Malampaya Fund (Part 3): Is government losing out on deal?

Metro Manila (CNN Philippines) – As far as state auditors are concerned, the Malampaya project contractor should pay government P53 billion in under-collected taxes.

This tax has so far been shouldered by government as an incentive for private groups to carry out the project.

The Malampaya deal involves Shell Philippine Exploration B.V. (SPEX), a consortium of two multinational companies — Chevron Malampaya LLC and the PNOC Exploration Corp. A government corporation owns 10% of the consortium.

By law, government should be getting 60% of the project's revenue, while the rest goes to the contractor.

But a Commission on Audit (COA) report states government is losing almost half of its share.

It adds: "Private contractors are receiving undue benefits at the expense of the ordinary Filipinos."

In a text message sent to CNN Philippines last May 19, SPEX said: "The Malampaya consortium is in discussions with the DOE with regard(s) to the recent COA decision."

At that time, Energy Secretary Jericho Petilla said he had not yet to receive the audit report, but he initially expressed concern about the ruling.

"I'm only saying I'm worried if the decision is really for the consortium to pay for it, because all these years the agreement, our interpretation was otherwise," he said.

The decision would send the wrong signal to those doing business in the country, according to two businessmen interviewed by CNN Philippines — Sergio Ortiz-Luis, president of the Philippine Exporters Confederation, Inc. (PhilExport), and Donald Dee, chief operating officer of the Philippine Chamber of Commerce and Industry (PCCI).

"If we reinvent how the taxes will be taken from the Malampaya consortium, we can have a catastrophic impact on foreign direct investors," Ortiz-Luis said.

"They are already questioning ah why we changed rules in the middle of the game."

The Malampaya deal, called Service Contract 38, was signed during the administration of President Corazon Aquino.

The country looked for an energy source at the time because of a power crisis. Government needed investors to do that. 

Both Ortiz-Luis and Dee said producing electricity would require big money even if the project would eventually turn out to be not feasible.

"So this is not a question of greed. This is not a question of exemption of taxes," Dee said. "This is a question of implementing a service contract that is valid."

The Malampaya contract expires in 2024. This early, the contractor is already asking for an extension.

Shell confirmed this in a statement: "The Malampaya consortium has submitted its formal request for SC 38 license extension to the government and awaiting their official response."

The government would want to protect its interests on any future deal, since it will own the natural gas platform by 2024.

"The term really changes when the contract expires," Petilla said.

"The ideal situation for the Filipino government really is to optimize its earnings…and at the same time the Filipino government getting more than what it's getting right now."

Petilla says any contract extension should be carefully studied.