* This is my article in BusinessWorld on July 05, 2018.
When developing economies attract multinational
companies, they reap benefits. These developing economies get to have more
commodities and services that otherwise would remain untapped for a long time.
And, as a result, they also earn more revenues, taxes, and royalties even if
these economies spent very little. Moreover, technology transfer from
multinationals to developing economies is enabled as local professionals are
hired to operate, maintain, and upgrade facilities.
In the case of Malampaya gas to power project in offshore
Palawan, the Philippine government has attained these and other advantages: (1)
more electricity production from domestic natural gas, (2) more revenues via
Malampaya royalties, 60% of gross production amounting to more than P400
billion over the last 16 years (see table).
The Department of Energy’s (DoE) actual count of
royalties from 2002 to 2017 is P424.7 billion. My computation above of P459.6 billion
is only an estimate from a simple multiplication of $ million by the average
exchange rate.
The third benefit is that some of Malampaya gas is used
to power compressed natural gas (CNG) buses that ply the Manila-Southern Luzon
routes. As a result, less pollution is produced.
The fourth benefit from the project is that it employs
skilled Filipino professionals and engineers. Onshore Filipino staff also have
the knowledge to build smaller platforms for offshore gas rigs.
With these benefits in mind, these two reports among
others caught my attention:
“Shell focused on tax fight, not Malampaya extension”
(BusinessWorld, Dec. 8, 2017).
“CoA: Malampaya must reimburse government P146 billion”
(Philippine Star, May 17, 2018).
Under Service Contract 38 with the Department of Energy,
sharing of revenues is 60-40 for the Philippine government and the Malampaya
consortium, respectively. The Philippine government spent almost nothing in the
high-risk and very costly exploration and drilling for gas in deep waters far
out from Palawan mainland. The government just collects 60% of total revenues
because it is the government.
The Malampaya consortium spent huge amounts of money and
technology, risked their people in the exploration, drilling, development, and
laying down heavy pipelines in seabed hundreds of kilometers to Batangas power
plants. And they get only 40% of the revenues.
The consortium is composed of three companies with their
respective equity participation in parenthesis: Shell Philippines Exploration
B.V. (SPEX, 45%), Chevron Malampaya LLC (45%), and Philippine National Oil
Co.-Exploration Corp. (PNOC-EC, 10%).
The Commission on Audit (CoA) however, has ruled several
years ago that aside from surrendering upfront 60% of gross revenues to the
government, the consortium must pay income taxes to the BIR/DOF from their 40%
share.
That kind of thinking is scandalous for the following
reasons.
One, the law where SC 38 was based, Presidential Decree
(PD) 87, “The Oil Exploration and Development Act of 1972,” gives the
contractor, the Malampaya consortium, the privilege of bundling the income tax
within the 60% share of government.
Two, under PD 87, the government assumes zero investment
cost and risk. So if the consortium did not discover huge amounts of natural
gas from Malampaya, the government was not required reimburse them for
expenses.
Three, it does not recognize that aside from the huge
money the Philippine government receives yearly from the consortium,
electricity supply is significantly bolstered especially in the Luzon grid.
Coal contributes 50% and natural gas contributes another 22% of total
electricity production in the Philippines in 2017. These energy sources are
stable 24/7 and are not intermittent, unstable, and unreliable such as solar
and wind power.
Four, the move by CoA discourages present and future
investments in high risk, capital-and technology-intensive sectors that some
government agencies can change rules somewhere and demand huge money midstream.
It is good that the DoE, DoF and Office of Solicitor
General (OSG) in previous administrations and even in current administration
did not think this way.
But the CoA remains persistent and has ordered the
consortium to pay P146.8 billion or nearly $3 billion of “unpaid income taxes”
from 2002 to 2017.
CoA should stop these moves and consider the many other
advantages of the Malampaya gas to the Philippine economy.
There should be more big private investments in the
country like the Malampaya gas development, less politics, and intrusive
government bureaucracies that discourage investments.
---------------
See also:
BWorld 226, The EPIRA is working, July 12, 2018
BWorld 227, Inflation, taxation, and protectionism, July 14, 2018
BWorld 228, Fare control makes it difficult to get a ride, July 15, 2018
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