Lawmaker backs status quo in oil, gas exploration perks

By on October 25, 2018

Oil and gas contractors have found an ally in the Senate to retain existing incentives that will help in the development of the country’s upstream sector.

Sen. Sherwin Gatchalian, who chairs the Senate Committee on Energy, said he would lobby to retain the privileges of oil and gas contractors under the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO) bill.

“I’ve talked to the oil and gas industry, they said ‘we don’t need subsidies, what we need is stable policies and to retain incentives’,” he said.

Contractors have been alarmed over the removal of the incentives under the TRABAHO bill since this would discourage foreign investors to enter the Philippine oil and gas industry.

Oil and gas exploration and development is capital intensive which requires foreign investors to provide equity into projects.

“It’s good for them to bear the risks since this is a high-risk industry. Public money would be put to waste if government will enter into exploration. But all they’re asking are stable policies. It’s a fair request,” Gatchalian said.

The House version of the TRABAHO bill did not repeal the perks under Presidential Decree 87, however, the Senate has yet to finalize its version.

The Petroleum Association of the Philippines (PAP) earlier said it was still concerned that the Senate would still cancel such incentives.

PD 87 was issued by former president Ferdinand Marcos to amend the earlier PD 8 which promotes the discovery and development of the country’s indigenous petroleum resources.

It detailed privileges of oil and gas contractors, which include exemption from all taxes except income tax, payment of tariff duties, and compensating tax on the importation of machinery and equipment, among others under Section 12; deductions of Filipino participation incentive and operating expenses from gross income under Section 21 and 10-year recovery of all tangible exploration costs like capital expenditures and other recoverable capital assets under Section 22.

“We will definitely lobby to remove that in the proposal of (TRABAHO),” Gatchalian said.

This is to promote investments in the oil and gas sector so the country will not be relying on importing fuel if discoveries are made.

“This is really a lesson for us that relying too much on foreign oil will hurt us during volatile times,” Gatchalian said.

Data from the Department of Energy showed that Philippines has been importing 94 percent of its oil requirements, with the total import bill jumping to $9.89 billion in 2017.

This means local fuel prices follow movement in the international oil market.

PAP said foreign investors are already discouraged to pour in money into the country’s oil and gas sector after the Commission on Audit issued a decision in 2009 to slap a P53.14-billion tax deficiency from the Malampaya project operated by Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC and the Philippine National Oil Co. Exploration Corp. (PNOC-EC).

The Malampaya project is the country’s largest gas development to-date, which powers around 3,200 megawatts (MW) of power plants that supply power to the Luzon grid.

SPEX, the lead operator of Malampaya, sued the Philippine government by filing an arbitration case with the Singapore International Arbitration Center in Singapore in late 2015 and another with the International Center for the Settlement of Investment Dispute (ICSID) in July 2016.

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