By Myrna M. Velasco
In the remaining four years of the Duterte administration, the Department of Energy (DOE) is still eyeing to award at least nine petroleum service contracts (PSCs) via its modified Philippine Conventional Energy Contracting Program.
From 2019-2022, the department targets to award five service contracts (SC) for possible oil yield; three SCs prospectively for gas; and one SC for associated condensate.
According to DOE documents, the overarching goal would be to “increase delineated oil from 42.79 thousand barrels (MMB) per day to 78.73 MMB,” while gas production may potentially be hiked to 4.67 trillion cubic feet (TCF) from 3.09 TCF. Further, condensate output must be hiked to 47.24 MMB from 30.28MMB per day.
Meantime, investors in the upstream petroleum sector have been turned off by the proposed second package of the Tax Reform for Acceleration and Inclusion (TRAIN-2) Act, which seeks to reduce tax perks to investors.
This has been compounded by the unresolved tax case of the Commission on Audit (COA) against the Malampaya project.
Petroleum Association of the Philippines (PAP) Chairman Rufino B. Bomasang emphasized that these two pressing concerns are deemed “instability of government policies,” and that investors’ interests have been crumbling when it comes to injecting fresh money for prospective oil and gas finds in the country.
Given all the policy mess tormenting the industry now, petroleum investors are appealing to the Department of Finance (DOF) to spare the sector from further holocaust due to incentives removal under the TRAIN-2 law.
On behalf of the industry, Bomasang sought that Presidential Decree 87 or the Oil and Gas law “be excluded altogether from TRAIN-2,” as he opined that “excluding it and hopefully a favorable resolution of the COA case will definitely result in important strategic and economic benefits for the country.”
TRAIN-2 targets imposition of rationalized tax payments by oil and gas service contractors at the rate of 20-percent; while removing incentives such as the Filipino participation incentive allowance (FPIA) as well as those on previously allowed cost deductions and cost recoveries; and will likewise shorten the incentives timeframe on duty-free importation of machinery and equipment. The second package of the TRAIN tax measure primarily proposes the scrapping of Sections 12, 21 and 22 of the Philippine Oil and Gas Law.
Bomasang further averred that the tax case against the multi-billion dollar Malampaya project had already driven away several foreign investors – including those that have shown keenness of supposedly joining the past petroleum contracting round of the DOE.
TRAIN-2 is seen as the biggest stumbling block to investment flows in the forthcoming bid process under the modified Philippine Conventional Energy Contracting Program as this will “remove most of the incentives under Presidential Decree 87.”
“Unfortunately, in the last four to five years, petroleum exploration in the Philippines has practically stopped with no major foreign oil and gas company coming in. This is all because of the perceived unstable policies due to, among others, the COA ruling on the Malampaya project’s income tax, the Supreme Court ruling on the validity of service contracts signed by the Energy Secretary, even if authorized by the President; and now with the proposed TRAIN-2,” he stressed.
He added it is highly critical for the government to step up on the grant of incentives given the highly anticipated gas resource exhaustion of the Malampaya field in the next five to seven years.
“With Malampaya gas going to be depleted in a few years, we should already be looking for the next Malampaya,” Bomasang said, while also qualifying that instead of that happening, “major exploration companies have all adopted a ‘wait-and-see’ attitude and nobody is actively looking for indigenous oil for the next Malampaya because of apparent instability of government policies.”