With forecasts of hiked budget deficits until next year, Senate Committee on Energy Chairman Sherwin T. Gatchalian forthrightly stated that the Philippine government has no money to buy the 45-percent stake being unloaded by Shell Philippines Exploration B.V. (SPEX) in the multi-billion Malampaya gas field project.
“Covid-19 changed our fiscal position and because of Covid, we don’t have ready cash to buy the remaining shares (in Malampaya)… deficits are high; debt-to-GDP (gross domestic product) ratio had already breached 50%, that’s a signal that we don’t have available cash,” the lawmaker stressed.
However, he offered a ‘caveat’ and it is a matter for the government to carefully weigh since Malampaya is a massive revenue generator for the State coffers.
“My point of the matter there is: we should not also discount the opportunity that this is a ready-made cash flow for government,” he said, referencing on the fact that Malampaya is already a commercially producing asset. Hence, if the purchase option is taken, the government may need to borrow for the acquisition.
Gatchalian nevertheless pointed out that since SPEX is the operator of the field, it is highly critical that the buyer of that 45-percent interest shall have technical experience and competence in operating a gas production facility.
Unfortunately, he said, state-run Philippine National Oil Company (PNOC) and even Udenna Corporation of businessman Dennis Uy for that matter do not have the required scale of expertise in gas field operations.
He explained that the divestment of Shell treads on a different narrative if compared with the sale of Chevron stake – with the latter more regarded as a “financial transaction” because the American energy giant was just a passive investor in Malampaya and it has not been the operator of the field.
“The next 45% (of Shell), that’s a different story because you’ll have full control of the operations and you all know, it’s almost 30% of our requirements, so it plays a very big role in the development and economy of the country,” the solon said.
“We have to make sure that whoever takes over that portion of Shell should have the technical capability or at least demonstrate that they have the technical capability.”
Upon Shell’s exit, Gatchalian noted that the buyer of its stake must readily exhibit ability that it can immediately take over the field and operate it competently with indispensable technical expertise; and second, the new operator has the potential to drill new wells and can commercially develop the area further — given studies that Malampaya could still yield additional gas beyond the lapse of its Service Contract (SC) 38 in 2024.
“In the short term, they should be able to demonstrate technical competency because it affects us – because what if they have very important decisions to make and the decision is technical in nature, it will affect us if that decision is not viable,” he said.
Gatchalian emphasized technical capacity for the field operator is explicitly prescribed under Presidential Decree 87 or the Philippine Oil and Gas Law – because that company will have to make critical decisions, especially if there are oil spill or fire incidents in the platform; or if there are developments that will compromise the country’s energy security.
Asked if a Chinese partner could be a feasible option for Udenna so it could acquire technical capability on rig and gas platform operations, Gatchalian said that could evoke ‘national security concerns’ given the lingering diplomatic tussle at the West Philippine Sea.
“That’s another dimension for obvious reasons, we have issues with China and West Philippine Sea and that angle will now come into play, so it might open up other issues specifically on national security,” he stressed.