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World Bank unit starts Malampaya arbitration

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The International Center for Settlement of Investment Disputes, a unit of the World Bank, designated the team that will hear Shell Philippines Exploration B.V.’s arbitration case against the Philippine government on Malampaya gas project’s corporate income tax issue.

ICSID said in a status report, the tribunal was constituted with VV Veeder appointed president and Horacio Grigera Naon (appointed by claimants) and Brigitte Stern (appointed by respondents) as arbitrators.

“The tribunal holds a pre-hearing organizational meeting with the parties by telephone conference on June 16, 2017,” the report said.

Spex, operator of the Malampaya gas project in northwest Palawan, filed the arbitration case with ICSID on July 27, 2016 pursuant to a bilateral investment treaty between the Philippines and the Netherlands.

Spex registered the arbitration case at ICSID under the subject dispute heading of “hydrocarbon concession, taxation.”

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The oil and gas firm is represented by King & Spalding (USA) and Romulo Mabanta Buenaventura Sayoc and De Los Angeles while the government is represented by the Office of the Solicitor General and Arnold & Porter.

The case stemmed from the Commission on Audit’s issuance of a notice to charge to the Energy Department to collect around P151 billion from the Malampaya consortium for the period 2002 to end June 2015.  COA said in a tax interpretation that corporate income tax should not form part of the government’s share in the Malampaya project.

Energy Secretary Alfonso Cusi said he wanted COA to honor the sanctity of contracts of the Malampaya gas project in northwest Palawan due to its impact on foreign investor sentiment.

Cusi wrote COA saying that “the foremost consideration in the mind of foreign investors in deciding where to invest is the predictability, certainty and consistency of investment rules and regulatory regime of a country.”

“It is therefore, of fundamental importance that we observe the sanctity of contract in our commercial transactions,” the official said.

Cusi said the COA decision eroded the country’s investment standing compared to other countries but this could be reversed if “COA reconsiders and reverses its decision.”

The Malampaya consortium is composed of Shell Philippines Exploration B.V. (45 percent), Chevron Malampaya LLC (45 percent) and PNOC Exploration Corp. (10 percent).

Cusi said the “solid legal” foundations of DOE’s position is contained in Presidential Decree 87 and Presidential Decree 1459 and the department “entertain no doubt whatsoever on the legality of our position on this matter.”

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