By BusinessMirror - April 30, 2019
THE favorable arbitration ruling on
the $1.1-billion tax case between the Malampaya consortium and the Commission
on Audit (COA) would entice investors to pursue exploration activities in the
country.
“The Department of Energy welcomes
this latest development in the International Chamber of Commerce [ICC]
arbitration case. We have always upheld the position that the tax regime for
petroleum service contracts is legal and valid. This victory would go a long
way in giving exploration and development activities in the country a much
needed and long overdue boost as investors will now have renewed confidence in
our upstream gas industry,” Energy Secretary Alfonso G. Cusi said in a text
message on Monday.
The DOE has been urging investors to
“explore, explore, explore” to help the country build its power supply. He
said last year, the country was grossly trailing behind its neighbors in terms
of petroleum exploration and development activities.
“It is high time we step up. We need
to attain energy security and sustainability to minimize our vulnerability to global
oil price shocks,” Cusi said during the launch of a new round of
energy-contracting exploration program.
The ICC decided in favor of the
Malampaya consortium, with a unanimous vote of 3-0. The ICC is a global
organization that provides services to resolve disputes in international
business, with headquarters in Paris, France. Service Contract 38, which
governs the Malampaya project, provides for dispute resolution under the
arbitration rules of the ICC.
The Senate Committee on Energy, the
proponent of the Drill Drill Drill program, said there is no longer a legal
impediment for investors to undertake oil and natural gas exploration now that
the arbitration court in Singapore has finally resolved the tax case between
Shell Philippines Exploration BV (SPEX) and the government.
“The multi-billion tax case has been
a big specter that discouraged foreign players from conducting petroleum
explorations in the Philippines over the past several years and drove away
investments in high risk, capital-intensive, and technology-intensive sectors.
With the case now behind us, it is high time for the government to aggressively
pursue a ‘Drill, Drill, Drill’ program, so that we can tap these oil and gas
resources and use them to achieve Philippine energy independence and pave the
way for the country to become an energy exporting powerhouse,” Sen. Sherwin
Gatchalian said.
The Petroleum Association of
the Philippines (PAP) also said the ruling will revive the oil and gas
exploration industry.
“I hope the government will react
positively. This, of course, will be of great help to the exploration
industry,” PAP chairman Rufino Bomasang said.
Shell Philippines Exploration B.V.
(SPEX), which leads the Malampaya consortium, and the DOE, will meet soon.
“The Malampaya joint venture can
confirm that the ICC arbitration tribunal has issued its decision, which we are
currently reviewing with our legal counsels. At this stage, we cannot provide
details due to the confidentiality of the proceedings, but the joint venture
will be engaging the Department of Energy in due course,” Spex said.
Other members of the consortium are
Chevron Malampaya LLC, with a 45-percent stake and state-owned PNOC Exploration
Corp. with the remaining 10 percent.
The case stemmed from a COA ruling
that overruled the petition of the Malampaya consortium that income tax was
already imputed in the government’s 60-percent share in the Malampaya
royalties. The tax, it argued, was deductible from the government’s share of
the Malampaya earnings.
The COA, in its April 6, 2015
decision, upheld its findings that the income taxes of the service contractors
could not be assumed by the national government in its 60 percent share in the
Malampaya proceeds and thus ordered the consortium to pay the national
government P53,140,304,739.86 in taxes.
It stressed that is no provision in
the law stating that the income tax of the contractors forms part of the share
of the government.
On a per year basis, COA said the
under collection amounted to P2,409,817,191.46 in 2003; P2,335,402,961.38 in
2004; P2,832,586,038.93 in 2005; P7,901,265,361.42 in 2006; P11,272,523,434.55
in 2007; P15,826,563,356.86 in 2008; and P10,562,146,395.26 in 2009.
In September 2015, SPEX filed an
arbitration case against the National Government with the Singapore
International Arbitration Center. In July 2016, SPEX filed another arbitration
case in the International Centre for the Settlement of Investment Disputes
Arbitration (ICSID) in Washington against the National Government regarding its
tax dispute.
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