DOE challenges COA order on Malampaya

MANILA, Philippines — The Department of Energy (DOE) has filed a petition before the Supreme Court (SC) to challenge the Commission on Audit’s resolution directing the contractors of the Malampaya natural gas project to reimburse the government P146.79 billion in underpayments.

In a text message to reporters, Energy Secretary Alfonso Cusi confirmed that his office had already filed its petition at the SC on May 15 after receiving the COA resolution on May 11.

Cusi said the Malampaya consortium, comprising Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC, and Philippine National Oil Company–Exploration Corp. (PNOC-EC) have also filed their respective petitions. 

In a resolution dated Jan. 24, 2018, released to the media only on May 15, the COA Commission Proper denied the respective motions for reconsideration of the DOE and the Malampaya contractors.

The COA maintained its position that the government’s share in the Malampaya gas project should not be less than 60 percent of the net earnings in accordance with Presidential Decree 87 and PD 1459.

Accoring ti COA, the contractors’ income taxes for the past 14 years or from 2002 to 2016 totaling P146.791 billion should not have been passed on to the government as it decreased its share from the project to 34.03 percent while the consortium’s share increased to 65.97 percent.

Cusi, however, maintained that assuming the income taxes of the consortium was part of the government’s contractual obligations for the Malampaya project as contained and agreed upon in Service Contract No. 38.

“We respect our contractual obligations under Service Contract 38 as we also recognize the authority of COA to audit government funds as a constitutional body. We will await the Supreme Court decision on this matter, it being the final arbiter of legal and issues,” Cusi said.

In its resolution, COA dismissed the argument of the Office of the Solicitor General (OSG) that there is no law barring the inclusion of income taxes in the computation of the government’s share in the Malampaya gas project.

The OSG, which represented the DOE in the case, said pushing the consortium to pay the income taxes already assumed by the government may cause “irreparable harm to the country’s long-term interest” as it might erode the confidence of foreign investors.

“It is the policy of the administration of President Duterte to honor the government’s contractual obligation under the same service contract,” the OSG added.

The COA in its resolution, however, said the government’s act of shouldering the income taxes of the consortium had no legal basis and was tantamount to tax exemption.

“If this Commission will not put an end to this illegal ‘tax assumption’ scheme, the government will continue to bleed billions and billions of fund,” COA said.