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Will Malaysia’s New Government Uphold Promises of Governance Reform and Subnational Oil Rights?

On 9 May, Pakatan Harapan (Alliance of Hope) defeated the Barisan Nasional (National Front) coalition in Malaysia’s national elections, dealing a major blow to a political force that had been dominant since Malaysia gained independence more than 60 years ago. This shift in power highlights the political potency of resource governance issues – like anti-corruption and subnational resource governance – in Malaysia as well as the strong role that political parties can play in addressing resource governance challenges.
Governance and corruption drive the political agenda
As happens in many resource-rich countries, governance and corruption were two major overarching themes of the Malaysian elections. The Pakatan party tapped into Malaysians’ overwhelming disgust with the Barisan government’s alleged corruption. Many Malaysians were upset by the prominent example of Prime Minister Najib Razak’s alleged involvement in a scandal where money from a strategic development company wholly owned by the Ministry of Finance found its way into private real estate deals. The Pakatan party showed an ability to take on these concerns after the Barisan Nasional undermined efforts by both formal and informal oversight bodies. Throughout the election campaign, Pakatan candidates ran the promise, laid out in their manifesto, of supporting formal and informal oversight bodies, including reforming the Malaysian Anti-Corruption Commission (MACC) and the attorney-general’s chambers and providing parliamentary oversight over the National Audit Department, the election commission, the national oil company (Petronas), and the central bank and securities commission. These changes would create the opportunity for systematic checks on government actions and prosecution of corrupt individuals without interference.

Photo by Flickr user Karl Baron via Creative Commons license

Pakatan also committed to have Malaysia participate in various international governance platforms (such as the Open Government Partnership and the Open Contracting Partnership) and promised to support civil society initiatives like the Open Budget Initiative.
Subnational oil rights and revenue sharing
As outlined in the case study of Malaysia in the recent publication Political Parties and Natural Resource Governance, the increasing political competition required paying attention to subnational claims of resource rights. During the election, the Pakatan party regularly asserted its commitment to supporting subnational governments’ role in extractive industries. Key to this issue was the promise to restore the rights of the two oil-rich states in Borneo (Sabah and Sarawak) to operate oil companies, save oil revenues and receive a share of revenues. In addition to their resource wealth, these two states are of great political significance because they make up more than one quarter of the total parliamentary seats. Pakatan promised it would review the rules that had prevented Sabah and Sarawak from forming independent oil and gas companies and proposed that a wealth fund equivalent to the existing National Sovereign Wealth Fund be established at the subnational level. Additionally, Pakatan proposed a fixed percentage of profits or a minimum of RM 10 billion to be set aside into the National Sovereign Wealth Fund annually.
Prior to this election, the political competition over these two states had already resulted in greater powers to the states. Under Prime Minister Najib Razak, Sarawak formed its own company Petros (Petroleum Sarawak Berhad), a state-owned regulatory authority and operator in upstream, midstream and downstream aspects of the oil and gas industry, due to be functional by July this year. Its managers hope it will become an important player in the market to provide opportunities and employment especially for local Sarawakians.
In addition to the challenge of increasing subnational control over Sabah and Sarawak’s resources, Pakatan will have to address a similar issue in the two oil-rich states of Kelantan and Terengganu, both of which are now under the rule of the Islamic party PAS. PAS will surely mount pressure on the new Pakatan government to restore oil royalty payments to Kelantan. These two states will also demand the same rights to control the development of oil and gas.
The big question is whether these important proposed reforms will actually take place. A change of government is unprecedented in the country, and although the transition of power has been smooth, it is still early days. Political and economic conditions must be stable for the new government to tackle the tough challenges ahead. The Natural Resource Governance Institute’s research on political parties shows that, once elected, political parties with strong party platforms can enact real change. In order to ensure that the commitments to transparency are more than mere political rhetoric, Malaysia’s nascent formal and informal oversight actors must closely monitor Pakatan’s implementation of their natural resource governance commitments.
Tricia Yeoh is is a Ph.D. candidate at the School of Politics, History and International Relations at the University of Nottingham Malaysia Campus and a fellow at IDEAS (Institute for Democracy and Economic Affairs). This piece represents her views and not those of the Natural Resource Governance Institute.