Shell sues Philippines over Malampaya row

by Alena Mae S. Flores – December 17, 2015 at 11:59 pm

from Manila Standard

Shell Philippines Exploration B.V. is taking the government to an international arbitration court in Singapore over a P53.14-billion income tax dispute from the Malampaya natural gas project.

A reliable source said Spex, a unit of Royal Dutch Shell Plc. which operates the Malampaya gas project in Palawan, filed the arbitration case with the Singapore International Arbitration Centre against the Energy Department, which issued the project’s service contract.

Aside from Spex, other members of the Malampaya consortium are Chevron Malampaya LLC and PNOC-Exploration Corp., a unit of state-owned Philipine national Oil Co.

The Commission on Audit earlier said the government should collect P53.14 billion in income taxes from the contractors of the Malampaya project, on top of the 60-percent royalties.

The source said Spex filed the case “so they won’t pay the income tax.”

Spex filed for arbitration ahead of the final decision of the Commission on Audit, which asked the Energy Department to collect the back taxes from the Malampaya contractors.  The Energy Department appealed the ruling with CoA, saying the decision would have repercussions on government’s energy contracts.

Energy Secretary Zenaida Monsada did not confirm the arbitration case as of press time, but sources said the agency’s legal department and the Office of the Solicitor General were now handling the arbitration case.

Monsada said in a recent interview the matter was still with CoA.  “CoA has not replied to the MR [motion for reconsideration] of DoE,” she said.

CoA ruled in May that service contractors’ payment of income tax for the Malampaya project should not be included in the government’s 60-percent share in Malampaya royalties.

The Energy Department, however, warned that imposing the P53.14-billion income taxes on Malampaya contractors would send a wrong signal to investors.

The department said in a 30-page motion for reconsideration the CoA decision “sent a very wrong signal to the existing and future petroleum exploration investors in the country.”

It said petroleum exploration, especially offshore, involves great risk, huge capital and high technical capability and foreign investors decide where to put their money based on “the certainty and stability of investment rules and regulatory regime of a country.”

“The trust and confidence of foreign investors in the stability and certainty of our investment laws and regulations that the government, for a long period of time, has painstakingly built and nurtured, has been greatly damaged,” it said.

“In the face of this tight competition with other countries for foreign investors, the Philippines, if it is to achieve its aim of energy security and incidentally, overall economic progress, needs to discover other Malampaya by intensifying the exploration and production of its indigenous petroleum resources,” it said.

The department said a stable and sufficient supply of energy was one of the primary requisites to attain sustainable economic development.

“What the Philippines needs is a continued investment in petroleum exploration and development and convince those already existing investors in the country to remain and stay for the long haul notwithstanding the domestic difficulties and challenges they have to face,” it said.

The department said the CiA decision would do more have than good to the country over the long-term.

“Right now, it has created anxiety, uncertainty and overall negative attitude towards the country not only in SC 38 contractors and stakeholders but in other existing and prospective investors,” it said.