Malampaya Experience Shows Philippines may Lose from Spratly Deal

A deal by the RP government with China on the exploitation of oil resources in the Spratly Islands is not only unconstitutional but will likely have the country on the economic losing end.

BY SONNY AFRICA
IBON FOUNDATION
Posted by Bulatlat
Vol. VIII, No. 6, March 16-29, 2008

A deal by the Philippine government with China on the exploitation of oil resources in the Spratly Islands is not only unconstitutional but will likely have the country on the economic losing end. This is the experience with the Malampaya natural gas project where foreigners disproportionately benefit from the country’s natural gas resources.

The US$4.5 billion Malampaya Deepwater Gas-to-Power Project exploits an estimated 3.7 trillion cubic feet of natural gas (Tcf) reserves, accounting for 95 percent of the country’s proven such reserves. However the project is 45 percent owned by Shell Philippines Exploration (SPEX, which is also the project’s operator), 45 percent by Chevron-Texaco and only 10 percent by Philippine National Oil Company (PNOC).

These two foreign TNCs then effectively control virtually all of the country’s natural gas and corner the largest share of benefits from its exploitation. For their investment SPEX and Chevron-Texaco expect to get US$14 billion back over 20 years, or P581 billion at the current exchange rate of $1=P41.50. As it is, Shell Philippines Exploration BV declared net income of P3.5 billion ($69,944,044 at the December 2006 exchange rate of $1=P50.04) and Chevron Malampaya LLC of P7.5 billion (149,880,095) in 2006, or a total of over P11 billion ($219,824,140). The Department of Energy, in turn, declared Malampaya gas sales revenues of just P5.4 billion ($107,913,669) in 2006.

SPEX and Chevron benefit from significant incentives under Presidential Decree No. 87 of 1972 and Service Contract No. 38. Among others they are allowed to deduct all operating and capital expense (not exceeding 70 percent) from gross income. They are also exempted from income tax, entitled to duty free importation and unrestricted entry of foreign personnel.

On the other hand, the government has failed to negotiate any kind of meaningful technology transfer, which means a perpetual reliance on foreign firms for exploitation of our energy resources. Such government neglect is to blame for the never-ending argument that foreign investment is needed for the expertise they bring. Foreign firms will always disproportionately benefit from the country’s natural resources as long as they have this technological leverage.

The Malampaya project was officially inaugurated in October 2001. Located off-shore Palawan in the South China Sea, it remains the country’s single largest foreign investment project in the country’s history. It was immediately criticized for violating the Constitutional limit on foreigners of 40 percent on exploration, development and utilization of natural resources. IBON Features(Bulatlat.com)