• Govt urged to honor contracts

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    Malampaya dispute said dampening investor interest in PH

    PETROLEUM exploration companies urged the government to resolve soonest the contradicting interpretations by the Commission on Audit (COA) and the Department of Energy (DOE) of Presidential Decree (PD) 87, or the law that governs the contract between the government and the Malampaya gas project.

    “We will continue to dialogue. We’ve written the DOE Secretary, we are pointing out how much we are concerned about certain developments, about developments in the possible instability of the policy,” Petroleum Association of the Philippines (PAP) executive director Benjamin S. Austria said in a roundtable meeting on Monday.

    The case is dampening the interest of investors in the country, Austria said.

    “We need investors but if we show that we don’t have an investment policy, our industry will not be the only one that will be affected. Other investors might [go away]if you change the terms. If you kill the industry, then we cannot develop this for the country,” he said.

    The COA has ruled that the consortium that operates the Malampaya deep water gas-to-power facility has unpaid obligations to the government amounting to P53.14 billion.

    The consortium consists of Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC, and Philippine National Oil Company-Exploration Corp. (PNOC-EC).

    In an 11-page decision, COA junked the position of the DOE, SPEX, Chevron, and PNOC-EC that the contractors’ income tax was deductible from the government’s 60 percent share of Malampaya’s earnings.

    A petition for review filed by the DOE and the contractors argued that the government’s 60 percent share of the net proceeds already included corporate income taxes.

    But the COA affirmed the Notice of Charge issued on October 5, 2010 along with the audit findings that the DOE had an under-collection of P53.14 billion for the period covering 2003 to 2009.

    The amount represents the income taxes that SPEX, Chevron and PNOC-EC were supposed to pay the government as contractors of the gas project.

    The DOE and COA each have a different stand on the issue and both have cited laws to justify their position.

    The DOE claimed that under Presidential Decree 87 (PD 87), it may assume and pay the tax liabilities of the contractor as an incentive-oriented policy, which has been “a long cherished standard provision of all service contracts,” and supported the contractors’ claim that deduction of income taxes from the government share was a “tax assumption, not a tax exemption.”

    The COA, however, declared that Presidential Decrees No. 87 and 1459, issued during the Marcos administration, were clear that the minimum government share was 60 percent of the net earnings of the Malampaya gas project.

    It stressed that the State’s share can go up but it cannot go down without violating the law.
    The Philippines is underexplored and there are vast potentials for gas and oil in many parts of the country, Austria said.

    “Since the time of [Jose] Rizal up to now we only have 700 wells dug compared to Indonesia which digs 200 to 400 wells per year,” Austria said.

    “Instead of being able to develop indigenous energy and having potentially lower cost of energy, we have to look for other sources. In the past, before we had our own production, we were fully dependent on importation. If we are able to develop our local sources, we might discover, for example in the Visayan sea …there are prospects there,” he said.

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