Oil exploration firms appeal COA ruling on income tax payment

MANILA, Philippines – The Petroleum Association of the Philippines (PAP) is appealing a Commission on Audit (COA) ruling for exploration companies to pay income tax on top of the royalties paid to government.

In a briefing yesterday, PAP executive director Benjamin Austria said the group reiterated its concern to government over the COA order as the inconsistency in policies would discourage foreign investors from putting money in the country’s oil and gas sector.

“We are very concerned by law and by contract,” he said. “We need investors, but if we show that we don’t have a clear investment policy, the industry will be affected. If you change the terms, if you kill the industry then we cannot develop this for the country.”

Austria said oil and gas exploration companies need foreign partners “to really go up in capital intensive projects at high risk.”

Currently, the Philippines already has low investments in exploration compared with its Southeast Asian peers, with only 700 wells drilled so far versus 200 to 400 wells annually in Indonesia for example, the PAP official said.

“Instead of having potential lower cost of energy, if we don’t have local sources then we will be dependent on situation outside our control…It’s better for us to develop our own sources for energy security,” Austria said.

Last year, the COA upheld its 2009 findings that P53.14 billion in taxes were uncollected from the Malampaya project operated by Shell Philippines Exploration B.V., Chevron Malampaya LLC and the Philippine National Oil Co. Exploration Corp. (PNOC-EC).

Even after the consortium’s appeal, COA ordered the Department of Energy (DOE) to collect the taxes.

This drove SPEX to file an arbitration case against the Philippine government with the Singapore International Arbitration Center in Singapore in late 2015 and later with the International Center for the Settlement of Investment Dispute (ICSID) in July 2016.

PAP earlier said that the COA ruling will not only affect the Malampaya consortium but the whole industry as well.

Last month, the PAP sent a letter to the DOE, seeking an audience with Energy Secretary Alfonso Cusi to discuss concerns in the oil and gas exploration industry.

“We’ve written the secretary. We are pointing out how much we are concerned about certain developments. We are concerned about development in the possible instability of the policy,” Austria said.

While the group has yet to receive a reply from the new DOE secretary, PAP will continue on pushing for a dialog with government, the group’s executive director said.

Austria said the association expressed hope they will be heard especially after President Duterte ordered government agencies to honor existing contracts.