Oil contractors worry over losing perks under TRAIN 2

MANILA, Philippines — The Petroleum Association of the Philippines (PAP) is raising concerns over the second package of the Comprehensive Tax Reform Program which seeks to rationalize fiscal incentives as this could further stall the development of the country’s upstream sector.

The 30-member association has been discussing issues regarding the Package 2 of the tax reform and has sought an audience with the Department of Finance (DOF), PAP vice president Edgar Benedict Cutiongco said.

In particular, they have set a meeting with Finance Undersecretary Karl Kendrick Chua to air their grievances on the proposal.

“We have to get clarification of sections 12, 21, 22 (of Presidential Decree 87). We’d like a clarification as to who do we address the concerns and the tax angle,” Cutiongco said.

PD 87 was issued by former president Ferdinand Marcos to amend the earlier PD 8 which promotes the discovery and development of the country’s indigenous petroleum resources.

It detailed privileges of oil and gas contractors, which include exemption from all taxes except income tax, payment of tariff duties, and compensating tax on the importation of machinery and equipment, among others under Section 12; deductions of Filipino participation incentive and operating expenses from gross income under Section 21; and 10-year recovery of all tangible exploration costs like capital expenditures and other recoverable capital assets under Section 22.

However, under Package 2 of the tax reform program, the said provision providing incentives to oil and gas contractors are repealed.

This is a concern for the sector since oil and gas exploration and development is capital intensive which would require foreign investors to provide equity into projects.

PAP said this would further discourage investors to pour in money into the country’s oil and gas sector, which is reeling from the impact of the Commission on Audit (COA) decision in 2009 to slap a P53.14-billion tax deficiency from the Malampaya project operated by Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC and the Philippine National Oil Co. Exploration Corp. (PNOC-EC).

The Malampaya project is the country’s largest gas development to-date, which powers around 3,200 megawatts (MW) of power plants that provide power supply to the Luzon grid.

SPEX, the lead operator of Malampaya, sued the Philippine government by filing an arbitration case with the Singapore International Arbitration Center in Singapore in late 2015 and another with the International Center for the Settlement of Investment Dispute (ICSID) in July 2016.