by Myrna Velasco July
28, 2016
The scale of royalty
share remitted to national government from the Malampaya gas field project
already reached as high as US$8.6 billion (roughly P405.146 billion at current
Philippine peso-US dollar exchange rate) as of end 2015, according to official
data culled from the Malampaya consortium.
Shell Philippines
Exploration B.V., which is the operator firm of Service Contract 38 for
Malampaya, confirmed that “Malampaya has generated US$8.6 billion (as of
December 2015) of revenues for the Philippine government as a result of the
incentives, terms and conditions provided by Service Contract (SC) 38.”
SC 38 has been the
guiding contract on the exploration, development and the 25-year operation by
contractor-developer of the Malampaya gas field – and prevails so until the
winding down period in year 2024.
After 15 years of
operating the gas field though, the SC 38 consortium is thrown into that state
of “obsolescing bargain”; wherein there is now that shift of power for the
State auditor to go after tax claims which were allegedly not provided under
the original terms of the contract.
The Philippine
government provided viable incentives then to the Malampaya gas field project
so big-ticket investors would take risk on the venture. It was also some sort
of “first mover advantage” for the risk-taking contractors.
The Malampaya
consortium also affirmed that R77.2 billion worth of additional tax claims had
been lodged on top of the initial amount being demanded by Philippine
government in the arbitration case, courtesy of the income tax treatment
interpretation by the Commission on Audit.
There have been
differing calculations though as to the extent of the total income tax being
pursued. Some parties claimed that it could be at the range of R120
billion-R130 billion range or higher if reckoned from the start of the gas
field’s commercial operations in 2001.
The Department of
Finance (DOF) just organically stated that the amount and treatment of the tax
claims shall depend ultimately on the final interpretation of the contract.
In an interview with
one of the parties privy to the drafting of the Malampaya service contract, the
source stipulated that the income treatment had been anchored on the provisions
of Presidential Decree 87 or the Oil Exploration and Development Act of 1972.
A former energy
official, in an overseas call, has similarly explained that under the terms of
SC 38, it was clearly stated that income tax of the service contractor shall be
part of the 60-percent share of the royalty that shall be remitted to the
national government, noting that such is firmly underpinned by PD87.
Sources further
explained that the top-of-the-barrel or end-of-the field calculation would
generally exclude cost recoveries – so the base amount would not necessarily be
60-percent share on the gross revenues.
It was noted that cost
recoveries are often three-tiered: The contractors’ cost for exploration; then
cost for development; and then the annual operating costs of the contractor.
Former energy officials
emphasized that many of the oil and gas service contracts carry the same
provision on income tax treatment; hence, they are extremely cautioning
government to take prudent steps on the arbitration case because this could
entail exodus of the technically- and financially-viable petroleum investors in
the country.
No comments:
Post a Comment