PNOC-EC board overhaul looms over Malampaya

MANILA, Philippines - A revamp in the board of state-run PNOC-Exploration Corp. (EC) looms over the issue of selling the company’s stake in the $4.5-billion Malampaya natural gas-fired project.

“Because of their refu-sal to approve, the members of the existing board are now being removed and replaced by new ones who would be more compliant with the directive of the current administration,” industry sources said.

Energy Secretary Jose Ibazeta, in an earlier interview, confirmed that the Department of Finance (DOF) intends to push through with the privatization of PNOC-EC’s 10 percent interest in the Malampaya deep water gas-to-power project under Service Contract 38.

However, the sale is being strongly opposed by the current PNOC-EC board due to some “unacceptable” terms in the proposed method on privatizing the asset.

Sources said the PNOC-EC officials are concerned that “selling the Malampaya asset at this point will simply transfer public revenues to the private sector without the benefit of future public revenues, given the volatility of prices and the unknown value of the probable remaining reserves.”

The government, in dire need to privatize the PNOC-EC share in Malampaya, apparently even intends to sell the Malampaya asset without any public bidding – a procedure that is highly questionable on several counts, the sources pointed out, adding that the lack of transparency in the process will fuel rather than dampen public suspicions regarding the motives behind the sale.

From a purely business point of view, the sources said, the alleged absence of bidding will further reduce the likelihood that the Malampaya asset will be sold at fair price.

The sources also pointed out that the view that the Malampaya asset may be validly sold to a third party without public bidding rests on very insecure legal foundations.

It was learned that the board refused to approve the sale of 60 percent of its 10-percent participating interest for P16 billion because no public bidding was contemplated, simply because fellow consortium members Shell and Chevron have the right to match or the right of first refusal.

The sources said the sale at this time can easily be dubbed as a “midnight sale” because the term of the present administration expires within a few weeks on June 30 and the transaction falls within the election ban.

The Royal Dutch Shell group owns 45 percent of the Malampaya project while another 45 percent is controlled by US firm Chevron.

The sources noted that Shell and Chevron are currently drilling a new well in this contract area, which could be another major discovery.

They added that PNOC is a very profitable company, from the entire Camago Malampaya, as $1.3 billion in royalties from 2001 to 2008, 10 percent of which represent PNOC-EC’s share.

The sources said the company paid to the National Treasury P300 million in guarantee fees for its long term loan acquired for the purchase of the participating interest.

Moreover, the sources noted that the company has paid dividends in the amount of P1.5 billion for 2008 to 2009 which only goes to show that it is a steady source of income for the government.

Another issue being raised, according to sources, is that the board was required to approve the payment of its appointed financial adviser, the Development Bank of the Philippines, a fixed rate of P90 million plus one percent success fee whereas other advisers were willing to accept the same without any fix upfront fee but on purely contingent success fee of 0.65 percent.