st generation of leaders and followers were motivated primarily by a desire to get rid of colonialism. Leaders emerged naturally because there were external stimuli that moved people. After independence, that kind of stimulus isn't there anymore. Leaders and conscious followers didn't emerge naturally. 

They are now moved by different urges. 

What are these? Chief among these are the universal values of rule of law, efficient government, good governance, animosity against corruption and all these. These are the elements, when articulated and struggled for, win adherents and loyalty and respect.

So, between a Tengku Razaleigh who articulates these elements and the rest who speak about aged old urges, which one will earn adherents? UMNO must choose its issues carefully now. 

TRH speaks about a subject on which he has direct knowledge. He is arguably among the few together with Tun Razak who has full knowledge on what took place in the early years of PETRONAS. 

How will UMNO treat him? I say gingerly. UMNO will be foolish to discount him totally. Doing that would injure UMNO's credibility further. He represents the saner voice of reason within UMNO. He speaks on issues that could earn adherents to a rejuvenated UMNO. 
Set the record straight

Along that line, what UMNO needs to do immediately is to carry out a project with immediate social and political impact. One of them, in my mind, is dealing unequivocally with this oil royalty issue. It has no other choice but to set the record straight. If Kelantan is entitled to a 5% oil royalty, then it must be given that. No beating around the bush- no ehsan money or other political tongue twisters. 

When PM Najib announced that he isn't interested in staying for the sake of just staying as PM, that statement strongly indicates his intention to make a difference. The difference being he is more interested in seeing results and performance. The difference being PM Najib is more interested to achieve those issues articulated by TRH. Let's help him along by giving him sound advice. 

The fact is Kelantan is entitled to receive a portion of the oil revenue. This entitlement is clearly provided for in the vesting deed signed by the PETRONAS Chairman then (TRH himself) and the Chief Minister then. The same document also applies to other states in Malaysia where oil is found off their shores. 

The wish of the late Tun Razak

It was the wish of the late Tun Razak, our prime minister then, to see revenues from oil, applied on the poorer states. That was sound economics- the richer states carry the poorer ones. It's the strategy currently applied by China's SOEs; the richer ones carrying the poorer ones. 

Oil is a national resource. It is inconceivable for a national resource to be enjoyed by only the states closest in proximity to that resource. If that is the case, it's no longer a national resource but state owned. It should then be treated as land which is under the full discretion of the state. Clearly this wasn't the idea of a national resource. 

Turning it into a national resource was a wise move. Tun Razak even refused to name PETRONAS with the name The Malay Petroleum Company. Oil is to be the resource of One Malaysia, for Malaysians. 

By treating it as a national resource whose revenue is shareable by all, the act of sharing neutralizes the accidents of geography. Those states whose offshore do not have oil can still enjoy some benefits from oil revenue. That is the real ehsan money. It wasn't contingent upon seasonal inclinations of government. 

I think, the idea behind oil revenue, is that it must be applied for the benefit of all states independent of political expediencies. If this government refuses to apply the idea of ehsan money, it opens itself to charges of favoritism and politicking. 

the PDA

The idea behind the PDA should be that a federal government collects the revenues and apply them nationally. It's not even up to PETRONAS to see to it that it's done. Their duty as regards royalties is to pass on a sum of monies to the federal government which in turn dispenses the money to the states concern. To the state with oil and gas, a 5% share in the revenues, to those without oil, some portion of the oil revenue. 

In so far as a state that is proximate to the source of oil, my understanding is that it is entitled to a 5 % royalty per year. Hence Terengganu, from which oil and gas are tapped, is entitled to 5%. If Kelantan qualifies as being proximate to the source, it is also entitled to oil royalties. Each particular state where oil is found thus is entitled to 5% of the oil revenues. 

That still leaves 95% available to be applied for national purposes. This balance 95% from that particular source can be applied to states where no oil is found. The amount allocated to them is at the discretion of the federal government but it is a discretion that cannot be withheld.

Now whether that amount or any amount from the balance of which any state is entitled too has been applied appropriately, is another matter. States with no oil cannot expect to receive 5% oil royalties because they don't have oil and gas. For instance, in the case Pahang, it too can expect to have some contribution from this national resource. Pahang can also ask wang ehsan because it is in the bottom 4 states in Malaysia. 
Kelantan actually deserves two components

It seems to me, that Kelantan actually deserves two components of the oil revenues. Because it is close to where oil is extracted, it is entitled to 5% of the revenues collected from that oil source. As a poor state, within that classification envisaged by Tun Razak, it is entitled to a gratuitous amount to be determined by the federal government. This is the wang ehsan as defined by the government. It is distinct from oil royalties.

Hence if Kelantan is given wang ehsan of 20 million a year, it is still entitled to a 5% royalty on the oil that has been discovered off its coast. The first because it is comparatively a poor state. Second, because the oil fields are off its coast. 
The stupidity in Terengganu

But how does our government handle this situation? It has done stupidly in this area. The oil royalties accrueable to Terengganu for example should be under Terengganu's absolute control. Applied as the state pleases. It's not for the Federal government to judge how the oil royalties are applied. Instead, the government imposes its will through the creation of some administrative device that resulted in the monies being controlled by those people close to Pak Lah.

As a result of that kind of arrangements, we saw some people constructing holiday homes. Mosques sprouted everywhere etc. You can't travel past a kilometer without coming to a new mosque in Terengganu. Yet the people of Terengganu are still poor. Look out from the windows of The Grand Continental Hotel in KT; you will know what I mean. Cast your eyes in turn to the other side, the Heritage Hotel and the homes built so that Jean Toddt and Miss Michelle Yeoh can set up home. 
Correct that stupidity

This government of Dato Sri Najib can correct that stupidity. Return the right to control the oil royalties to the Terengganu government. If the Terengganu government abuses the new found wealth, let the 'market forces' in terms of people's voting power does its suitable job. 

Unfortunately it is set to repeat this stupidity in the case of Kelantan. The government stand is that, Kelantan is entitled to no such thing. They are willing to give a paltry sum of goodwill money of RM 20 million a year to Kelantan. Further the money will be distributed through federal agencies to carry out development in Kelantan.

You are going to repeat the same stupidity by creating artificial devices to channel petrol money. Just as when Pak Lah has his Patrick Lim and gang, this time around if PM Najib countenances the funneling of ehsan money through institutions other than state bodies, PM Najib is committing the same mistake as did Pak Lah. As with any funnel, the entry point is bigger than the exit point. 
The people pushing : UMNO warlords

The people pushing for the funneling or petrol monies in this manner are the UMNO warlords. The behavior of the UMNO warlords is also full of hypocrisy. They are always motivated by the underlying interest of what's in for me? Their insistence on this method is dubious. 

Oil royalties going direct to state government means UMNO warlords in Kelantan are marginalized. They have nothing to operate by. Wang ehsan going to federal development agencies offer warlords room to interfere and influence the direction and application of the funds. These agencies will be fertile ground to expand personal political agendas. With the majority of UMNO people, playing politics to retain and consolidate interests is the number one priority. 

Our leaders must do the right thing. 

The petrol money, either royalties or wang ehsan should be committed to institutions of the government of the day. Too bad, in Kelantan, the state is ruled by our political adversary. But doing the right thing, affirms our commitment to the rule of law and our belief that governments change though the ballot box. We don't form a government within a legitimate government.