By Victor V. Saulon, Sub-editor
SHELL Philippines Exploration BV (SPEx) and its consortium partners that developed the country’s only natural gas discovery, along with the Department of Energy (DoE), have asked the Supreme Court to review the state auditor’s finding that they owe the government billions of pesos in unpaid income tax.
“We can confirm that the Malampaya Joint Venture (JV), together with the Department of Energy, filed a petition for Certiorari with the Supreme Court after receiving the Commission on Audit’s (CoA) decision denying the consolidated Motion for Reconsideration (MR) submitted by the Malampaya consortium,” Shell Companies in the Philippines said in an online message sent to reporters.
The filing came ahead of the start of arbitration hearings before the International Court of Arbitration of the International Chamber of Commerce in Singapore later this month.
Shell Companies in the Philippines include SPEx, which along with consortium partners Chevron Malampaya LLC and PNOC Exploration Corp. operate the Malampaya natural gas platform.
Sought for comment, energy stakeholders said the resolution of the case is crucial in encouraging investments in natural gas development, which the country needs in view of the expected depletion of the Malampaya gas find by 2022 to 2024.
Aside from the arbitration in Singapore, SPEx filed in July 2016 an arbitration case with the International Center for Settlement of Investment Disputes against the Philippine government in connection with the P53.14 billion in taxes that CoA says the Malampaya consortium owes.
Jose M. Layug, Jr., a former DoE undersecretary, said an energy-intensive country like the Philippines needs to find its own energy resources and the only way to do so is to attract foreign companies with the capability and finances to explore.
“And the only way they will come here, among other factors, the most important is stability in government contracts, stability in policies, rules and regulations. If we don’t have that, you can be assured that they will go to other countries,” he told reporters during Powertrends 2018, an annual conference on the energy and power.
Mr. Layug signed the appeal on behalf of the DoE in 2011 over the CoA’s stand on the consortium’s tax liability.
He said contract for the Malampaya project did not exempt the service contractors from paying income tax, but the contract has a tax assumption clause. This provision was recognized by the Philippine government in various cases in the Supreme Court and by rulings by the Bureau of Internal Revenue.
The Malampaya project fuels several power plants in Batangas and supplies Pilipinas Shell Petroleum Corp.’s refinery and compressed natural gas refilling station. The project delivers about a fifth of the country’s electricity requirements.
“There is an income tax due, but the government in this case agreed to assume the tax. Why? Because unlike other countries, in the Philippines unfortunately oil and gas basins are not as prospective as Malaysia, Indonesia, Thailand. That’s why we have to have a good fiscal regime,” he said.
“And that was provided in Presidential Decree No. 87,” Mr. Layug added, referring to the Oil Exploration and Development Act of 1972. “So we have to abide by that.”
By Victor V. Saulon, Sub-editor