Legislators on Wednesday questioned Department of Energy (DoE) officials over the Udenna Corp.'s takeover of the Malampaya deep water gas-to-power project.
The Senate hearing centered on Dennis Uy-led company's financial capability to operate the $4.5-billion natural gas facility.
The point of contention during was the significant amount of debt incurred by the Udenna Group over the past years.
In his presentation, Senator Sherwin Gatchalian showed that Udenna's debt swelled by 324.2 percent over the last three years, the highest compared with other bigger conglomerates including the Ayala Group, MVP Group, and SM Group.
"The writings are on the wall in so far as the financial health of the parent company, which is Udenna, and there a lot of talks of assets sale because of high debt loads, a load of debt being contracted by the parent company. In the past years, it has carried a lot of debt in its balance sheet," said Gatchalian, who chairs the Senate energy committee.
"This high debt load is creating a lot of concern in the financial markets and those concerns are echoed through the news reports," he added.
Gatchalian raised another concern, this time on the capitalization of Udenna subsidiary Malampaya Energy XP Pte Ltd.
Citing the information supplied by Singapore's Accounting and Corporate Regulatory Authority, he said the entity's issued capital share is about 100 shares while the paid-up capital amounted to $100 (or approximately P5,000).
"Basically, that is the capital of the company. Will it qualify? Will this be declared as financially sound?" said Gatchalian.
Senator Maria Lourdes Nancy Binay pointed out the DoE used the unaudited financial statement of Udenna as the basis in reviewing the Malampaya transactions.
"Udenna has provided unaudited financial statement. It also lacks the documentary requirements. How did the DoE made a thorough financial evaluation if the company is not compliant with its submissions?" Binay said in Filipino.
"For me, that is not a good basis for thorough financial evaluation. The mere fact the financial statements are unaudited and unsigned, the agency should have not accepted the document in the first place," she added partly in Filipino.
But Energy Secretary Alfonso Cusi defended the agency's decision in saying the Chevron share sale "has been processed and they are bound to be technically, legally and financially compliant."
"The Shell purchase... that is another thing that we are still evaluating," he said, adding the DoE has about 30 days to evaluate the Malampaya share sale.
Although DoE officials assured the public it is reviewing the aforementioned deals in the interest of the republic, Gatchalian said he is "not confident about Udenna taking over an investment" that has been there for two decades.
"We're looking now at their capitalization... their ability to work and the ability to fund the development, the ability to carry out the exploration work and that they have to satisfy with us," Cusi said.
"Since we are requiring them a three-year work program, we have to make sure that the funds for the three-year program... they will be able to fund that," he added.
Sought for comment, Udenna said it is the seller's discretion to determine if the buyer has the capability to continue Malampaya operations.
"While we respect the opinion of our lawmakers, it is our firm stand that we have sufficiently addressed that concern when our Executive Director thoroughly discussed in detail our financial status," said Udenna Group spokesperson Raymond Zorrilla in a text message.
"In addition, the seller was satisfied with our financial capabilities,among others, which is why it awarded the contract to us. With all due respect, being a private contract, the seller was in a better position to determine who is best suited to continue the Malampaya operations after conducting its own due diligence," he added.
The DoE already approved the transfer of Chevron Malampaya LLC's 45-percent stake to Udenna subsidiary UC38 LLC, which amounted to about $565 million.
However, the agency is yet to review a separate transaction that involved Shell Philippines Exploration B.V.'s (SPEX) sale of its 45-percent participating interest to Malampaya Energy.
SPEX, the operator of the Malampaya gas field, previously said the deal was priced at $380 million, with additional payments of up to $80 million between 2022 and 2024 contingent on asset performance and commodity prices.
Presidential Decree 87 also requires the DoE's approval on such transfer of shares in upstream petroleum ventures.
PNOC Exploration Corp. - the upstream oil, gas and coal subsidiary of the state-owned Philippine National Oil Co. (PNOC) - is the other consortium member of Service Contract 38 covering the Malampaya project.
But PNOC EC President Rozzanno Briguez said that after exploring all their options, they opted not to exercise its right to match Udenna's offer to Shell.
"We will lose our operational flexibility, especially in prompt decision making that's required of offshore... very complex offshore exploration company," he added.
The Malampaya natural gas project, which fuels about 21 percent of the country's electricity requirements, is expected to be depleted by 2027 at the latest.
To date, this natural gas field has contributed more than $10 billion in revenues to government coffers.