DOE supports keeping incentives for upstream petroleum sector

Published October 6, 2018, 10:00 PM By Myrna M. Velasco

https://business.mb.com.ph/2018/10/06/doe-supports-keeping-incentives-for-upstream-petroleum-sector/

The Department of Energy (DOE) is throwing its support to the players of the upstream petroleum sector for their bid on non-scrapping of investment incentives – contrary to what is being propounded by the Department of Finance (DOF) under the Tax Reform for Attracting Better and High-quality Opportunities (TRABAHO) Bill.

DOE Undersecretary Donato D. Marcos said the department is taking the same position as the industry, because the government seriously needs to step up on its enticement of investments in the next discovery of commercial oil and gas fields in the country.

“It’s already a given that the petroleum sector is not attracting that many investments, and then there’s still a move to scrap the fiscal incentives. So we support the industry’s position not to remove the current investment incentives,” the energy official said.

In a formal position paper submitted by the DOE to both chambers of Congress, it similarly pleaded “for the exclusion of the upstream sector – for oil and gas and coal” from the second tax reform package of the Duterte administration.

Instead, the department actually sought “for additional incentives” that must be accorded to both the petroleum and coal sub-segments of the energy sector.

Chiefly, the department indicated that “petroleum companies are hesitant to invest” for array of reasons, hence, oil and gas discoveries in the Philippines are considerably fledgling compared to neighbors in the Southeast Asian region.

The DOE in particular has stressed that “the hesitancy and reluctance of investors and petroleum companies to do exploration activities could be due to the decisions made by the Commission on Audit, in relation to Service Contract 38,” or the license to the Malampaya deep water gas-to-power project.

In that specific case, the COA demands the settlement of P146.8 billion worth of taxes, which under SC 38, should have been charged against the government’s share in the project.

The department similarly highlighted that “the Philippines’ petroleum prospectivity is low compared with Southeast Asian neighbors who are producers,” adding that “the low prospectivity could be one of the reasons for the decline in petroleum exploration activities,” emphasizing that in the past 10 years, only 23 wells were drilled or an average of only 2.3 per year.

The energy department further reckoned that “due to the low prospectivity, the risk is high in conducting exploration works for those companies who do not have the assurance that the expenses incurred, which are in millions of dollars, cannot be recovered in case of negative results in their activities.”

The DOE thus asserted that to attract petroleum companies to do exploration works in the country’s sedimentary basins, it is paramount that the incentives under Presidential Decree 87 or the Oil and Gas law be sustained – or in case it is amended, it must be to the tenor that the investment perks are improved.

The department emphasized that “since its signing in 1972, PD 87 has never been revised or amended compared with our neighbors whose fiscal systems were adjusted to the current situation.”