Pioneer incentives pushed for LNG projects

Published January 25, 2021, 7:00 AM by Myrna M. Velasco
https://mb.com.ph/2021/01/25/pioneer-incentives-pushed-for-lng-projects/

The P65 billion worth of liquefied natural gas (LNG) import terminal projects cornered by the government had been proposed for pioneer incentives availment under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Bill that is under continued deliberations in Congress.

“We put energy as a priority industry in the law, so meaning LNG projects such as mid-stream sector can be entitled to incentives, so that’s in terms of tax-based incentives,” Senate Committee on Energy Chairman Sherwin T. Gatchalian told industry stakeholders in a recently-concluded Philippine Energy Transition forum.

As culled from the investment roll of the Department of Energy, there are four LNG import facilities that were already greenlighted – including the P37.553 billion onshore LNG import terminal facility proposed by Batangas Clean Energy Inc. of the Lucio Tan group with its foreign partner Gen X Energy, an affiliate of global equity firm Blackstone Group. That facility is targeted to be on stream around 2024-2025.

Meanwhile, the project already advancing to construction phase is the interim LNG import terminal of FGEN LNG Corporation of First Gen and Tokyo Gas which is due to come on-line by third quarter of 2022, and that will initially lean on floating storage regasification unit (FSRU) technology. DOE records showed P13.284 billion investment cost for that initial First Gen venture.

The other LNG import facilities are the P6.387 billion FSRU installation applied for by US firm Excelerate Energy L.P. which is targeting to advance to commercial operations by second quarter of 2022; and then the P7.408 billion LNG import facility of Energy World Gas Operations Philippines Inc.

Gatchalian emphasized that while the CREATE Bill is still going through legislative maze, their recommendation for LNG facilities as well as other key energy projects will be for these to be treated as “priority investments” so they can be entitled to pioneer tax incentives once apprised by the Fiscal Incentives Review Board (FIRB) to be led by the Department of Finance.

Once these ventures are assessed as priority and highly desirable projects, they may also be entitled to income tax holiday (ITH) on pioneer status that may be granted by the President of the Philippines, based on the recommendation of FIRB.

Under the current form of the CREATE Bill, aside from rationalized corporate income tax, among the other investment perks are exemption from Customs duties on importation of capital equipment, raw materials, spare parts and accessories among others; as well as value added tax (VAT) exemption on importation; and VAT-zero rating on local purchases of goods and services as long as these are exclusively used in the registered project.

“We’re in the middle of enacting CREATE and basically what the CREATE law does, is giving the Executive the flexibility to declare certain industries, for example, strategic or important for the country; and therefore they can receive incentives. So we have given that power to the Executive so that all of the incentives being given out are well thought of and well researched and the return will be bigger for our country,” Gatchalian explained.

On the other precarious concern of off-take or purchase of the gas volumes from these proposed LNG facilities, the lawmaker said policy frame is still under careful study by the Senate energy committee, and the outcome will eventually be integrated in the final form of the Gas Bill, which is also under legislative deliberations.

He pointed out the ‘off-take predicament’ must be resolved within the bigger context of the industry so it will not risk the competitive milieu being pushed not just in the gas sub-segment, but on the more extensive sphere of the energy sector.

“In terms of off-take, this is a very tricky question and we want to make sure that investors coming in can sell their gas or can sell their output in this case and there will be off-taker to take that,” Gatchalian noted.

Currently, the solon indicated “there’s a suggestion to somehow assure off-takers in the (Gas) Law, we’re studying this vey carefully because we want to make sure that it will redound to consumer benefit.”

The ultimate end-goal in the policy formulation, Gatchalian said, is “we want to make sure it doesn’t contradict competition principles, to make sure that competition is still vibrant and will not diminish competition in that sense, so we’re studying.”