National Petroleum Policy

1
National Petroleum Policy PETROLEUM DEVELOPMENT
ACT (1974)

• PETRONAS
• Established under the Act
• State-owned enterprise
• Exclusive rights of ownership, exploration and
  production of petroleum and gas
• Liable to make payments to Federal Govn or any
  state Govn as agreed
• Granted complete freedom to set the form, terms
  and condition for any agreement no need to have
  approval from government
• Under PM direct purview responsible for
  planning, investment and regulation of all
  up-stream activities

2

• Product sharing mechanism
• Do not replace income tax
• Petroleum (Income Tax) Act 1967 income tax from
  petroleum operations
• 1980 additional of 25 export duty on exported
  profit oil
• Petroleum Operations
• Also regulated by the Petroleum Department Act
  (1974)
• Authorizes PM to make regulations to give effect
  to the provision of the Act
• Licenses or agreements given before the Act can
  only be extended with PMs approval
• Licenses
• Act provided for a compulsory acquisition of
  licenses and agreements but all terminated on 1
  April 1975

3

• Petroleum Mining Act 1966
• Was not repealed after PDA (1974) but not
  applicable to Petronas
• Except provisions regarding obtaining permission
  to enter upon land for petroleum operations
• Contract of Work
• For new arrangement after existing license or
  agreement were suspended (due to the Act)
• Petronas adopt the product sharing principles for
  these contracts

4
Common Provision

• General
• Petronas opted for product sharing contacts
• Starts since 1975
• The model contract expect participation by
  Petronas Carigali Sdn. Bhd. (Petronas subsidiary)
• The percentage is open to contract but normally
  50
• Both Petronas Carigali and foreign partners are
  considered as contractors
• Duration is 24 years
• Ownership of Petroleum
• Before or after discovery and subsequent
  production is vested in Petronas up to the point
  of export (crude oil) or point of sale (natural
  gas)

5

• Contract Area
• Divided into subblocks on a 10 by 10 minutes
  geographical grid
• Regulation of Exploration Operation
• Exploration Period initially period 4 years,
  additional 1 year
• If no crude is found contract on that block
  ceased except if the area is defined as gas field
• Regulations of Development of Discoveries and
  Subsequent Production Operations
• Blocks where crude oil (and gas) are discovered
  in commercial quantity will automatically
  converted in development area
• After 1st commercial lifting of crude oil call
  production area
• Production Operation period 15 years with
  respect to each block from 1st day of commercial
  lifting or expiry of contract, which ever comes
  first

6

• Sharing and Disposition of Production
• Max 10 crude oil won saved (royalty oil) 10
  gas available for commercial sale (royalty gas)
  taken by Petronas
• Max 50 crude won and saved (cost oil) max 60
  proceeds of gas sales (cost gas) reserved for
  recovering by contractors
• The remaining portion are call profit oil
  profit gas
• Profit is divided btw Petronas and contractors at
  50/50 to 70/30 when production exceeds 50 mil
  barrels and 60 bill m3
• State Participation
• Contract of foreign contractors with Carigali
• Legal Matters
• Petronas has title to all original data from
  petroleum operations, any equipment and assets
  purchased by contractors, use free of charge
  during contract
• Contractors obliged to keep Petronas indemnified
  against all claims and demands unless proven
  negligence of Petronas

7

• Special Provisions
• Contract contains elaborate rules in matter
• Procurement of equipment, materials, services and
  supplies
• Priority given to local manufacturers and
  suppliers
• If not available, must have approval from
  Petronas to purchase overseas
• Employment of expatriates
• Must obtain written approval from Petronas prior
• Foreign employees may not be employed at
  positions can be fulfilled by nationals
• Training of contractors Petronas personnel
• Contractor national employees should be trained
  to take over position held by foreign employees
• Submit program, budget, details of all salaries,
  benefits , privileges accorded to class of
  personnel

8
Petroleum Taxation

• Cash Payment to Federal and State Govn
• Petronas take max of 10 of crude oil won and
  saved 10 of total proceeds from sale of natural
  gas
• Cash Payment to Petronas
• Contractors pay to Petronas per kiloliter of
  contractors share of profit oil
• Amounts to 70 of diff btw cost oil value and
  certain base price value
• Base price (USD 25.00) annually increase by 5
  annually
• Never had to pay bcoz the price never go above
  base price
• Export Duty
• Introduced in 1980 at rate 25 of value of
  exported crude oil
• Exempted from duty of cost oil

9

• Petroleum (Income tax) (Ammendment) Act 1976
• Gross income calculated on realized price or on
  market value, whichever is higher
• Import and export duty cannot be tax credit
• Rate 45

10
National Depletion Policy 1980

• To restrict production to 1.75 of oil initial in
  place (OIIP) for major oil fields over 400
  million barrels of OIIP
• In 1985 ceiling was increased to 3 ? currently
  production limited to 650,000 barrels per day
• At current production rate, proven oil reserves
  expected to last for another 16 yrs
• Policy extended to natural gas reserves
• Upper limit of 2000 million std cubic feet per
  day (mmscfd) in Peninsular only
• At current rate, known natural gas reserves
  expect to last in 70 yrs
• 4-fuel strategy
• Complementing National Depletion Policy
• To ensure reliability and security of supply
• Strategy to reduce countrys over dependence on
  oil for energy
• Mixture of oil, gas, hydropower and coal for
  energy supply
• 1998 scenario 16 fuel oil, 2 diesel, 67 gas,
  8 hydropower and 7 coal

11
Other Policies

• Utilization policy
• Energy efficiency regulation (currently being
  formulated)
• Current approach rely heavily on energy
  industry and consumers to exercise efficiency
  thru awareness programs implementation
• Demand side management by utilities thru tariff
  incentives have some impact on utilization and
  consumption efficiency
• Government encourage co-generation (solar power
  etc.)
• Industry energy efficiency energy auditing
  program, energy service companies support program
  and technology demonstration program
• Environmental policy
• No particular policy only follow Environmental
  Impact Assessment (EIA) requirement
• For energy sector subjected to Environmental
  Quality Standards
• Co-generation initiatives and Peninsular Gas
  Utilization (PGU) project gives lesser impact to
  environment

12
Gas Supply Act

• Gas Supply Act 1993
• Gazetted on 4 February 1993
• To safeguard interest of consumers supplied with
  gas thru pipelines and from storage tank or
  cylinders
• For commercial and industrial outlets and
  residential consumer
• Gas Supply Regulation 1997
• Gazetted on 17 July 1997 (which includes Gas
  Supply Act 1993)
• Includes procedures for license issuance to
  supply installation of gas pipelines, inspection,
  test, maintenance, and certification and
  registration of competent person
• Enforced by Director General of Electricity and
  Gas Supply Department