Malaysia to scrap the concession system and replace it with production sharing agreement. However, there were no laws that allow Malaysia to take back the concessions without paying compensations to foreign oil companies. Despite this, Taib decided to set up a statutory body named "HIKMA" (Hidrokarbon Malaysia), which would have total rights of oil found in the territorial waters of Sabah and Sarawak. However, Rahman Ya'kub protested his nephew decision and threatened the federal government to court if Sarawak were to left out of this oil deal. Tengku Razaleigh Hamzah (chairman of Perbadanan Nasional Berhad (Pernas)) visited Rahman at the latter private residence. Tengku Razaleigh suggested the formation of a company instead of a statutory body where the former would distribute profits equally between the federal and the state governments. Rahman agreed with the suggestion. Tengku Razaleigh drafted the Petroleum Development Act together with his associates in secret, as instructed by Tun Razak, and to be completed before the 1974 Malaysian general election. Rahman Ya'kub then telephoned Tengku Razaleigh to ask about the terms offered by the Malaysian federal government. Tengku Razaleigh then told Rahman regarding abolishment of the concession system. Meanwhile, 5% oil royalty will be given to the respective oil-producing states. Rahman agreed with the deal. In 1974, the Petroleum Development Act was tabled in parliament and approved. Petronas was incorporated on 17 August 1974, and Tengku Razaleigh became its inaugural chairman. Initially, Exxon and Shell refused to surrender their concessions and refused to negotiate with Petronas. Petronas then served a notice to all foreign oil companies that after 1 April 1975, all the foreign oil companies would be operating illegally in Malaysian waters if they do not start negotiations with Petronas. After a few rounds of negotiations, foreign oil companies finally surrendered their concessions to Petronas. While all other oil-producing states in Malaysia signed the petroleum agreement, Tun Mustapha, the chief minister of Sabah, stubbornly refused to sign the oil agreement, complaining of the meagre 5% oil royalty. Mustapha requested for 10 to 20% oil royalty, otherwise, he would threaten to pull Sabah out of Malaysia. Tengku Razaleigh refused to bulge in. The Malaysian federal government then make another deal with Datuk Harris Salleh (who was out of favour with Tun Mustapha) to establish BERJAYA party and oust Tun Mustapha out of power. However, Harris was reluctant to become the Chief Minister of Sabah, and Fuad Stephens