Honor sanctity of Malampaya contract, audit body urged

Energy Secretary Alfonso G. Cusi has asked the Commission on Audit to reverse its position declaring that the consortium operating the Malampaya deepwater gas-to-power project off Palawan had shortchanged the government with P151 billion in unpaid corporate income taxes.

In a letter sent to COA dated Sept. 19, Cusi also urged the agency to honor the sanctity of the service contract awarded to the Malampaya consortium, as he noted that the DOE was adopting the stand of energy officials under the previous administration.

Former energy officials were in agreement with the Malampaya consortium that the latter’s corporate income taxes could be deducted from the government’s 60-percent share of the net proceeds from the sale of natural gas and condensates. The remaining 40 percent goes to the consortium composed of Shell Philippines Exploration, Chevron Malampaya and PNOC Exploration Corp.

COA’s interpretation, however, stated otherwise—that the corporate income tax should not form part of the government’s share in the Malampaya project.

Cusi said the department’s concurrence with the position of previous energy officials on the tax issues hounding the Malampaya project had legal basis as it was provided in Presidential Decrees 87 and 1459.

Specifically, DOE director for legal department Arthus Tenazas pointed out that the inclusion of income taxes in the 60-percent share of the government was based on Section 12 (a) and Section 18 (b) of PD 87, as well Section 1 (a) under PD 1459. The said provisions state that the “share of the government including all taxes shall not be less than 60 percent of the difference between the gross income and the sum of the operating expenses and such allowances such as the secretary of energy may deem proper to grant.”

As such, Tenazas called the COA’s decision as “simply misconstrued, misapplied, and ultimately, disregarded Section 18 (b) of PD 87 and Section 1 (a) of PD 1459.”

“So it is very clear in the law that the 60-percent share of the government may include all income paid by the contractor. Considering that the contractor is exempt from all taxes except income tax, the taxes that is referred to under Section 18 of the law, PD 87, refers to income tax,” he said.

“[COA’s decision] is an undue interference to the powers of the DOE to administer and implement Presidential Decree 87 and Presidential Decree 1459 and totally overstepped and exceeded the legal bounds of COA’s constitutionally mandated functions tantamount to a gross abuse of discretion,” Tenazas said.

The DOE official added that the COA decision was “overly biased” for the additional collection of tens of billions of pesos but “disregarded the legality of the provisions of the service contract as well as the fairness and the sanctity of the contract between the two parties.”

Tenazas further stressed that the COA decision “if not reconsidered and set aside, will cause irreparable harm to the country’s long-term interest as it will further erode the confidence of foreign petroleum industry investors in the stability and certainty of our rules and regulations.”

The previous DOE administration has been asking COA to honor the contracts of the Malampaya gas project as doing otherwise would have a damaging impact to the upstream exploration industry and send the wrong signal to foreign investors.