Presidential directive sought on new oil contracting round’s tax regime

A directive from the Office of the President is being sought for a clearer policy on tax regime that shall be applied on the Department of Energy’s invitation for “unsolicited tenders” on petroleum exploration investments in the country.

Energy Secretary Alfonso G. Cusi told reporters that he already lodged specific plea to Malacañang on that pressing policy concern – that in his assessment, could impact on anticipated entry of new investors in the modified oil and gas contracting round that the energy department had just recently launched.

“We have presented that to the OP (Office of the President)... along with that SC (Supreme Court) ruling that requires the President as signatory to petroleum service contracts,” the energy chief said.

He expounded that “we really need to have that clear direction (from Malacañang), because applications or unsolicited offers for new service contracts will really be affected.”

Investments in the upstream petroleum sector had been “disturbed” following the ruling of the Commission on Audit (COA) on the Malampaya project – rendering that the income tax of service contractor Shell Philippines Exploration B.V. shall not be part of the royalty share of the Philippine government.

Presidential Decree 87 or the Oil and Gas Law sets forth a 60:40 royalty sharing arrangement on commercial finds of oil and gas resources in the country – with the bulk of the share in favor of the Philippine government, although that comes with specific stipulations on how tax rates shall be treated.

That was where COA had stepped in and prescribed its own interpretation as to the tax payments that could have been enforced on the Malampaya contractor – however, that too had unwittingly impeded investment flows in the upstream segment of the oil industry.

Cusi stressed that “what investors have been batting for are clear rules and policies, so we have to give them that. The new service contracts will really be affected, so we should have that clarified.”

The energy chief, has nevertheless admitted that, “Malacañang has not gotten back to us yet with any formal response.”

He qualified though “that it (tax policy) is really a complicated issue, so we also understand that they would be needing longer time to review it.”

For the time being, Cusi noted that the energy department has been continuously inviting prospective investors on that business segment, because it is well aligned with the country’s energy security agenda.

“This is what we are promoting every time we talk to investors, while we are also resolving the issues affecting the sector – including the lifting of exploration moratorium at some parts of West Philippine Sea,” Cusi said.

Under the modified Philippine Conventional Energy Contracting Program (PCECP), unsolicited proposals on petroleum geological survey and exploration can already be submitted year-round to the energy department.

On Cusi’s take, if the underlying issues in the sector would already be addressed, it will spur more extensive capital flows because of the faster process being offered also in the revised petroleum contracting policy of the department.