INVESTOR confidence in the certainty and stability of local investment laws may have been damaged by the recent finding by the Commission on Audit (COA) ordering the consortium behind the Malampaya Deepwater Gas-to-Power Project to pay the government P53.14 billion, approximately $1.19 billion, in taxes.
According to the Department of Energy (DOE), the COA decision “has totally brought havoc to the representation of the government to these investors.”
The COA told the DOE to collect the additional taxes from the consortium members, which include Shell Philippines Exploration (SPEX) BV (45 percent), Chevron Malampaya Llc. (45 percent) and Philippine National Oil Co.-Exploration Corp. (PNOC-EC) (10 percent).
To recall, the COA overruled the petition of the Malampaya consortium, together with the DOE, that the income tax was already included in the government’s 60-percent share in the Malampaya royalties. The tax, they argued, was deductible from the government’s share of the Malampaya earnings.
However, the COA said there was no provision in the law stating that the income tax of the contractors forms part of the share of the government.
In a 30-page motion asking the COA to reconsider, the DOE pleaded the decision reversed and set aside. “The assailed decision has sent a very wrong signal to existing and future petroleum-exploration investors in the country,” the energy department said.
The DOE warned that the decision “will cause enormous harm to the country’s long-term interest, as it will further erode the confidence of investors in the stability and certainty of our rules and regulations.” The COA decision, dated April 6, 2015, stated that the consolidated petitions for review of SPEX, PNOC, Chevron and the DOE was “hereby denied.”
Accordingly, the Notice of Charge for the undercollection of the government’s share in the Malampaya natural-gas project from 2002 to December 2009 in the amount of P53,140,304,739.86 was affirmed.”
The DOE and the COA are both government agencies. However, in the event the COA decision is enforced, the DOE fears this will send shockwaves to the international investment community and result in “very dire repercussions and consequences to the ability of the country to attract foreign capital as far as petroleum exploration is concerned.”
The Philippines, the DOE said, is perceived by many as having low potential for oil and gas discovery compared with Indonesia, Malaysia and China. The reason for this perception, among others, is the lack of petroleum data and exploration activities.
In terms of the number of exploration wells drilled, the number of oil discoveries, and the volume of oil and gas produced, the Philippines clearly lags behind. In 2009 72 exploration wells were drilled in Thailand; 29 in Malaysia; 19 in Vietnam; and only one in the Philippines.
From 2005 to 2009, a total of 1,108 wells were drilled in Southeast Asia, of which about one-third were in Indonesia and only five wells in the Philippines. The success rate, or the number of wells resulting in oil or gas discovery, was highest in Thailand with an average of 78 percent; followed by Brunei Darussalam with 64 percent; and Vietnam with 61 percent. The success rate for the Philippines during the period was the lowest at 33 percent.
“Investment in petroleum exploration is a highly risky business as there is no guarantee of return in investments,” the DOE said.
The agency said investments in seismic survey and well-drilling works cost tens of millions of dollars. That is why many countries, including the Philippines, compete with each other in attracting the scarce capital necessary to develop their petroleum resources.
“This is the reason the Philippines has to maintain the attractiveness of our contractual fiscal terms in order to get a reasonable share of that investment money,” the agency said.
To attract more investments in the petroleum-exploration sector and convince those investors already in the country to remain and stay for a long haul, the Philippines needs continued enhancement of its incentives, fiscal or otherwise, the agency added.
“In the face of this tight competition with other countries for foreign investors, the Philippines, if it is to achieve its aim of energy security, and, incidentally, overall economic progress, needs to discover other Malampayas by intensifying the exploration and production of its indigenous petroleum resources,” the agency said.
Precedent
The DOE pointed out the COA decision will, in the long term, do more harm than good for the country. “Right now, it has created anxiety, uncertainty and overall negative attitude toward the country not only in SC [Service Contract] 38 contractors and stakeholders, but in other existing and prospective investors,” the DOE added.
Former Energy Secretary Carlos Jericho L. Petilla had said should the decision be carried out, such could set a precedent for other petroleum contracts entered into by the government with the private sector. He cited the Galoc oil field under SC 14C1 in waters northwest of Palawan. The Galoc field is the Philippines’s only oil producer on a commercial scale with an output of over 10,000 barrels per day.
source: Business Mirror
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