Malampaya gas field

Gatchalian: Cusi should resign, DOE violated law in Malampaya approval

Aika Rey
Gatchalian: Cusi should resign, DOE violated law in Malampaya approval

BRIEFING. Energy Secretary Alfonso Cusi gives an update to President Rodrigo Duterte on the power and oil situation in typhoon-hit areas, December 27, 2021.

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'With all that has happened, the Filipino people can no longer trust you to faithfully safeguard our country’s precious energy resources,' says Senator Sherwin Gatchalian

MANILA, Philippines – Senator Sherwin Gatchalian said Energy Secretary Alfonso Cusi should resign for “bending over backwards” to approve Dennis Uy’s acquisition of a Chevron subsidiary with a 45% stake in the Malampaya gas field.

In a privilege speech on Wednesday, February 2, Gatchalian presented the findings of the Senate energy committee, which he chairs, highlighting Cusi’s alleged violation of Service Contract (SC) No. 38 and Presidential Decree (PD) No. 87 executed under Department Circular (DC) No. 2007-04-0003 of the Department of Energy (DOE).

Gatchalian raised Section 3 of DC 2007-04-0003, which requires the prospective transferee to be evaluated based on its legal, technical, and financial qualifications. 

The financial evaluation done by DOE Financial Services showed that Udenna Corporation’s UC Malampaya had a working capital of negative $137.16 million. UC Malampaya bought Chevron Malampaya LLC (CMLLC), later renamed to UC38 LLC after the sale, which had a working capital of $177.42 million.

It was established during the hearings that UC Malampaya should have been the firm to be evaluated, yet the recommendation to approve the deal was based on UC38’s finances. Gatchalian called the findings of the DOE unit “dubious.”

“How could CMLLC transfer to itself the 45% participating interest in Malampaya it already owns?” Gatchalian asked.

“DOE erroneously applied this standard to UC38, instead of UC Malampaya, to support its finding of financial qualification in approving the Chevron-UC Malampaya deal. When DOE’s financial evaluation standard is correctly applied to UC Malampaya, it is immediately apparent that the Udenna subsidiary is financially unqualified because it has negative working capital,” added the senator.

Gatchalian called on Cusi, along with 11 other DOE officials, to resign.

“With all that has happened, the Filipino people can no longer trust you to faithfully safeguard our country’s precious energy resources,” the senator said.

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Gatchalian also urged the Office of the Ombudsman and the Civil Service Commission (CSC) to file administrative and criminal complaints against Cusi and other DOE officials who evaluated the deal and recommended its approval.

The senator alleged that Cusi and other officials are liable for gross neglect of duty and grave misconduct for approving the deal. As the final approving authority, Cusi is allegedly criminally liable under Section 3(j) of the Anti-Graft and Corrupt Practices Act, according to Gatchalian.

Section 3(j) states that knowingly approving or granting any license or permit in favor of any person unqualified for such advantage is a corrupt practice.

“Mr. President, the law is the law. Anyone who violates it must be punished to its full extent. This is true, even more so, with regard to the public officials responsible for selling out our country’s energy security,” the senator said.

Gatchalian refused to comment on the speculations why Uy was allegedly “accorded preferential treatment” by Cusi. He said he will “leave that to the courts of law and public opinion to decide.”

Rappler and other media entities sought the DOE’s comment on Gatchalian’s claims, but the department has yet to respond. In the past, Cusi said the transaction was aboveboard and not a midnight deal.

DOE approval not required

In a statement sent to Rappler, Udenna maintained that there was nothing wrong with the deal as it was a private undertaking.

Because of this, Udenna spokesperson Raymond Zorilla said SC 38, PD 87, and DC 2007-04-0003 do not apply to the transaction.

“Because the transaction is at the stockholder level, there is no change in the corporate entity that owns the 45% participating interest in Service Contract 38. As there is no change in the corporate entity, neither PD No. 87 nor DOE Circular 2007-04-0003 applies because there is no assignment or transfer,” Zorilla said.

“To add, the Chevron transactions followed competitive bidding processes with rigorous due diligence conducted by Chevron, the international lenders involved, and the other parties in the SC 38 consortium,” the Udenna spokesman added.

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Zorilla noted that in the share sale and purchase agreement, DOE approval was not among the conditions. This is what sets the Chevron and Shell transactions apart. 

The holder of the other 45% operating stake in Malampaya, Shell Philippines Exploration – which was later bought by Uy’s Malampaya Energy – required the approval of the DOE. In December, the Philippine National Oil Company-Exploration Corporation (PNOC-EC) retracted its consent to the sale amid public backlash.

The remaining 10% stake in Malampaya is held by PNOC-EC.

Senate supports Gatchalian’s call

Senate Minority Leader Franklin Drilon made a motion for the Senate to adopt the entirety of Gatchalian’s speech.

The senators voted, but the resolution was not adopted after failing to secure majority votes. 

Senators Pia Cayetano, Ronald dela Rosa, Bong Go, Francis Tolentino, and Senate Majority Leader Juan Miguel Zubiri voted against its adoption, while senators Nancy Binay, Imee Marcos, Bong Revilla, and Cynthia Villar abstained.

Instead, Gatchalian proposed a resolution expressing the sense of the Senate that the Ombudsman and the CSC file criminal and administrative complaints against Cusi and other DOE officials.

The resolution was adopted, with Zubiri, Revilla, Dela Rosa, and Tolentino abstaining.

In October 2021, a group of concerned citizens filed a graft complaint against Cusi, other DOE officials, and Uy. Cusi then filed separate libel complaints against seven news organizations, including Rappler, for reporting on this graft complaint. (Editor’s Note: The author of this article is among the respondents in the libel complaint filed by Cusi.) – Rappler.com

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Aika Rey

Aika Rey is a business reporter for Rappler. She covered the Senate of the Philippines before fully diving into numbers and companies. Got tips? Find her on Twitter at @reyaika or shoot her an email at aika.rey@rappler.com.