East Malaysian states’ rights push may upend S-E Asia’s political order

THE onset of the political campaign for the state legislature in the East Malaysian state of Sabah has narrowed into a fiery debate over relations with the federal government. The Nov 29 election is being contested as a referendum on states’ rights. Every side seems to want to distinguish itself on how hard it can push for rights enshrined in the 1963 Malaysia Agreement (MA63).

The states’ rights quest has been gathering pace for some years in both Sabah and Sarawak. Leaders in both East Malaysian states argue that they are jointly entitled to one-third of seats in parliament as well as substantial financial autonomy under MA63 but say these undertakings were never honoured.

Both Borneo states depend heavily on resource extraction for revenue. But their portion of that revenue (raised within their states but after Putrajaya takes its cut) is nowhere near enough to meet their requirements for infrastructure, education or healthcare. Consequently, these states have demanded more of their revenue, particularly from oil and gas extraction which is under federal jurisdiction. 

For instance, state leaders in Kuching have demanded that Sarawak’s share of its gas and oil royalties be raised from 5 per cent to 20 per cent. Sabah politicians have voiced similar demands. It is estimated that more than half of Malaysia’s fossil fuel production comes from the two states.

Into this roiling debate, like a thunderclap, came the Kota Kinabalu High Court ruling last week that Putrajaya had been acting unlawfully for nearly 50 years by failing to fulfil Sabah’s right to 40 per cent of revenue derived from the state.

In 2022, the Sabah Law Society had applied for a judicial review of two articles of the Malaysian Constitution related to revenue sharing. The Sabah state government then joined in as an additional respondent. 

At issue was Article 112C of the Constitution that sets out Sabah’s entitlement: 40 per cent of the federal revenue collected from the state. Article 112D requires the federal and state government to review that grant every five years.

The court ruled that Sabah’s 40 per cent entitlement is a binding Constitutional right, not a matter for political negotiation. It ruled that the foundational documents of Malaysia, including the Cobbold Commission Report and MA63, should guide how these two Constitutional articles are construed since they explain why the 40 percent clause was inserted in the charter. It was for Sabah to fund its own development. The financial safeguards set out for Sabah under MA63 remain in force, the court ruled.

Just as significant, the judge ruled that the current revenue sharing deal between the federal and state government was “unlawful, ultra vires, and irrational”. To be clear, this ruling is being appealed and the proceedings will most certainly take many years before a final settlement.

What cannot be denied is the immediate psychological impact of the ruling. Historical grievances on parliamentary seat allocations and revenue sharing now dominate political debate in both Borneo states. If social media and political discourse are any guide, the view among East Malaysian voters is that they are being treated unfairly, a view vindicated by the court’s ruling. Some in the two states feel they would be better off if they left the federation altogether.

The fabric of the federation is being stretched like never before – with the potential to reshape the geopolitical order in South-east Asia.