Senator backs DOE on Malampaya deal

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SENATOR Sherwin Gatchalian, chair of the Senate energy committee, supports the position of the Department of Energy (DOE) to honor the sanctity of the Malampaya service contract in offshore northwest Palawan and urged the Commission on Audit (COA) to revise its decision.

Energy Secretary Alfonso Cusi has openly supported the decision of the previous administration that the 60 percent corporate income tax of the Malampaya project already forms part of the government’s share.

“Definitely, that is a more prudent position considering that since time immemorial, this type of arrangement is embedded on most of our service contracts,” Gatchalian said.

“That’s not unusual. It just so happens that Malampaya is the most profitable. That is why COA took a look at this but all the contracts, whether profitable or not, has the same feature,” he told reporters on the sidelines of the EU-Philippines Business Summit held Monday, October 4, in Makati City.


“Pursuant to the DOE’s commitment to maintain and strengthen the predictability, certainty and consistency of investment rules of the country, the DOE has strongly affirmed its position in its Motion for Reconsideration pending before the Commission on Audit that the income tax of the Malampaya contractor shall form part of the 60 percent of government share,” Cusi said during the event.

COA had earlier issued a notice of charge to collect from the Malampaya consortium a staggering P151 billion covering the period 2002 to 2016. The calculation stems from COA’s interpretation that corporate income tax should not form part of the government’s share in the Malampaya project, the country’s biggest gas producing exploration project to date, but the DOE believes otherwise.

The Malampaya consortium is composed of Shell Philippines Exploration B.V. (Spex), Chevron Malampaya LLC and PNOC Exploration Corp.

“For continuity purposes as well as respect to international contracting, I think that is more prudent,” Gatchalian said, referring to the DOE’s position, “because if you will change that [the contract], definitely many investors will not come here because we keep changing the rules in the contract. Especially in exploration, the gestation [period]is 10 years.”

“If within [those]10 years you change the [rules of the]contract, many investors will be turned off. In exploration, we need them because we don’t have technology there so we need foreign investors to explore,” Gatchalian added.

In an interview, Cusi said, “We supported the previous position of the DOE that it is part of the 60 percent. On
my part, of course, why did I endorse it? We studied it and the people that were there did confirm it.”

In an earlier letter to COA, Cusi said that the legal foundation of the DOE’s position is contained in Presidential Decrees 87 and Presidential Decree 1459.

The previous DOE administrations have been pushing for COA to honor the contracts of the Malampaya gas project because failing to do so would have a damaging impact on the upstream exploration industry and send the wrong signal to foreign investors.

Cusi said COA did not reply yet to the DOE’s letter. “I’m sure they’re also studying all the documents that we’ve submitted,” he said.

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