Arbitration is ‘last resort’ in Malampaya tax case

The Department of Energy (DOE) has confirmed that “arbitration proceedings” would be its last resort if there is no other way out on the 53billion tax skirmish of the Malampaya deep water gas-to-power project as complained about by the Commission on Audit (COA).

This was indicated by Energy Secretary officer-in-charge Zenaida Y. Monsada in an exclusive interview, but she qualified that reaching such legal process would only be exercised “as a last resort.”

She noted that continued discussions are still being carried out with the Malampaya consortium – with the Shell Philippines Exploration B.V. (Spex) in the lead, as to how they could strike a middle ground in the settlement of the gas field’s tax concern.

The energy chief said “it is a process that must be seriously weighed because even if there would be arbitration, Spex would still need to file a case eventually in the local courts.”

The energy department is acknowledging the contractual provisions as to the quizzed income tax payments under Service Contract 38, the underpinning pact on the development of the Malampaya field.

The audit body, however, raised questions as to why the income tax component of the contractor’s share in the royalty is charged against the State’s 60-percent share.

In this tug-of-war, it is the energy department that is being pulled by both ends of the spectrum – because while it has to recognize a co-government’s stand on the issue, it cannot just abandon a policy also that might have long-term implications on upstream petroleum investments which is under its mandate.

The Malampaya field which yields both gas and condensate outputs had been bringing in US$1.0 billion – or at times even higher – worth of revenues to the government on a yearly basis.

As of mid-last year, the reported State revenues fetched from the gas field already reached $7.7 billion; and it could have simply topped the $8.0billion level by end-2014.

The Malampaya consortium also injected fresh $1.0-billion investment in the last three years for the installation of a second platform and the drilling of additional wells so it can reinforce gas extraction and meet its committed volumes to off-takers. (MMV)