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ICC ruling on Malampaya tax case seen to boost exploration activities

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THE Department of Energy (DoE) welcomed the decision of the International Chamber of Commerce (ICC) in Singapore on its arbitration of the $1.1-billion tax case between the Malampaya consortium and the Commission on Audit (CoA).

“We have always upheld the position that the tax regime for petroleum service contracts is legal and valid,” said DoE Secretary Alfonso G. Cusi in a statement on Monday.

“This victory would go a long way in giving exploration and development activities in the country a much needed and long overdue boost as investors will now have renewed confidence in our upstream gas industry,” he said.

The ICC sided with the Malampaya consortium with a unanimous vote of 3-0. The entity is a global organization that provides services to resolve disputes in international business, with headquarters in Paris, France.

Service Contract 38, which governs the Malampaya project, provides for dispute resolution under the arbitration rules of the ICC. The consortium is led by Shell Philippines Exploration B.V.

The ruling comes as the Energy department launched late last year a new round of energy-contracting exploration program, in the hope of attracting downstream oil-industry investors.

The DoE has been urging investors to “explore, explore, explore” to help the country build its power supply.

“We have been grossly trailing behind our neighbors in terms of petroleum exploration and development activities. It is high time that we step up. We need to attain energy security and sustainability to minimize our vulnerability to global oil price shocks,” Mr. Cusi had said.

Ahead of Mr. Cusi’s statement, Senator Sherwin T. Gatchalian said on April 26 that with the ruling, there is no longer a legal impediment for investors to undertake oil and natural gas exploration.

Mr. Gatchalian, who chairs the Senate energy committee, said the tax case had been “a big specter that discouraged foreign players from conducting petroleum explorations in the Philippines over the past several years and drove away investments in high risk, capital-intensive, and technology-intensive sectors.” — Victor V. Saulon





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