COA orders Malampaya consortium to settle P146.8-B unpaid taxes

The Commission on Audit (COA) has affirmed its ruling that ordered the Malampaya consortium to settle P146.8 billion in taxes that were charged against the government’s share in the the gas-to-power project.

The consortium members are Shell Philippines Exploration B.V., Chevron Malampaya LLC, and Philippine National Oil Company Exploration Corporation (PNOC EC).

COA found no legitimate basis to its April 2015 ruling, and denied the motions for reconsideration of the consortium members and the Department of Energy (DOE). The decision was released on Tuesday.

“This Commission denies the MRs for failure of the movants to raise any new or substantial legitimate ground or basis to justify the reversal of the assailed decision. The pleadings and documents submitted by the movants, as well as the discussions during the oral arguments, contain no sufficient evidence to warrant reconsideration,” it said.

The consortium said it has filed an appeal before the Supreme Court to review the COA decision.

“We can confirm that the Malampaya Joint Venture partners, together with the Department of Energy (DOE), filed a Petition for Certiorari with the Supreme Court after receiving the Commission on Audit decision denying the consolidated Motion for Reconsideration by the Malampaya consortium,” it said in a statement.

The statement was sent by Shell media manager Cesar Abaricia via text message to GMA News Online.

The commission issued a notice of charge in 2015, saying the government is entitled to receive more than P53 billion in income taxes from the consortium from 2002 to 2009.

It said the amount ballooned to P146.8 billion due to continued underpayment or “tax assumption scheme” of the consortium from 2010 to 2016.

“If this Commission will not put an end to this illegal ‘tax assumption’ scheme, the government will continue to bleed billions and billions of funds that can and should be used for the very purpose intended by law,” it said.

Consortium maintains compliance

Presidential Decree No. 910 states that revenues from the Malampaya project should be used "finance energy resource development and exploration programs and projects of the government and for such other purposes as may be hereafter directed by the President."

“We maintain that the Malampaya joint venture has fully complied with its payment obligations under the law and Service Contract No. 38 (SC 38). In particular, all income taxes due to the government for which the consortium is liable under SC 38 have been paid,” the consortium noted.

“The SC 38 consortium shall avail of all legal remedies to protect their rights, including arbitration,” it said.

The commission ruled that the income taxes of the consortium was charged against the government’s 60 percent share in the gas project, in violation of Presidential Decree (PD) 87 and 1459, while the consortium received its full share.

Presidential Decrees 87 and 1459 set the government’s share of revenues from Malampaya at 60 percent while the share of the consortium was pegged at 40 percent.

Considering this charge, COA said the actual share of the government dipped to 34.03 percent while the Malampaya contractors had a share of 65.97 percent.

Shell Philippines and Chevron Malampaya argued that the notice of charge “violates the principle of separation of powers” as it seeks to amend the provisions of PDs 87 and 1459 and breach the express provisions of Service Contract 38 signed by the government and the consortium.

PNOC  EC said the consortium members in fact paid their income taxes in line with provisions of the service contract.

The DOE, through the Office of the Solicitor General, claimed COA “totally overstepped and exceeded the legal bounds” of its mandate when it ruled against the Malampaya contractors. It called the notice of charge an interference of DOE’s authority.

Irreparable harm

The decision “will cause irreparable harm to the country’s long-term interest, as it will further erode the confidence of foreign petroleum industry investors.”

The Energy department claimed “it is the policy of the administration of President Rodrigo Duterte to honor the government’s contractual obligations” under teh service contract.

But COA said it is not usurping the DOE and is in fact acting on its mandate to ensure that the government is receiving its fair share from the natural gas project.

“As the guardian of public funds, this Commission sees to it that all collections of the government are correct, proper and complete, and that the best interest of the government is secured and protected,” the decision read.

“Certainly, it cannot be said that the government is receiving its fair share under an agreement that is not in accordance with law. This is not an undue interference with the powers of the DOE, but a check on the propriety and legality of the agency officials’ conduct in relation to the management of government funds and property,” it said.

COA argued that Section 18(b) of PD 87 and Section 1(a) of PD 1459 enforced the denial of the consolidated motions for reconsideration, both of which stated that the government’s share should not be less than 60 percent.

“That in no case shall the annual net revenue of the Government including all taxes paid by or on behalf of the contractor, be less than sixty percent of the difference between the gross income and the sum of operating expenses and Filipino participation incentive,” according to Section 18(b).

Section 1(a) of PD No. 1459 states:

“The share of the Government, including all taxes, shall not be less than sixty percent of the difference between the gross income and the sum of operating expenses and such allowances as the Secretary of Energy may deem proper.”

"All told, since movants failed to present clear and convincing proof that the payment of the income tax by the government for the account of the contractors under SC No. 38 has clear legal basis under the applicable laws, this Commission is constrained to deny the consolidated MRs,” COA said. — with a report from Jon Viktor Cabuenas/ALG/VDS, GMA News