Shell smuggling case ripe for compromise

BATTLE ROYAL: Is the ground shaking under our feet already? Giant Pilipinas Shell and a reformist administration are locked in a new battle royal over the oil firm’s non-payment of billions in duties and excise taxes on allegedly smuggled petroleum products.

In his inaugural speech and his first State of the Nation Address, President Noynoy Aquino pledged to boost customs and internal revenue collections while curbing corruption to raise money for upgraded essential services.

Customs quickly charged Shell with technical smuggling and not paying some P24 billion in excise and value added taxes (plus penalties) for imported catalytic cracked gasoline (CCG) or light catalytic cracked gasoline (LCCG) from 2005 to 2009.

The multinational firm allegedly “misclassified” the CCG and LCCG as tetrapropylene, a tax-free blending material used in Shell’s 110,000-barrel-per-day refinery in Batangas. Customs said CCG and LCCG are not raw but finished unleaded gasoline that can be used to run motor vehicles.

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SHELL COUNTERS: Shell promptly shot back with a threat to file charges against Customs officials for negligence, incompetence and defamation. It said that the officials did not know their business, in the process misleading the government into filing baseless charges.

But the jaded newsman in me yawns and whispers that the brouhaha is likely to end in a draw.

Neither Shell nor the Aquino administration can afford to lose this high-profile fight. A Solomonic compromise is devoutly to be wished by both parties. Even the judges called upon to rule on the sensitive case(s) are likely to welcome a settlement.

You won’t spot them in the din and dust of battle, but you can be sure shadowy figures friendly to both sides are already in search of the happy balance.

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COMPROMISE SEEN: A side question of kibitzers is whether or not some Big Boys identified with Shell had contributed to the campaign kitty of then presidential candidate Noynoy Aquino. The answer to that, they say, can influence how fast or slow a compromise could be worked out.

Interestingly, the initial salvo from the Palace had a presidential spokesman saying, “it will not be an obstacle (for government) to catch tax evaders and smugglers,” referring to Shell’s threatened counter-suit. That was the correct fighting stance to take in this early round.

In the search for a middle ground, it is easy to blame the intricate language of the tariff and the internal revenue codes that have vague provisions for discretion.

Another basis for compromise is a Bureau of Internal Revenue memorandum exempting the imported items from excise tax. The BIR taxes only the finished oil products, when they are ready for the pump. (Are the BIR and Customs, both under the finance department, not talking to each other?)

A carefully worded clarification on the nature and uses of CCG, LCCG and tetrapropylene — and maybe a reference to an unclear provision of the tax code — will help settle the case(s) to everybody’s delight.

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HGC CASE SLEEPS: Elsewhere, we noticed that it has been a year since criminal and administrative complaints have been filed before the Ombudsman against officials of the Home Guaranty Corp. for their allegedly underpriced sale of a government property in Tondo in 2008.

We were reminded of the case last week when Rep. Bernadette Herrera (Party-list Bagong Henerasyon) filed a resolution in the House of Representatives calling for an investigation of the HGC and its real estate deals.

A state firm, HGC is tasked to operate a credit guaranty program in support of government programs promoting home ownership. It provides risk guarantees and fiscal incentives for housing credits extended by financing institutions.

With criticisms that the Office of the Ombudsman has been quite slow in its disposition of cases, a House inquiry may bring out the true facts of the case faster.

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UNDERPRICED: The Commission on Audit has reported that HGC had been mismanaged and that its officials had entered into questionable deals, including the sale of properties below their market value. It described HGC, posting some P1 billion in losses, a company “in financial distress.”

The COA said HGC’s mounting losses and deficits have impaired its financial condition, casting doubt on its financial capability to carry out its mandate.

One questioned HGC transaction cited by Herrera is the sale of a 2.8-hectare property in Vitas, Tondo, to La Paz Milling Corp. for P384,715,800, or around P13,000 per square meter, when its fair market value was P506,205,000 to P694,224,000 or around P20,000 per square meter.

She noted that the government lost around P121,489,200 to P309,508,200. The sale was “obviously grossly disadvantageous to the fiscal stability of the government,” she added.

La Paz Milling is reportedly owned by one Alfonso Uy Gongco. The HGC is headed by Gonzalo Benjamin Bongolan.

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NEARBY LOTS: Ten years before the sale to La Paz Milling, adjoining properties were already being sold for P17,500-P22,000/sqm.

In 1999, the Philippine National Bank sold for P22,000/sqm a lot adjoining the HGC property. The National Housing Authority sold in 2001 another nearby asset for P17,500/sqm.

If adjoining lots commanded a price of P17,500 to P22,000/sqm some 10 years before the sale to La Paz, the HGC should have fetched a better price considering the appreciation of land values over time.

EValue Plus, a professional property consultant firm, in its appraisal report dated July 2008 placed the fair market value of nearby lots in Manila Harbour Center at P24,000/sqm.

The COA also observed that HGC sold three APEC Villa units and 52 quadruplex units with a total recorded value of P337.234 million for only P89.5 million, resulting in a loss of P247.734 million.

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