THE Petroleum Association of the Philippines has expressed serious concern over the ongoing position of the Commission on Audit to slap income tax on the Malampaya gas project.
PAP also urged the government to honor the sanctity of contracts in the oil and gas industry which has been facing challenges due to the low oil price environment.
“We are very concerned [with the CoA ruling]…What the terms before should be maintained…This could kill the industry,” Benjamin Austria, PAP executive director, said.
CoA previously ruled that the income tax payment of oil and gas service contractors in the Malampaya project in northwest Palawan amounting to more than P53.14 billion was not included in the government’s 60 percent royalty share.
Austria said the industry association will continue to dialogue with the Energy Department and other concerned agencies to reach an amicable solution to the issue.
“We’ve written the secretary [Energy Secretary Alfonso Cusi], we are pointing out how much we are concerned about certain developments. We are concerned about development in the possible instability of the policy,” the official said.
Austria hopes that the department’s nationalistic position on the CoA issue means upholding the sanctity of the contracts.
“We are encouraged by what President Duterte said. Besides it is not good practice to not honor [contracts],” he said.
President Duterte has made a pronouncement that “changing the rules when the game is ongoing is wrong.”
Austria therefore urged CoA to heed the call of Duterte to honor contracts.
Austria said the CoA ruling could further bring to a halt to the “nascent” industry, which has seen very little drilling and exploration activity in recent years.
“Our level of exploration is very low compared to Asean neighbors. Since time of [Jose] Rizal up to now, we have drilled around 700 only compared to Indonesia wherein drilling averages 200 to 400 wells annually,” Austria said.
He said the Philippines has a low success rate compared to its neighbors in terms of finding oil and gas projects and to offset this scenario, the Philippines should be able to attract investors through better contract terms.
“We need investors but if we show that we don’t have an investment policy…other industry might also be affected, not just ours,” Austria said.
He said the oil and gas industry is a highly capitalized and high risk industry. A well drilled by Exxon previously was estimated at around $100 million per well in deep waters of the Sulu Sea. Wells drilled in lower water levels still cost millions on dollars.
“We need partners to really go up in capital intensive projects at high risk. If you demonstrate that you don’t have reliable policy, you may not be able to find partners,” he added.
Austria also said that the CoA ruling will also have an impact on the country’s long-term energy security efforts.