For the longest time, many Filipinos suspected that the country got the short end of the stick when we gave the exploration rights to the Malampaya gas field to the Shell consortium. Well, the cat is out of the bag.
The recent 11-page decision of the Commission on Audit (COA) confirmed that Shell and company screwed and swindled the country out of P53-billion in royalties for seven years from 2002 to 2009. And this does not include the royalties when the Aquino administration took over in 2010.
This COA ruling is long overdue.
We recall that sometime in September 2010, there was already a COA auditor’s report on the Department of Energy (DOE), which found that Shell and company had understated the proceeds from the Malampaya Gas Project to the tune of P53 billion because they were deducting their corporate income tax from the 60 percent share of the government in the project.
Apparently, the original report of the COA auditor on the P53 billion shortfall was appealed by Shell to the Commission proper. It was only around two weeks ago that the COA commissioners resolved Shell’s appeal.
The Shell consortium had long been insisting that its corporate income taxes should be taken out of the government’s 60 percent allotment rather than from the contractor’s 40 percent share.
Ironically, the DOE sided with the oil giants in the controversy, arguing that the government assumed Shell and company’s income taxes as it was allegedly permitted under Presidential Decree 87 (or the Oil Exploration and Development Act of 1972). In fact, Energy Secretary Carlos Jericho Petilla – who is sounding more and more like the spokesman for Shell – even warned that the COA ruling may set a bad precedent and imperil other service contracts.
But as theCOA ruling said, there is no provision in the law which specifically provides that the income taxes of the contractors will be taken from the share of the government. “The supposed tax assumption…cannot prevail over the express provision of PD 87 which categorically states that contractors are subject to income tax,” the COA ruling stated.
“In this case, the government’s share ultimately became less than 60 percent as a result of the supposed tax assumption, in clear violation of the provisions of PD 87 and PD 1459. As a result, the 60 percent government share was reduced by the amount equal to the corporate income tax of the contractors, while the 40 percent share of the contractors remains undiminished,” it added.
The COA thus correctly concluded that since “the government is being made to shoulder the tax liabilities of private entities, these contractors [i.e. Shell and company] are, in effect, not paying anything.”
Perhaps this is why Shell is so eager to hold on to the Malampaya gas project that it’s already pushing for the 15-year extension of its service contract to 2039 even though the contract won’t expire for nine more years or until 2024. With its virtually income tax-free status, Shell would be stupid to give up its Malampaya “gold mine.”
On the other hand, we (Filipinos) are being fried in our own lard (ginigisa tayo sa sarili nating mantika) by Shell.
This is not the first time that Shell tried to pull a fast one on our countrymen.
For the past 17 years, Shell has also refused to follow the Oil Deregulation Law requiring oil refiners to publicly list “through the stock exchange…at least ten percent of its common stock.” The obvious intent of the public listing was to allow ordinary Filipinos to own and share in the profits of these oil refiners.
Since 1998, Shell has been giving a litany of excuses on why it could not do an IPO, ranging from alleged poor market performance, purported volatility at the Philippine Stock Exchange, to the supposed pendency of a final investment decision on its Tabangao, Batangas refinery upgrade.
How this Dutch oil giant managed to put off its initial public offering (IPO) all these years – through four different presidents (including PNoy) – without facing any government prosecution, is a case study on regulatory capture, political impotence and corporate greed and corrupt practices.
As expected of a Shell toadie, all Petilla did was to ask Shell (headed by country manager Edgar Chua) to “explain” the status of its compliance with the Oil Deregulation Law. “We will ask them again [on the]status of IPO rather than compel [them],” Petilla said. Seriously?!!
By allowing Shell to charge its income taxes from the government’s share – and to delay its public listing/IPO – in clear violation of our laws, Petilla is not only causing undue injury to the government but is also giving a private party (i.e. Shell) unwarranted benefits, advantage or preference.
Perhaps it’s time Ombudsman Conchita Carpio-Morales erased her PNoy loyalist tag by immediately filing graft charges against Petilla and other DOE and Shell officials involved in this massive irregularity before the Sandiganbayan.