Petros vs Petronas: Failure to comply with DGO constitutes ‘unconscionable conduct', court told

Borneo Post

11-06-2025

Fong (right) exits the courtroom after the proceedings.
KUCHING (July 11): The Distribution of Gas Ordinance (DGO) 2016 is a written law passed by the Sarawak Legislature and is therefore a written law in force in Malaysia, the High Court here was told today.
State Legal Counsel Dato Sri JC Fong said Petroliam Nasional Berhad's (Petronas) failure to comply with the DGO and continuing to supply gas without a licence issued under the DGO, and then preventing other licensed gas suppliers or producers from selling gas to Petroleum Sarawak Berhad (Petros) as the state's gas aggregator, constitutes 'unconscionable conduct' on the part of national oil firm.
In his submission to the court in the lawsuit brought by Petros against Petronas, Fong, appearing for the Sarawak government, said Petros is invoking the court's inherent jurisdiction to declare that the demand by Petronas on a bank guarantee issued by Maybank Islamic Berhad is 'unconscionable, unlawful, null and void'.
He said all parties, including the federal and Sarawak governments, have agreed that 'unconscionability' is a ground to restrain a beneficiary of a bank guarantee or performance bond from making a call on a bank guarantee or performance bond.
'In this case, the underlying contract is the Sarawak Gas Sales Agreement (SGSA) dated Dec 30, 2019.
'The bank guarantee was issued pursuant to this underlying contract to secure payment for gas supplied by Petronas to Petros. Petronas is the beneficiary of the bank guarantee.
'Petronas did not sign the SGSA because the PDA (Petroleum Development Act) 1974 guarantees the role of Petronas nationwide,' said Fong.
He said Petronas entered into the SGSA because it had sold and transferred its business of supplying gas to customers in Bintulu and Miri to Petros, and is selling gas to Petros to enable the state-owned company to fulfil its obligations to its customers who were previously customers of Petronas.
'This SGSA has nothing to do with the PDA or the business of Petronas under the PDA, which had been sold and transferred to Petros. There is nothing in the SGSA which even suggests that Petronas entered into this SGSA in pursuance of the PDA.
'It was purely a commercial contract based on purely commercial consideration, but the mode of performance thereof must not contravene any written law in force in Malaysia.'
Fong said for Petronas to consciously disobey, disregard, and disrespect the DGO amounts to a contravention of an important constitutional safeguard and an attempt to undermine the Sarawak government's executive authority under Article 80(2) of the Federal Constitution.
'This itself is clearly unconscionable conduct which this honourable court should not condone at all.
'Consequently, the calling upon the bank guarantee by Petronas, in these circumstances to obtain payment from Petros for gas supplied in contravention of the DGO and also in breach of Article 24.2 of the SGSA, is clearly unconscionable and unlawful,' he said.
Article 24.2 of the SGSA stipulates that 'Nothing in this Agreement shall entitle the Parties (i.e. Petronas and Petros) to exercise the rights, privileges and powers conferred on it in a manner which would contravene any written law for the time being in force in Malaysia.'
Petros is seeking a court order for the return of RM7.95 million paid to Petronas under the bank guarantee.
The conflict began in October 2024 when Petronas called on the bank guarantee in response to a RM28.1 million demand from Petros related to gas supply.
Petros then initiated legal proceedings against Petronas and sought an injunction to stop the disbursement of the funds.
However, the injunction request became academic after Maybank Islamic Berhad released the payment to Petronas.
Petronas was represented by counsels Datuk Dr Cyrus Das and Khoo Guan Huat, while Petros was represented by counsels Tan Sri Cecil Abraham, Sim Hui Chuang and Lim Lip Tze.
The proceeding was heard before Judicial Commissioner Datuk Faridz Gohim Abdullah, who fixed Aug 25 and 26 for the next hearing. DGO Distribution of Gas Ordinance JC Fong Petronas Petros