Malampaya contractors, not DOE, should appeal COA ruling

MANILA, Philippines – Energy Secretary Carlos Jericho Petilla is worried over the recent ruling of the Commission on Audit (COA) which ordered the consortium behind the Malampaya deep water gas-to-power project to pay the government P53.14 billion ($1.19 million) in taxes. (READ: COA orders Malampaya contractors to pay gov’t P53B taxes)

The members of the consortium include Shell Philippines Exploration B.V. (SPEX, 45%), Chevron Malampaya LLC (45%), and Philippine National Oil Company-Exploration Corporation (PNOC-EC, 10%). COA overruled the petition of the consortium, which was filed along with the Department of Energy (DOE), that the income tax was already included in the government’s 60% share in the Malampaya royalties.

Should COA direct DOE to collect additional taxes from the consortium, Petilla said they do not have any choice but to comply, and that the consortium should elevate the matter to the Supreme Court (SC) if necessary. “If they say that we should collect, then we have to collect. If we’re asked to give our opinion, we’ll just give. But it’s not the DOE that will appeal for them,” he pointed out.

Petilla added that the COA ruling might set a precedent for other petroleum contracts entered into by the government with the private sector, such as the Galoc oil field under Service Contract (SC) 14C1 located in waters northwest of Palawan.

The Galoc field is the Philippines’ only oil producer of commercial scale with an output of over 10,000 barrels per day. The stakeholders in SC14C1 are Galoc Production Company, 33%; Galoc Production Company No. 2 Property Limited, 26.84%; Oriental Petroleum & Minerals Corporation and Linapacan Oil & Gas Power Corporation, 7.79%; Philodrill Corporation, 7.21%; and Forum Energy Philippine Corporation, 2.28%.

“The implication of this is it will not only affect the Malampaya project but affect other petroleum drillings, including Galoc,” he said.

Petilla said this would have to be discussed within the agency and consortium members. “We’ll sit down with the legal people in the DOE. Moving forward, it will be a discussion among us first,” he said.

Extending Malampaya’s life

SPEX Managing Director Sebastian Quiniones earlier said that it would seek guidance from Petilla’s office. “That’s what we signed up for. We have to get together with (DOE) to talk. We will wait. COA is government and DOE is also government.” (READ: Malampaya contractor seeks DOE guidance over COA ruling)

Petilla agreed. “In the past, I was still not yet the DOE secretary then, the sharing was already net of income tax. So probably this will have to be raised by the Malampaya consortium to the Supreme Court.”

The Malampaya consortium remitted $900 million in royalty payment to the national government last year, which  brings to $8.5 billion the total payment turned over to the government since the commissioning of the project in 2001.

The Malampaya gas project supplies 40% of Luzon’s energy needs by fueling 3 natural gas power plants with a combined capacity of 2,700 megawatts (MW). SPEX wants DOE to extend its license to operate the gas field for 15 years.

The license granted to the Malampaya consortium to conduct exploration and drill activities under Service Contract (SC) no. 38 is valid until 2024.  (READ: Malampaya consortium seeking extension until 2039)

SPEX is also mulling to join Otto Energy Investments, Limited and its partner Trans-Asia Petroleum Corporation in SC 55, which covers Hawkeye-1 exploratory well in offshore Southwest Palawan.

To sustain the level of gas production from the reservoir, the Malampaya consortium started a $1-billion expansion program through two new project phases. Phase 2 involves the installation of two new subsea gas wells worth $250 million. Phase 3, meanwhile, is composed of new compressors and a platform that will be completed in 2015.

Quiniones said in a briefing on May 8 that the Malampaya platform shall be commercially operational middle of 2015. “We need to lay out the cables. We need to make sure that the structure is strong,” he said.

The next Malampaya shutdown is scheduled in 2020. – Rappler.com

$1 = P44.63