By Jonathan Dela Cruz
One hundred fifty one billion pesos. This is the uncollected, or should we say un-surrendered, amount due the Philippine government from the operations of the Malampaya Deep Water Gas-to-Power Project in Palawan based on a Commission on Audit report issued in 2009.
That should be closer to P250 billion, more or less, by now after nine years of waiting—enough to fund a good portion of the Duterte administration’s ‘Build, Build, Build” centerpiece program. That should be reason enough for the government, especially the BIR, OSG and DoJ, to push for the early resolution of the arbitration case(s) filed by the government’s partners in the Malampaya project, Shell Exploration and Chevron, which hold 45 percent each with PNOC holding the balance of 10 percent, before the arbitration bodies in Singapore and Washington, DC.
Failing which, government should immediately position itself to take over the Palawan facility which was inaugurated in 1990 yet as the original ten-year period given to the partners to recover their investments profitably (and what windfall profits !!!#&%*) these companies have had from day one of operations. But that is another story.
For now, the administration needs to focus on the recovery of this un-surrendered amount before its too late given that early estimates show that the oil-and-gas reserve may run out in just a number of years. Worse, given the resources of Shell SPEX and Chevron and their continued salivating over this treasure trove, they will simply dribble this matter through various guises until President Duterte steps down.
As far as the COA and other concerned sectors are concerned, this case is actually simple, requiring just a strong ‘advisory’ from Malacanang that it will no longer becontent with its squeezed share of the proceeds from Malampaya. Too, it will not allow the continued misdeclaration of revenue-sharing based on the partners’ misinterpretation of the project’s tax burden.
Under the terms of the contract, the Philippine government is supposed to get a sixty-percent share of the net proceeds from the operations with the partners (operators) getting 40 percent. More importantly, the contract states that “…The foreign contractors pays the 32 percent Philippine corporate income tax on its 40-percent share of the net proceeds, including withholding tax on dividends or remittances of profits.”
This is where the dispute lies. From day one, the partners (contractors) have imputed the payment of the corporate tax and withholding tax on dividends or remittances of profits on the government’s share. Which should not have been done at all as it was, as one legal luminary noted, illegal and arbitrary from the very beginning. That previous administrations have allowed this monstrous anomaly to happen remains a mystery up to this point. Again, that is another interesting story.
Suffice it to say that, finally, in 2009 the COA issued a notice of charge and ordered that the taxes imputed to be paid by government from 2002 (the end of the ten-year incentive period) to 2016 amounting to P151 billion be paid by the contractor-partners as the same should have been and remain to be the obligation of Shell SPEX and Chevron.
The sharing scheme as provided for under the contract and upon which the COA based its assessment is simple and straight forward. “…There is no question,” the Philippine advisory in the arbitral proceedings stated, that the State receives its rightful share, amounting to 60 percent of the net proceeds, in recognition of its ownership of the petroleum resources. In addition, Occidental-Shell’s 40-percent share in the net proceeds is subject to the 32% Philippine income tax. The Occidental-Shell FTAA also gives the State, through the DOE and BIR, full control and supervision over the petroleum operations of the foreign contractor. The foreign contractor can recover only the capital and operating expenses approved by the DOE or by the arbitral panel as provided for in the contract.”
Further, the Shell Spex-Chevron contract also contains other safeguards to protect the interest of the State as owner of the petroleum resources. While the foreign contractor manages the contracted work or operations to the extent of its financial or technical contribution, there are sufficient safeguards in the contract to ensure compliance with the constitutional requirements. Indeed, the terms and interpretation of the Philippine side in the arbitral proceedings emanated precisely from a Supreme Court ruling which ruled on the constitutionality of the operating agreement since given the strict 100-percent nationality requirement for the exploitation of minerals and other natural resources.
Given the nature of the business and the seeming inability of Filipino companies to undertake the implementation this contract at the time from exploration to production, it took the Supreme Court to come out with safeguards and other legardemaine such as the Financial and Technical Assistance Agreement or FTAA concept to come out with some opaque statement to skew the constitutional prohibition and advised that “…the terms of the Shell-Chevron FTAA are fair to the State and to the partners/contractors..”
What a stretch. But then again we should now move and insist that, as provided for by the COA, the partner/contractors should now pay up.
Or, pack up.
As the Commission on Audit report stated, government is losing almost half of its share, emphatically stating that the private contractors are receiving undue benefits at the expense of the ordinary Filipino people.