The Implications of Petroleum Conflict in the Context of the Federal Government and the Kelantan State Government Relations

Malaysia is one of those countries that rely on petroleum-based revenues as one of its main sources of national income. The majority of its oil fields are found in the coasts of Kelantan, Terengganu, Sabah and Sarawak. Upon the discovery of these, Malaysia had incorporated a national petroleum company named “Petronas” on 17th August 1974 to manage all related matters to exploration and exploitation of petroleum in the country. Subsequently, on 1st October 1974, the Parliament had passed Petroleum Development Act 1974 that, inter alia, gives the power and right for exploration and exploitation of petroleum to Petronas and to pay 5% of oil royalty to the petroleum-producing states. However, due to ideological differences between the federal government and the state government of Kelantan, this lucrative natural source has found itself at the center of conflict between the two. The study analyzes the implication of such a petroleum-based conflict against the federal-state relations within a context of a democratic Malaysia. In order to so, as far as oil royalty payment arrangement is concerned, the concept of federalism was applied as a tool of analysis to evaluate the extent of the effectiveness of the relations between the federal government and the state government of Kelantan. Pursuant to that, the discussion of this study revolves around qualitative data approach based on documents related to the oil royalty agreement between the federal government and state government of Kelantan. The analysis has indicated that Malaysia, as a federalist country, has failed to put into practice the true concept of federalism. One of the major reasons behind this was conflicting political interests. The impacts of such could be seen from the distinctive way the federal government treated the state governments, in this case Kelantan, whose state government was formed by the opposition political party. The Malaysian federal government's extensive power and the different constitutional interpretation also contributes to the conflict especially in the context of the federal legislative policies that often being perceived as discriminating against the state government.