Philippine Daily Inquirer - - NEWS - By Vince F. Nonato @VinceNona­toINQ

The Com­mis­sion on Au­dit (COA) has re­buffed the ap­peal of the Depart­ment of En­ergy (DOE) and the Of­fice of the Solic­i­tor Gen­eral (OSG) to let the Malampaya gas con­sor­tium keep P146.8 bil­lion in un­der­pay­ments that were not col­lected by the gov­ern­ment.

The con­sor­tium—Shell Philip­pines Ex­plo­ration B.V., Chevron Malampaya LLC and sta­te­owned Philip­pine Na­tional Oil Com­pany Ex­plo­ration Corp.— op­er­ates the Malampaya gas project that sup­plies fuel to gas­fired plants in Lu­zon.

In a de­ci­sion dated Jan. 24 and made pub­lic this week, the COA sus­tained its April 6, 2015, rul­ing that the gov­ern­ment should not have shoul­dered the con­sor­tium’s tax li­a­bil­i­ties in com­put­ing its share of net rev­enue from the nat­u­ral gas field off Palawan prov­ince.

“If this com­mis­sion will not put an end to this il­le­gal ‘tax as­sump­tion’ scheme, the gov­ern­ment will con­tinue to bleed bil­lions and bil­lions of funds that can and should be used for the very pur­pose in­tended by law,” said the de­ci­sion signed by Com­mis­sion­ers Jose Fabia and Is­abel Agito.

COAChair Michael Aguinaldo in­hib­ited him­self from the case.

While the Duterte ad­min­is­tra­tion claimed this de­ci­sion would dis­cour­age in­vest­ment and harm the coun­try’s in­ter­est, the COA said that en­sur­ing greater gov­ern­ment rev­enue would al­low the coun­try to de­velop its en­ergy re­sources, in­clud­ing re­new­able en­ergy.

Un­der the law, roy­al­ties that the gov­ern­ment gets from the gas wells are ex­clu­sively for the fi­nanc­ing of en­ergy re­source de­vel­op­ment.

Or­dered to pay the un­col­lected amounts from 2002 to 2016 were the three mem­bers of the con­sor­tium.

60:40 shar­ing

Un­der Pres­i­den­tial De­cree Nos. 87 and 1459, the gov­ern­ment is en­ti­tled to a min­i­mum of 60 per­cent of the net rev­enue, or the dif­fer­ence be­tween gross in­come and op­er­a­tional ex­penses. The max­i­mum ser­vice fee of con­trac­tors is capped at 40 per­cent of the net rev­enue.

But the DOE has con­sid­ered the con­sor­tium’s in­come tax li­a­bil­i­ties part of its min­i­mum 60per­cent share un­der a so-called tax as­sump­tion scheme pro­vided by Ser­vice Con­tract No. 38. This al­lowed the con­trac­tors to keep the full 40-per­cent por­tion for them­selves.

State share re­duced

By re­fus­ing to pass the tax li­a­bil­i­ties on to the con­trac­tors, the gov­ern­ment ef­fec­tively eroded its 60-per­cent share to only 34.03 per­cent, ac­cord­ing to the find­ings of As­sis­tant Commissioner Riza­lina Mu­tia.

The DOE ac­cused the COA of over­step­ping its au­thor­ity in is­su­ing the April 2015 rul­ing, un­duly amend­ing the pro­vi­sions of PD 87 and PD 1459, and en­croach­ing upon the dis­cre­tionary pow­ers of the DOE and the Pres­i­dent.

The DOE ar­gued that the COA dis­re­garded the pro­vi­sions stat­ing that “the share of the gov­ern­ment, in­clud­ing all taxes, shall not be less than 60 per­cent” of the net rev­enues.

The COA, how­ever, said that “tax as­sump­tion” re­duced the gov­ern­ment’s share and put it be­low the 60-per­cent thresh­old.

The de­ci­sion cited Sec­tion 8 of PD 87, which man­dated that “the con­trac­tors shall be li­able each tax­able year for Philip­pine in­come tax” and not the gov­ern­ment.

SolGen’s ar­gu­ments

The tax as­sump­tion scheme even made the Malampaya con­sor­tium “im­mune” to in­come tax changes since the gov­ern- ment would shoul­der the bur­den any­way.

While the 2015 de­ci­sion led to out­cry among the DOE and in­dus­try stake­hold­ers, the OSG un­der the Duterte ad­min­is­tra­tion for­mally joined the case in Septem­ber 2017 to de­fend the ex­ist­ing ar­range­ment.

The OSG ar­gued that the ad­min­is­tra­tion’s pol­icy was to “honor the gov­ern­ment’s con­trac­tual obli­ga­tions” un­der SC 38.

The COA said it was not a party to SC 38 and was not barred from ques­tion­ing the con­tract in the ex­er­cise of its role to safe­guard pub­lic funds.

The COA even said fol­low­ing the OSG’s line of think­ing would “de­stroy the prin­ci­ples of ac­count­abil­ity, and checks and bal­ances.”

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