Malampaya deal: China entry in gas field feared

"With Dennis Uy now in Malampaya gas field, can China be far behind?” That remark by Filipino-American lawyer Rodel Rodis illustrates the bully neighbor’s threats to Philippine energy security.

Malampaya in offshore Palawan supplies one-fourth of Luzon’s electricity. The Davao City tycoon recently bought 90 percent of its operations via two shell companies. Both are greenhorns in exploration and extraction. Rodis with two others have charged Uy, his Udenna Corp., Energy Secretary Alfonso Cusi and fellow officials with graft in the alleged “sweetheart deal.” Impleaded as well are oil giants Chevron and Shell for selling to Uy without government’s prior consent. Udenna denies any wrongdoing.

Underlying the criminal complaint is the fear that Uy will bring in a partner worrisome to Filipinos: China National Offshore Oil Corp.

CNOOC earlier partnered with Uy for a liquified natural gas terminal. It is lusting for the Recto Bank gas field less than a hundred kilometers from Malampaya.

Lying within the Philippines’ 200-mile exclusive economic zone, Recto Bank is believed to contain thrice more gas than Malampaya. China gunboats illegally surround the Bank. But CNOOC cannot just barge in to siphon off the gas. That would fire up Philippine and international outrage, like the resistance to CNOOC’s 2014 attempt to plant a giant oil rig in Vietnam’s Paracel Isles.

Malampaya, in particular its 500-kilometer gas pipeline to mainland Luzon, “is inextricably linked” to extraction from Recto or Reed Bank, says former Supreme Court justice Antonio Carpio. “Whoever owns the Malampaya gas pipeline has a leg up in the commercialization of the Recto Bank gas since the same pipeline will be used to deliver gas to Batangas.”

Manila’s contracted Recto Bank operator is Forum Energy. It has been unable to mine. In the past decade Chinese gunboats have rammed, machine-gunned and chased away Filipino survey vessels. Beijing illegally claims the entire South China Sea contrary to a 2016 international arbitral ruling.

In last month’s hearing of the Dept. of Energy’s 2022 budget, senators pointed up China’s play for Malampaya. Citing threat to national patrimony, Risa Hontiveros said the DOE must thoroughly review Udenna’s capabilities. Sherwin Gatchalian cautioned Cusi against a “midnight deal” of automatically extending the Malampaya service contract beyond expiration in December 2024. Despite Udenna’s entry, new public bidding must be held for service contractors to siphon remaining gas and oil beneath it, and “explore near-wells,” he explained Saturday in Sapol-dwIZ.

Petroleum geologist Eduardo Mañalac expects Udenna to partially sell to a company like CNOOC. “Taking over the rig personnel is not enough,” says the former president of Philippine National Oil Company and energy undersecretary. “Without any management expertise or industry contacts, it will need an expert partner.” Mañalac testified against Udenna’s buyout of Shell and Chevron before Gatchalian’s Senate energy committee.

Yesterday eight business groups called for continuing legislative inquiries in light of threats to energy and national security. Without naming Udenna, they said the “acquirer” would likely get operating partners since it “lacks expertise” and capital. “Government should scrutinize the buyer’s financial and technical capabilities and interests, and reserve, enforce and exercise its rights to block and invalidate transfers of shares and control disadvantageous to the Filipino people.” That was by Energy Lawyers Association, Financial Executives Institute, Filipina CEO Circle, Integrity Initiative Inc., Investment Houses Association, Makati Business Club, Philippine Women’s Economic Network and Women’s Business Council.

Business advisor Accuretti Systems analyzed in October 2020: “Dito Not Only a Telco Play but May also be a Beneficiary of South China Sea Exploration Resumption.” It referred to Uy’s entry into telecoms via Dito Telecommunity with state-owned China Telecom Corp. The newbie’s privilege to set up cell sites inside military camps has spurred fears of cyber-spying and sabotage. “China is not keen on giving up Recto Bank without participation in the exploration,” Accuretti said. “To solve the Chinese dilemma, it was proposed that Chinese state-owned companies be brought on board as partner in the Recto Bank exploration... Dennis Uy has been successful in bringing in the Chinese, particularly CNOOC.” In May 2019 CNOOC, PNOC and Uy’s Phoenix Petroleum agreed to engage in LNG and “future energy projects.”

China coastguards escort maritime militia trawlers to poach fish in the West Philippine Sea. Fearful of being shot and rammed, Filipino fishers are forced to shorelines, resulting in dwindled catch and high retail prices. Consumers buy imported galunggong, mackerel and sardines from China stolen from Philippine waters. CNOOC’s looming entry in Malampaya and Recto Bank has been likened to that irony. China will mine and sell Philippine gas to Filipinos at high rates.

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Udenna says:

“No law requir(es) approval of transfer of shares of companies that have interest in Malampaya. Therefore, no party has the legal ability to rescind the Chevron and Shell transactions... (which) underwent strict bidding processes. The share sales were aboveboard and legal and pass[ed] thorough scrutiny by Philippine regulators, international lenders and the said private multinationals involved.”

Cusi says:

“The actions taken by the government in relation to the private transaction between Chevron, a multinational corporation, and Udenna are proper, legal and in furtherance of the best interests of the government. The decision taken regarding the exercise of the right to match should be taken against the backdrop of the restrictions imposed by various regulations on PNOC-EC as a government-owned and -controlled corporation, such as RA 9184 (Procurement Law) and RA 10149 (the GOCC Governance Law). In addition, the pandemic’s strain on government resources and allowed period under the Joint Operating Agreement (to exercise the right to match) were significant factors that limited the options, and ultimately prevented it from exercising its right to match.”

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