Malampaya Project Should Be Scrapped; PHL Is Losing Money On It Says Solon

by Ina Alleco R. Silverio

MANILA — The Malampaya gas-to-power project off Palawan has been producing natural gas commercially since 2002. Why is the country not benefitting from it in terms of lower energy costs?

Bayan Muna Rep. Neri Colmenares took the floor recently in the House of Representatives to demand the scrapping of the Malampaya Fund natural gas operations contract as it was losing money for the Philippine government. The lawmaker who is also a lawyer said that if investigations into the finances of the project are executed, there is certainty that various officials from the Department of Energy and the Philippine National Oil Corporation will be found guilty of abuse of authority among other crimes.

The Malampaya Fund was a result of the Service Contract 38, covering the Comago-Malampaya Gas Project, which created a consortium composed of Shell, Chevron and the PNOC, which represented the Philippine government. Malampaya mainly produces natural gas, and its remaining reserves are estimated to be two trillion cubic feet.

“Taking into account the reported 4.66 trillion cubic feet of gas in Rector 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 said the Malampaya contract should not be extended for another 13 years and not even a day more.

Anomalies in the contract

According to the lawmaker, there are many anomalies in Service Contract 38. For instance, he said, while most countries would negotiate for at least a 30-40 percent share in consortium exploiting their resources, Shell and Chevron received 90 percent of the consortium shares and the Philippine government only 10 percent.

In the meantime, it is also stated in the contract that whatever expense Shell and Chevron incur or invest should be repaid as “recovery cost,” meaning a huge amount of public funds are spent on items which Shell and Chevron claims to have spent as recovery cost.

There is no clear description on which aspects of the operations are chargeable as recovery costs.

“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,” he said.

“These budgetary items, which should have accrued to the public funds, called “recovery cost” practically make the Malampaya fund a milking cow of foreign contractors.”

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.

“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.

He said Congress should go through Shell and Chevron’s financial records with a fine-toothed 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.

Scrap the contract

Given the endless problems the country continues to face over expensive electricity costs and lack of supply, Colmenares said, 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.

“We sold Petron when it was providing 40 percent of the our fuel needs, paving the way for the complete monopoly of oil cartels. With Petron, not only was government competing with these cartels then, but through Petron, being a player in the industry, the government was in the know whether price increases were justified or not. Now, we are at the mercy of the oil cartel which overprice their products continually,” he said. He also decried how the state-run Power Sector Assets and Liabilities Management Corp (PSALM) recently sold two power barges only to need its generating capacity back when the alleged power shortage in Mindanao took place in March.

“We must investigate all those involved in the negotiations of these unequal contracts with foreign firms. Those in the PNOC and the DOE, like Mr. Cailao, who has been negotiating for the extension of the Malampaya contract, must be investigated for probable conflict of interest. In fact, we must nationalize our energy industry by giving service contracts to Filipino-owned corporations instead of handing them over to transnational corporations.

Without doubt, Colmenares said, the Philippines got the extremely losing end of the stick when the government signed the agreement with the big oil companies represented by Shell and Chevron.

He said that under the Constitution, the Congress has the power to approve the expenditure of public funds through its budget powers and no public funds can be spent without the approval of Congress. Congress, however, has no control over the Malampaya Funds and its management.

All funds collected by or accruing to the government should form part of the public funds which must be spent for public purpose as directed by Congress. Section 44, Chapter 5, Book VI of EO 292 or the Administrative Code declares that “ all income accruing to the departments, offices and agencies by virtue of the provisions of existing laws, orders and regulations shall be deposited in the national Treasury or in the duly authorized depository of the Government”.

Section 65 of PD 1445, in the meantime also requires that “Unless otherwise specifically provided by law, income accruing to the agencies by virtue of the provisions of law, orders and regulations shall be deposited in the National Treasury or in any duly authorized government depository and shall accrue to the un-appropriated surplus of the General Fund of the Government.”

Colmenares said that the proceeds from the operation of the Malampaya-Comago Contract which should form part of public funds are being spent, not upon the direction of congress but upon the discretion of Shell and Chevron together with the PNOC and the DOE representing the Executive, beyond the pale of budgetary scrutiny.

Finally, the Bayan Muna lawmaker said that president Benigno “Noynoy” Aquino III should take immediate actions for the annulment of the Malampaya contract even as congress should also investigate public officials in the energy sector who are involved in energy dealings that are detrimental to the public good.

“While we tax our people heavily, we cannot go on handing over what should have been our income to foreign corporations. While we suffer from lack of social services, we give foreign corporations income which should have been spent on our peoples needs. The heavy burden on the people must end and it must end now,” he said.(

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