“Colmenares says that the Malampaya contract should not be extended for another 13 years and not even a day more, as our energy officials are now suggesting. Colmenares calls SC 38 an anomaly.”
by Ducky Paredes
Bayan Muna Rep. Neri Colmenares wants the “Malampaya Fund” scrapped. This is something that most of us did not even know existed.
It seemed like a great day for this country when Shell announced that it had found natural gas in Malampaya, off Palawan that would last for several generations.
Discovered in 1992 and developed at $4.5B, Malampaya holds an estimated 2.3 to 4.4 trillion cubic feet of gas and 85 million barrels of condensate. The condensate is offloaded to a tanker and exported while the natural gas is piped 312 kilometers to an onshore processing plant in Tabangao, Batangas and distributed to three power plants with a combined capacity of 2,700 megawatts. The gas supply was originally estimated to last for 20 years.
If this had been discovered in any other country, it would have meant a lot more to them. Certainly, it would have improved that country’s finances. Why has this discovery not given us much? In fact, while the resource is Philippine and its use Philippine, why are Shell and Chevron making most of the money?
According to Colmenares, the natural gas operations contract is a losing proposition for the Philippine government.
The Malampaya Fund was a result of Service Contract 38, covering the Comago-Malampaya Gas Project, which created a consortium composed of Shell (45%), Chevron (45%) and the PNOC (10%), which represented the Philippine government.
“Taking into account the reported 4.66 trillion cubic feet of gas in Recto Reed, these huge natural gas resource could take us out of the stranglehold of the oil firms and foreign players in the energy sector,” Colmenares said. “Our public transportation and our power plants could very well use natural gas which is fifty percent cheaper than the oil provided by the big three oil firms. Giving away our natural gas resources to Shell and Chevron for a song, the delay in the building of the gas pipeline for supposed lack of budget to do so, are examples of stories showing the complete squander of our resources which would have eased the lives of many of our consuming public.”
Colmenares says that the Malampaya contract should not be extended for another 13 years and not even a day more, as our energy officials are now suggesting. Colmenares calls SC 38 an anomaly. He says that, while most countries would have negotiated for at least a 30-40 percent share in consortiums exploiting their resources, Shell and Chevron took 90 percent of the consortium shares and allowed the Philippine government only a pittance –10 percent. And we get to pay their expenses, too!
SC 38 also says that whatever expense Shell and Chevron incur or invest should be repaid as “recovery cost. ” Thus, a huge amount of public funds are spent on items which Shell and Chevron claim to have spent. Whatever they say qualifies for repayment as part of their “recovery cost.” In fact, this turn out to be most of their expenses!
“Why should the poor Filipino people pay for losses incurred by the contractor? While ordinary Filipino businessmen have to bear the brunt of losses or damages, the losses of Shell and Chevron, are borne by the Filipino people, which is no different from the systems loss imposed by energy distributors?” asks Colemares. said.
“These budgetary items, which should have accrued to the public funds, called ‘recovery cost’ practically makes the Malampaya fund a milking cow of foreign contractors, beyond the scrutiny of congress, “he said.
Colmenares said the government has already spent a total of $ 3.22 billion or P150 billion in the last nine years of the Malampaya operations.
According to Colmenares, Congress should go through Shell and Chevron’s financial records with a fine-tooth comb so charges can be filed against Shell and Chevron officials who may have over-charged the payment of recovery costs. He also said that PNOC and DOE officials such as ex-PNOC president Eduardo Manalac, and current PNOC President Antonio Cailao who approved the same should also be held criminally, administratively and civilly liable for their expensive breach of duty.
“Just the payment of taxes alone deprived government of at least P53 billion ($1.23 billion) in eight years. This money should have been used for social services like health and education. Pres. Aquino must immediately take action to have this contract annulled and voided. It violates the constitutional provisions providing for the primacy of Filipino interest in the exploitation of our natural resources,” he said.
According to the Congressional Policy and Budget Research Department (CPBRD), of the total $ 8.9 billion gross proceeds of Malampaya covering the period of 2002-2009, the Philippine government’s share was only $ 1.939 billion. The rest of funds went to Shell and Chevron to pay for their corporate income tax that amounted to $ 1.153 billion, branch profit remittance tax at $326.8 million, direct contractors share at $ 2.279 billion; and cost recovery $3.22 billion.
One of the provisions of SC 38 states, for instance: “The Government . . . shall assume and pay on behalf of the Contractor and its parent company, on the first transaction in each instance where tax is imposed, all income taxes payable to the Republic of the Philippines based on income and profits and on the first transaction in each instance where tax is imposed, all dividends, taxes and other taxes imposed by the Government of the Philippines.”
Talk of free rides. Shell and Chevron not only pay no taxes; the government pays whatever taxes the government charges these two. For what?
It was rumored at the time that Malampaya was newly discovered that the two oil companies held out (threatening to abandon Malampaya) to get their sweet deal Would we have been better off if we had said “no” to Shall and Chevron and gotten the oil companies in our neighborhood (Indonesia, Malaysia, Singapore and even China) to develop Malampaya with us on a more equitable sharing? Probably.
The problem was that everyone who knew anything about gas at that time was in some way or another had been or was entrenched with big oil,.Even now, of our energy officials, most used to work with the big oil companies. Look who are now advising our President to extend SC 38, if not former Big Oil employees. An extension of SC 38 will do wonders for Shell and Chevron — of course! But, what will that do to us?
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In January this year, President Aquino received $1.1 billion as our share in royalties for 2011 from the Malampaya gas project from Shell country manager Edgar Chua in a ceremonial turnover in Malacañang.
Energy Secretary Almendras said then that the $1.1 billion went directly into the Malampaya Fund.
According to Budget Secretary Florencio Abad, the Malampaya Fund stood at P88 billion as of September 2011. With the addition of the $1.1 billion, or about P49.5 billion, the fund increase to P137.5 billion.
According to the records of the Department of Budget and Management as of May 2011, P105.95 billion in royalties have been received from the Malampaya project since 2002.
As of May 2011, P26.47 billion has been disbursed: P3.95 billion to the provincial government of Palawan and P22.52 billion to national government agencies. Of this amount, P2.87 billion was released in 2011.
Under the service contract agreement, 70 percent of the gross proceeds from the sale of natural gas go to the contractor to recover the investment cost. The remaining 30 percent is shared by the government and the consortium on a 60-40 basis.
Given the endless problems the country continues to face over expensive electricity costs and lack of supply, Colmenares says, it is an outrage that the government continues to uphold contracts with corporations that seriously put the country and the Filipino people at a perpetual disadvantage.
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hvp 06.19.12Readers who missed a column can access www.duckyparedes.com/blogs. This is updated daily. Your reactions are welcome at email@example.com