How the P38-billion Malampaya fund was misused

MANILA, Philippines – In 2002, the Malampaya Deep Water Gas-to-Power project started making some money. The profits remitted to the government were supposed to be used for energy resource development and exploration programs.

But under Presidential Decree 910 signed in 1976, the President of the Philippines is allowed to determine “other purposes” which the earnings might be used for.

These other purposes range from agricultural to rehabilitation projects.

By 2004, P600 million was released for priority development projects for Palawan. Through the years, profits going to Palawan would increase especially after former president Gloria Macapagal Arroyo signed in 2007 Executive Order No. 683 authorizing the use of profits from the Malampaya gas project to fund projects in Palawan – the location of the Camago-Malampaya Reservoir.

And then things started to go wrong. (READ: How the Malampaya fund was plundered)

‘Other purposes’

The release of funds from Malampaya started to spike beginning 2008. That year, the Department of Budget and Management (DBM) released P6.601 billion to the Department of Agriculture (DA), Department of Public Works and Highways (DPWH), and the provincial government of Palawan.

The year 2009 (prior to the 2010 presidential elections) saw the biggest release, almost P15 billion, going to DPWH, DA, National Housing Authority, Philippine Army, and Philippine National Police for rehabilitation, infrastructure and housing projects. 

It was also in 2009 when the Arroyo administration released P900 million to help the survivors of typhoons Ondoy and Pepeng.

MALAMPAYA FUND. The Malampaya project has earned P173.280 billion as of June 30, 2013. Of that amount, P38.8 billion was released starting 2004 up to 2012. Graph courtesy of the Commission on Audit

MALAMPAYA FUND. The Malampaya project has earned P173.280 billion as of June 30, 2013. Of that amount, P38.8 billion was released starting 2004 up to 2012.

Graph courtesy of the Commission on Audit

This P900 million was reportedly scammed through the use of non-governmental organizations (NGOs), some of which were linked to Janet Lim Napoles. Of course we know now that as early as 2007, Napoles had been employing a similar scheme to profit from the pork barrel of lawmakers.

The Commission on Audit (COA) believes that the DBM’s “laxity” in the release of these funds contributed to the misuse. Because of such findings, the COA is calling for a criminal investigation against officials of the DBM.

Senate committee on energy chairman Sherwin Gatchalian supports the investigation, saying that: “It is clear that these anomalies are something we have to investigate. Those funds are meant to be used in building a brighter future for the Philippine energy sector. Their misuse will put that future in jeopardy.

Irregular disbursement

The total P38-billion release from 2004 to 2012 consists of 184 Special Allotment Release Orders (SAROs). Of those 184, only in 4 instances of a SARO issuance were all rules followed.

In 137 instances, 120 of which involved projects with the DPWH, there was even no letter of request from the implementing agency, or in most cases, the DPWH.

In 173 cases, there were no endorsements from the Department of Energy (DOE), a requirement stated in Executive Orders 683 and 848. EO 848, signed in 2009, was Arroyo’s order to release funds for typhoon victims.

In 171 cases, there was no proof of evaluation from the DBM, again a requirement that COA insists, is provided for under several laws.

And in 7 cases, the SAROs did not even have specific projects.

In an 80-page sectoral performance audit of the Malampaya fund, the COA already observed anomalies post-disbursement. For example, P958 million worth of funds which went to DA from 2008 to 2009 were found to be ghost projects.

There are P20-million worth of projects supposedly for DA’s farm-to-market roads in Botolan, Zambales which were found to have violated the procurement law. Worse, the projects were reported completed, but a year later, an inspection found they were already “scoured, washed out, breached and certain sections not passable.”

The PNP received P2.14 billion in 2009 to augment their operational and logistical requirements for search, rescue and rehabilitation efforts in calamity-hit areas. Instead, the money was used for the PNP’s operating expenses, and office and janitorial supplies.

“The DBM’s laxity in the release of SAROs to IAs [implementing agencies] and without thorough evaluation, contributed to the misuse of funds by the IAs,” the COA said.

Reasons given

The officials whose comments were sought have their respective reasons for allowing the disbursements without some mandatory documents. But the COA is not buying some of them.

For example, DBM Undersecretary Luz Cantor said that when EO 848 was signed in 2009, some of the requirements laid out by the 2007 EO 683 on the agreements by DBM, DOE, and the Department of Finance (DOF) were no longer applicable.

Cantor was referring to the need to have a DOE requirement.

But even assuming Cantor is correct on that point, COA said that wouldn’t explain why some SAROs did not have DOE endorsements even before 2009. And it also wouldn’t explain why some SAROs were issued with DOE endorsements from 2011 to 2012.

These were SAROs covered during the time of former budget secretary Florencio "Butch" Abad. Five SAROs worth P11.5 billion during his time had DOE endorsements, but 5 other SAROs released during his time did not.

Andaya’s defense

Most of the projects were given the green light during the time of Arroyo’s budget secretary, Rolando Andaya.

Andaya claimed that “it was never required by existing laws, rules and regulations that all aforementioned documents are submitted prior to the release of funds from the Malampaya fund.”

Andaya also said that if there was misuse at the level of the implementing agency, then they should be blamed and not the DBM.

The COA said that while they are not holding DBM officials accountable for the misuse of funds, they should be held accountable for the irregular disbursements.

“DBM did not observe prudence in the release of SAROs and IAs in the disbursement of funds,” the COA said.

The COA also noticed that the DBM categorized as "classified" some of the evaluation reports, which they had requested the department to submit for audit purposes. According to COA, there were no significant differences in the reports submitted to them and the reports deemed classified.

“Hence it appears that the DBM has been selective in the submission of documents, which [became clearer when it did not specify] the reasons why some of the requested documents were considered classified,” the COA said.

“Had DBM been cautious in the documentary requirements and in evaluating the request of IAs in the release of funds, the misuse and wastage of the government’s meager resources could have been averted,” the COA added.

Under a memorandum of agreement, the Office of the Ombudsman should be putting this case on priority for filing and for preliminary investigation.

The Senate also has the choice to let it go through a public inquiry. As Senator Gatchalian said: “This investigation has been a long time coming.” – Rappler.com

Lian Buan

Lian Buan covers justice and corruption for Rappler. She is interested in decisions, pleadings, audits, contracts, and other documents that establish a trail. If you have leads, email lian.buan@rappler.com or tweet @lianbuan.

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