By Myrna M. Velasco
The Malampaya consortium will need to secure a ruling from a Philippine court for the enforcement of the P146.8 billion ‘partial award’ bequeathed to it by the arbitration tribunal in Singapore.
The Malampaya gas field uses an innovative and sustainable deepwater technology for recovering natural gas from the deepwater reservoir in northwest Palawan. (Image from shell.com.ph | Manila Bulletin)
The government, via sources from the Department of Energy (DOE), has affirmed this required legal move and this will likely be done via a regional trial court. The process though has yet to be accomplished by the parties-in- interest.
Overall, the Malampaya consortium secured legal victory for aggregate P146.8 billion worth of income taxes that had been questioned by the Commission on Audit (COA) – following the latter’s differing interpretation on some provisions of Service Contract (SC) 38, the legally binding agreement it entered into with the Philippine government for the gas field project.
When the SC 38 consortium led by Shell Philippines Exploration B.V. (SPEX) elevated the case to the International Chamber of Commerce (ICC) in Singapore, the first notice of charge was at US$1.1 billion (roughly P53 billion) – that was reckoned from the estimated income taxes from the start of the field’s commercial operations in 2001 until 2010.
Then when COA re-affirmed its ruling on interpretation relating to the income tax payment of the contractor, the calculated tax claims climbed by additional P77 billion until year 2015; then additional P16 billion in 2016. These claims comprise the second and third notices of charge lodged by COA against the Malampaya service contractor.
The fourth notice of charge amounting to P9.6 billion is still reportedly under the review of the arbitral tribunal.
When asked on their next legal step relative to the enforcement of the ICC verdict, the Malampaya consortium has not given any categorical answer; with it stressing that the entire arbitration proceedings had been “confidential in nature.” SPEX, for its part, has just indicated that it will need to discuss the matter with the DOE and other relevant government agencies.
The tax dispute cropped up when COA took the position that the income tax payment of the Malampaya consortium should not have been charged as part of the 60-percent royalty share of the Philippine government.