Malampaya’s 153-B tax case vs gov’t kicks off

Former CJ Puno to lead Philippine arbitration panel

The 153-billion tax case lodged by the Malampaya consortium against the Philippine government will go on full trial this September at the International Chamber of Commerce (ICC) in Singapore.

The Philippine arbitration panel will be led by former Supreme Court Chief Justice Reynato S. Puno as the government-nominated arbiter, as confirmed by Malacañang sources. For the Malampaya consortium, its nominated arbitrator is David Williams; and the three-man panel is to be chaired by Yves Fortier.

The week-long Singapore ICC trial this September 10-14 is the first leg of an intense legal battle that the Philippines will be facing against multinational energy firms in the multi-billion Malampaya project relative to the tax case instigated by the Commission on Audit’s (COA) interpretation on the purported tax liabilities of the gas field project’s contractors.

The Malampaya consortium under Service Contract (SC) 38 comprises of the Shell Philippines Exploration B.V. (the field operator), Chevron Malampaya LLC, which is another majority shareholder and state-run Philippine National Oil Company-Exploration Corporation as the minority partner.

Following the arbitral proceedings at the ICC, the government still faces another international dispute trial relative to the Malampaya case at the International Centre for Settlement of Investment Disputes (ICSID) in Washington DC in the United States, pursuant to the Philippines-Netherlands Bilateral Investment Treaty. Hearings are scheduled October 23-24 this year.

As communicated to the Department of Energy (DOE), the Philippine government will be officially represented by the Office of the Solicitor General (OSG) in the case at the Singapore-ICC, although in the actual trial, the country has nominated its own arbiter, which is former Chief Justice Puno.

The 153-billion COA-estimated tax underpayments had been calculated from 2002 at the start of the Malampaya gas field’s operation until year 2009; as based on the case that the State auditor lodged in 2015.

When COA reaffirmed its ruling in January this year, it calculated that the tax claims due from the Malampaya project already climbed to as much as 1146.8 billion – estimating additional tax underpayments from 2010 to 2016.

The State auditor argued that in the 60:40 royalty sharing arrangement provision of Presidential Decree 87 (or the Philippine Oil and Gas Law) as well as that of PD 1459, the income tax payment of the Malampaya contractor should not have been charged against the share of the Philippine government.

By applying that mode of tax treatment, COA in its affirmation-ruling this year has stipulated that the royalty share of the government had been technically reduced to the level of 34.03 percent.

The DOE, which is the agency promoting investments in exploration and development of the country’s oil and gas resources, had countered the COA ruling and manifested its official position to the State auditor.

The Petroleum Association of the Philippines (PAP) also joined the fray, with the industry players fiercely contending that the COA ruling is tantamount to “changing investment rules at the middle of the game,” and worse, it could affect all existing and even forthcoming petroleum service contracts (PSCs) that the Philippine government will be underwriting.

The PAP members have sounded off to the DOE that such turn of events could adversely affect the overall investment climate in the upstream petroleum industry – primarily if contracts are reneged on and if policies will be drastically altered.

As of end-December 2017, gross proceeds from the Malampaya project already hovered at $22.493 billion – with the government share at $9.709 billion while the Malampaya consortium fetched $6.918 billion.