DOE wants bigger government cut in Malampaya gas proceeds


THE Department of Energy (DOE) wants the government’s cut in the Malampaya royalty that is being shared with the consortium raised from the prevailing 60:40 arrangement to 80:20.

“The present sharing is 60:40 and the DOE position is starting with 80:20 and the alternative position that is being raised is 70:30,” said DOE Assistant Secretary Gerardo Erguiza during an online news briefing held Monday.

Under Service Contract (SC) 38, or more known as SC Malampaya, 70 percent of the gross proceeds from the sale of natural gas would go to the contractor to recover the investment cost. The remaining 30 percent is shared by the government and the Malampaya consortium on a 60-40 basis, respectively. The latter is the sharing that DOE wants changed.

The contract will expire in 2024. Once expired, the Malampaya consortium could no longer operate on the gas field even if there is still gas left.

As early as 2016, Malampaya operator Shell Philippines Exploration B.V. (SPEX) has been asking the DOE to extend the contract. It even re-filed its application for extension due to change in administration.

SC 38 was awarded to the Malampaya consortium—currently composed of UC38 LLC, a subsidiary of Udenna Corp. (UC), 45 percent; state-owned PNOC Exploration Corp.,10 percent; and SPEX, 45 percent.

Deal with Uy-led firm

However, a deal was sealed between SPEX and another UC firm controlled by Davao businessman Dennis Uy. Malampaya Energy XP Pte. Ltd. had signed a deal with SPEX to sell its 45-percent operating interest in SC 38. The deal, however, is subject to approval of the DOE and consortium members, including PNOC-EC.

“We are in the thick of it. It’s just a matter for us to consolidate. As soon as we have evaluation or decision of the PNOC-EC, we will be ready and come out with that approval as soon as possible because time is also very important and we are aware of that. We are doing this parallel wise with PNOC but we’re waiting for the decision of PNOC-EC,” said Erguiza.

The results of DOE’s review in the SPEX-Malampaya Energy deal will be issued ahead of its decision on the application for SC38 extension. “We believe this would go independently. At the rate going on right now, we’re going to decide on the SPEX transaction first most likely,” said the DOE official.

The DOE has set these parameters as basis for extending the license: the Malampaya gas reserves, a work program, decommissioning and restoration plan, assets disposal, gas price, banked gas and revenue sharing between the government and the contractor.

Of these, there are two unresolved issues between the DOE and the Malampaya consortium. “These are the government sharing and the banked gas. In the negotiation with SPEX, there are eight parameters and they made a framework. The DOE will not just approve it without addressing these concerns and parameters that were agreed upon by the parties,” Erguiza said.

Gatchalian’s beef

The DOE earlier caught the ire of the Senate Energy Committee led by Sherwin Gatchalian. “I think it’s really quite premature and unethical for Malampaya Energy to negotiate with the government. It’s too presumptuous in fact. We already laid down that DC 2007 should be applied to the transfer,” Gatchalian said, referring to Department Circular No. 2007-04-003 which sets the guidelines and procedures for the transfer of rights and obligations in petroleum service contracts as underpinned by Presidential Decree No. 87 or the Philippine Oil and Gas Law.

However, Erguiza clarified that the ongoing discussion on SC 38 is with SPEX and not with the Malampaya Energy. He also strongly suggested that lawmakers revisit PD 87 to address the “gaps” on how the DOE can go about in transactions related to shares of sale of stocks. He was referring to the Chevron-UC38 deal, earlier approved by the DOE.

“There is actually no law on transaction of shares of sale of stocks between two corporations. But because we want to protect national interest and to see to it that energy security is not put at risk, the DOE had to revisit the sale. It went out of its way to revisit the deal and we had to refer to DC. 2007-04-003 and PD 87 as these are the nearest applicable rules in the transaction,” said the DOE official.

For its part, the DOE will come out with a department circular in a bid to close these gaps. “We’re calling [for a] public consultation in the next two to three weeks and we’ve made a draft already on how to address this gap. There’s a gap in the law and everybody should face it. This a matter of national urgency also, we have to address this ASAP.”

Last week, the Philippine Bar Association called on the DOE to rescind the Chevron-UC38 deal. The Integrated Bar of the Philippines (IBP), meanwhile, called for transparency in the transfer of shares between Chevron and UC38.

Erguiza said the DOE will not rescind the contract. “The DOE position is that there is no problem with the transaction, so there is nothing for the DOE to rescind.  DOE officials have been unduly maligned. Let’s settle this once and for all in the proper legal forum,” he added.

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