There seems to be a disturbing pattern in the way President Duterte shields his political allies and friends from accusations of wrongdoing. Time and time again we see him going ballistic on issues—his drug war, pandemic handling, corruption, etc.—whenever friends and allies are caught or exposed for alleged irregularities. Those at the receiving end of the “presidential wrath” are often bombarded with expletives, insults, and veiled threats.
Alfonso Cusi, secretary of the Department of Energy (DOE) and recently named president of Duterte’s party PDP-Laban; and Dennis Uy, chair of Udenna Corp. and one of Duterte’s biggest campaign donors, along with 24 others have been charged with graft in the sale of Malampaya shares allegedly for a song to Uy’s company.
Geologist Balgamel Domingo, who filed the complaint against them before the Ombudsman in Iloilo City, claimed that the government lost at least P138 billion in this “questionable” transaction. Other complainants were US-based lawyer Rodel Rodis and businesswoman Loida Nicolas Lewis.
It remains to be seen whether the President will jump into the issue. Will he risk his flagging political capital to defend Cusi and Uy who have proven to be among his loyal allies? Duterte’s approval and trust ratings both had a “noticeable” drop, according to a nationwide survey by PUBLiCUS Asia. The second quarter poll conducted from July 13 to 19 this year showed that Duterte’s approval rating dipped to 57.93 percent from around 65 percent in the first quarter, while his trust rating slid down to 50.4 percent from around 55 percent in the previous quarter. This survey involved 1,500 respondents from a research panel of some 100,000 registered voters. In another survey conducted by SWS in June, his popularity rating was 21 percent below a record high reached in November 2020.
What bothers analysts is the audaciousness with which Cusi and his people let go of the Malampaya shares. Since Uy is believed by many to be Duterte’s crony, they say he could have shown at least some degree of caution, knowing that any deals made with Uy would come under public scrutiny. Uy, whose business interest has grown by several notches under the Duterte administration, is into diverse ventures—from food shops to energy firms—in a dizzying expansion binge that is mostly leverage-backed. This has raised concern early on about the debt standing of Uy’s group, more so now that the country is in the midst of a pandemic-generated recession. One of his biggest catch is the country’s newest mobile operator Dito Telecommunity where Uy is president and CEO.
Eduardo Mañalac, former president of government-controlled Philippine National Oil Co., was quoted by CNN as saying that the government has effectively foregone billions in profits when it agreed to sell its 45 percent Malampaya stake of Chevron in 2019 to Udenna. Note that since 2001, the government has partnered with private service contractors to conduct exploration for gas deposits on waters off Palawan. The natural gas subsequently siphoned there accounts for over 20 percent of the country’s power reserves. Under the agreement, the government gets 60 percent of the revenues, while its private partners, 40 percent. Shell Exploration BV and Chevron each had a 45 percent interest in the project, while 10 percent is held by the government through PNOC-Exploration Corp. The sale of the Malampaya shares to Uy means that he now controls 90 percent of the project due to his purchase of Shell’s and Chevron’s interests over the past two years.
Mañalac said that had the government itself bought the shares, it could have taken up to P138 billion. Because neither government nor PNOC took the shares, we lost that amount. He added that, if Uy hadn’t come in, the government could have gotten an additional P42 billion, assuming that “it took control for the remaining three years of the Malampaya contract—and even more, given the recent surge in global oil prices.” According to Mañalac, the DOE has been negligent of its duties in conducting due diligence on Undenna’s financial standing, resulting in Uy’s company being given “unwarranted benefits” and causing “undue injury” to the government.
Mañalac’s complaint stated that “[d]espite knowledge of its right to match UC [Udenna Corp] Malampaya’s offer and the anticipated good returns of the investment in Chevron’s share, PNOC-EC failed to exert any effort to purchase Chevron’s participating shares.” It said that the DOE under Cusi, who is also PNOC chair, did not perform due diligence before clearing the deal. “Sec. Cusi still proceeded to belatedly approve the questioned sale despite Udenna and UC Malampaya’s failure to meet the technical and financial qualifications of a Service Contractor…. The newly-formed company did not have enough capital and was counting on loans to support the deal, it added.”
Retired Supreme Court senior associate justice Antonio Carpio said that the government should have intervened, especially because the Malampaya gas reserves have thinned out and the facilities’ contract is expiring in 2024. He said: “We have people who can run that —Filipinos. Dennis Uy will only take advantage of that… This is the biggest presidential gift to a crony.” Based in Davao, Uy was one of the biggest campaign donors of President Duterte in 2016.
Cusi, who himself entered the billionaires club in 2017 with a net worth of P1.355 billion, describes the graft charges as political “harassment” related to the 2022 elections. However, Udenna spokesman, Lawyer Raymond T. Zorrilla, in a statement said: “We are well aware of the allegations and false narratives flooding the media and private groups on social media. Let us be clear that there is no law requiring approval of transfer of shares of companies that have interest in Malampaya…. Udenna as a key investor in UC Malampaya Philippines Pte Ltd will stand by this legal position.”
But Senate Energy Committee Chair Win Gatchalian does not buy this position. He said he believes that DOE’s decision to sell Chevron shares in Malampaya to Uy is defective and invalid after learning from Cusi that the sale was based on an evaluation using the so-called “farm-in process.” The dictionary defines a farm-in-agreement as “a contract signed between two companies, the Farmor and the Farmee, where the Farmor is the owner of the acreage and the Farmee is willing to perform the drilling and exploration in the acreage of the Farmor.” In Malampaya’s case, the “farmor” is the Philippine government, and the “farmee” is the private company or companies it partners with. The specific context of such an agreement is that both parties want to share the costs and risks of drilling to increase capital expenditure for higher gain. Since the Malampaya project may contain more reserves than expected and will require more technologies, the government’s partner must have the expertise and wherewithal for such an undertaking. Is Udenna qualified for such a role?
Referring to DOE’s Department Circular 2007-04-003 which prescribes the guidelines and procedures for the transfer of rights and obligations in petroleum service contracts under Presidential Decree 87, Gatchalian pointed out that “[n]owhere in the documents that the DOE submitted can you find the argument of using the farm-in [rule]. From day one, we were made to understand that this should be approved by the government and the process will follow PD 87 and DC 2007.”
The Gatchalian committee also learned that Udenna’s subsidiary, the Malampaya Energy XP Pte., which was incorporated in Singapore, has only US$100 (or P5,000) capitalization. “Basically that is the capital, will it qualify? Will this be declared as financially qualified?” Gatchalian asked Cusi during the interpellation on the financial state of the shell company used by Udenna. Cusi’s reply: “There are funders, how the buyer and the seller agree in this case…what the funders will have on the satisfaction of the sale agreement is beyond us.”
Since the DOE has the final say in the deal between Chevron and Udenna, the subsidiary could be, in Gatchalian’s words, “potentially disqualified because of its technical inadequacy,” unless of course Udenna taps Chinese money to fund the venture. This is definitely a cause for alarm because the energy security of the Philippines is on the line. We should disabuse our minds that China considers us a friend because its focus is world dominance, and small nations like ours are viewed as prey. The Malampaya deal is a sellout that could very well be a Chinese gambit.
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