Honoring Malampaya contract signals predictability, consistency – Cusi

MANILA, Philippines – Honoring the contract of the Malampaya gas project in Northwest Palawan will bode well for the upstream oil and gas industry as it signals predictability and consistency in government policies, officials said yesterday.

In the EU-Philippines Business Summit yesterday, Department of Energy (DOE) Secretary Alfonso Cusi said the agency has strongly affirmed its position that the income tax of the Malampaya contractor shall form part of the 60 percent of government share.

This is pursuit of the “DOE’s commitment to maintain and strengthen the predictability, certainty and consistency of investment rules of the country,” he said.

Last month, the DOE filed a motion for reconsideration with the Commission on Audit (COA), reiterating the previous DOE administration’s stand that Malampaya’s income tax was deductible from the government’s 60 percent share of earnings.

Cusi said COA has yet to reply to the agency’s motion for reconsideration. “ I’m sure they are also studying all the documents we submitted,” he said.

The DOE’s move was a prudent position since that arrangement is embedded in most service contracts issued by government, Sen. Sherwin Gatchalian said in the same event.

“For continuity purposes as well as respect to international contracting, I think that is a more prudent take,” he said.

Gatchalian, chairman of the Senate Committee on Energy, said changing rules in the middle of the game will just turn off foreign investors, especially in the upstream oil and gas industry.

“If we change the rules, a lot of investors will not come and invest in the country especially in exploration which has a gestation of 10 years,” he said. “In exploration, we don’t have the needed technology so we need foreign investors.”

COA found the tax deficiency in 2009 and was upheld in an April 6, 2015 decision after the Malampaya consortium appealed the ruling.

Malampaya’s lead operator SPEX then decided to sue the Philippine government by filing an arbitration case with the Singapore International Arbitration Center in late 2015 and another with the International Center for the Settlement of Investment Dispute in July 2016.

Since then, Malampaya’s tax dispute has ballooned to around P151 billion, according to COA.