Another midnight deal: oil rig negotiated sale

Midnight dealmakers of the Arroyo admin at first rushed to beat the Mar. 26 start of the election ban on government contracting. So were inked, among others, the multibillion-peso no-bidding purchase of Army weapons and the “sale” of IBC-13’s Broadcast City.

Some agencies weren’t as quick to make a buck. Clark International Airport Corp. failed to fast break to a Kuwaiti firm the facility’s operation for 25 years, or five Presidents beyond Gloria Arroyo. The Department of Finance too ran out of time to privatize the assets of Philippine National Oil Co.-Exploration Corp.

But they’re undaunted. CIAC directors are sprinting to have an alien declared “original proponent,” to lock in the next admin with their patron (Gotcha, 19 May 2010). And DoF is reviving plans to sell PNOC-EC shares in fuel mines. Their new timeline is from the June 10 lifting of the election ban, to the June 30 exit of the Arroyo admin. Within those last 20 co-terminus days with their leader, the dealmakers will attempt to pull fast ones on the people.

PNOC-EC is a classic story of milking an agency dry. As the state firm tasked to explore, develop and produce oil, natural gas and coalfields, it is worth over $750 million. But the DoF is dashing to liquidate its primary asset — a 10-percent share in Malampaya gas field — for P15 billion, or $326 million. Shell and Chevron own 90 percent of the offshore rig. With the sale PNOC-EC will lose not only half its value, but also the government’s stake in RP’s premiere natural gas rig. This would cripple the only remaining profitable subsidiary of PNOC.

Why is the DoF bent on selling PNOC-EC in pieces when it obviously is worth more than the sum of its parts? The plan reportedly goes back to 2005, when then-NEDA boss Romy Neri blocked the sale of half of PNOC-EC’s Malampaya stake for being undervalued. Focus shifted to selling PNOC’s stocks in EC, but which the 2008-09 world financial crisis stymied. Analysts advised the government to suspend privatization till better times.

The DoF couldn’t wait. In Feb. 2010 it informed PNOC-EC chairman Jacinto Paras that the Privatization Council had decided to sell it in the two stages: first, the Malampaya asset, and then PNOC’s holdings in EC. The PNOC-EC board approved the sale, subject to favorable opinions of the Department of Justice, Office of the Government Corporate Counsel, and the Commission on Elections. Why also the Comelec? They saw even back then that the sale would be concluded during the election ban, and so would need official exemption. PNOC-EC also got as financial adviser the Development Bank of the Philippines, which in turn hired a private bank and a lobbyist-law firm a co-advisers.

The race was on against the Mar. 26 deadline. To privatize pronto, DBP proposed a negotiated sale of Malampaya — no public bidding. The lawyers agreed, saying the Privatization Council’s broad powers under EO 323 of 2000 allowed such immoral, unethical secret talks. Besides, they had the cover of Shell and Chevron’s right of first refusal. The lame argument went that because the Malampaya partners could match the negotiated price, there was still some color of competitiveness.

DBP and the lawyers wangled favorable opinions from Government Corporate Counsel Alberto Agra and Justice Sec. Agnes Devanadera. This, despite objections of the Commission on Audit that, per a 1989 rule, the Malampaya asset sale, as all privatization deals, must go through public bidding. The OGCC and DOJ opinions also contradicted Presidential Proclamation 50 and R.A. 7181, which subject privatization to COA procedures, including public bidding.

In early Mar. DBP and the lawyers were about to conclude the negotiations when fate intervened. The Supreme Court handed down its final decision on an election issue: all appointive officials who were running for the May 10, 2010 balloting were deemed resigned as of Jan. 10. All of a sudden Paras and Devanadera were out of office. Then, several other PNOC-ED directors left. Perhaps reading the events as ominous, opposition stiffened in the board against the DBP-brokered negotiated sale. In the end only acting chairman Crismel Verano voted for the terms of the DBP, the private bank and the lawyers.

With this twist, the Malampaya asset sale should now be left to the next admin — if the latter is to pursue privatization at all. But no, DBP is bent on reviving negotiations. The stated reason is the ballooning budget deficit during the last months of the departing Arroyo team. A fire sale would cover for the new debts incurred from runaway spending.

But there’s another reason, which is what DBP, the private bank and the lawyers stand to gain from the deal. For their efforts, the three plan to charge PNOC-EC a “milestone fee” of P90 million. On top of it is a “success fee” of one percent of the sale price, or a minimum of P150 million from the P15 billion. That means a total of P240 million — not bad for a few months’ dirty work.

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“It is when you reach your breaking point that you discover your real strength.” Shafts of Light, Fr. Guido Arguelles, SJ

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