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					            National Petroleum Policy
PETROLEUM DEVELOPMENT ACT (1974)
1. 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

3. 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 PM’s approval

4. Licenses
   • Act provided for a compulsory acquisition of licenses and
     agreements but all terminated on 1 April 1975
5. 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   • Was not repealed after PDA (1974) but not applicable to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

6. 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
                   Common Provision
1. 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

2. 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)
3. Contract Area
   - Divided into subblocks on a 10 by 10 minutes geographical grid

4. 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

5. 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

7. State Participation
   - Contract of foreign contractors with Carigali

8. 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
9. Special Provisions
   - Contract contains elaborate rules in matter
   1. 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
   2. Employment of expatriates
      -   Must obtain written approval from Petronas prior
      -   Foreign employees may not be employed at positions can be
          fulfilled by nationals
   3. 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
                 Petroleum Taxation
1. 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

2. 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

3. Export Duty
   - Introduced in 1980 at rate 25% of value of exported crude oil
   - Exempted from duty of cost oil
4. 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%
                 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 country’s 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
                            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
                           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

				
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