The Petroleum Association of the Philippines (PAP) has expressed concern over the ruling of the Commission on Audit (CoA) mandating the Department of Energy (DOE) to collect P53.14 billion in unpaid taxes from contractors of the Malampaya deepwater gas-to-power project.
PAP President Sebastian C. Quiniones Jr. said the mandate has impact on the Malampaya consortium, whose fiscal stability is of utmost importance.
“The PAP wants us to have fiscal stability. So, it is the desire of our service contractors that are here already operating that there’s fiscal stability,” Quiniones, who is also the president of Shell Philippines Exploration BV (SPEX), operator of the Malampaya project, said. The COA ordered the DOE to collect the unpaid taxes from the consortium members, such as SPEX, which holds a 45-percent stake in the project; Chevron Malampaya Llc., with another 45 percent; and Philippine National Oil Co.-Exploration Corp. (PNOC-EC), which holds the remaining 10 percent.
Previously, the COA overruled the petition of the Malampaya consortium that income tax was already imputed in the government’s 60-percent share in the Malampaya royalties. The tax, they argued, was deductible from the government’s share of the Malampaya earnings.
However, the COA said there is no provision in the law stating that the income tax of the contractors forms part of the share of the government. Quiniones, however, could not stress enough the importance of honoring the contracts entered into between the private sector and the government. “Whatever was written, whatever was agreed upon, we hope that these will be continuously recognized,” he said.
SPEX, the parent firm of Royal Dutch Shell Plc., is seeking international arbitration of the COA ruling. Quiniones said SPEX has also discussed this with the DOE. “We verbalized what we are aiming for and we’re working with the DOE,” he said.
In a 30-page motion for reconsideration filed before the COA, the DOE wants the COA decision reconsidered, reversed and set aside. But this was thumbed down.
In its appeal, the DOE said investor confidence in the stability and certainty of local investment laws has been severely damaged by the COA ruling.
The COA decision, according to the DOE, “has totally brought havoc to the representation of the government to these investors.”
“The assailed decision has sent a very
wrong signal to the existing and future petroleum exploration investors in the country,” according to the energy agency.
The DOE warned that the decision “will cause enormous harm to the country’s long- term interest as it will further erode the confidence of investors in the stability and certainty of our rules and regulations.”
The DOE and the COA are both government agencies. However, the DOE fears that if the COA decision is not set aside, it will send shockwaves to the international community because this will definitely result in a “very dire repercussions and consequences to the ability of the country to attract foreign capital as far as petroleum exploration is concerned.”
The DOE further said the COA decision will, in the long term, do more harm than good for the country. “Right now, it has created anxiety, uncertainty and overall negative attitude toward the country not only in SC [Service Contract] 38 contractors and stakeholders but in other existing and prospective investors,” the DOE added.
Former Energy Secretary Carlos L. Jericho Petilla had said if the decision is carried out, this may set a precedent for other petroleum contracts entered into by the government with the private sector. He cited the Galoc oil field under SC 14C1 in waters northwest of Palawan.
The Galoc field is the country’s only oil producer of commercial scale with an output of over 10,000 barrels per day.
The stakeholders in SC 14C1 include Galoc Production Co., 33 percent; Galoc Production Co. No. 2 Pte. Ltd., 26.84 percent; Oriental Petroleum & Minerals Corp. and Linapacan Oil & Gas Power Corp., 7.79 percent; Philodrill Corp., 7.21 percent; and Forum Energy Philippine Corp., 2.28 percent.
“The implication of this is that it will not only affect the Malampaya project but affect other petroleum drillings, including Galoc,” he said. DOE Officer in Charge Zenaida Monsada said shared the same view. “It could negatively impact on other contracts, both existing and future ones,” she said when sought for comment.
The Malampaya consortium remitted $900 million as royalty payment to the national government in 2014. This brought to $8.5 billion the total payment turned over to the government since the successful commissioning of the project in 2001.
This year the royalty payment was estimated at only half of last year’s haul on account of lower oil prices. “Oil prices have dropped by half so roughly speaking it will probably be half also,” Quiniones said.
A basket of indexes, including oil prices, dictates the price of gas that is sold by the consortium to power produces utilizing the natural gas to fire up their power plants.
The Malampaya gas project supplies 40 percent of Luzon’s energy needs by fueling three natural-gas power plants with a combined capacity of 2,700 megawatts (MW). These are the Santa Rita and San Lorenzo power plants of First Gen Corp. and Ilijan power plant of Kepco Philippines.
Quiniones said last year’s payment was lower than the previous years’ remittances because of the decline in the price of oil and gas, which had an impact on pricing.
In 2012 for instance, the Malampaya project proponents turned over $1.1 billion to the national government. The amount represents the government’s 2012 revenue from the natural-gas project. “If we follow more or less international prices to a certain formula, and since Malampaya pricing is six months delayed, yes, the amount will be roughly half of last year,” the SPEX official said.
Quiniones said the DOE, the Bureau of
Internal Revenue (BIR) and the Department of Finance (DOF) recently asked SPEX on how much will be remitted as royalty fees to the government this year. “The DOE, BIR and DOF asked us already. They are trying to plan the revenues that are coming in. So, we have to give them a projection based on the price of oil are at the moment and how the pricing of Malapaya goes,” he said.