THE Senate Energy Committee has started putting together a report on the controversial sale of the controlling stake in the Malampaya gas field project to a subsidiary of Davao businessman Dennis Uy’s Udenna, with the panel chairman inclined to conclude it skirted the law and jeopardized the country’s energy security.
In an interview with DWIZ’s “Sapol” at the weekend, Sen. Sherwin Gatchalian said the committee will hold further hearings if necessary, before rendering a report to the Senate plenary.
Senate sessions resume on November 8 after a month-long break.
According to Gatchalian, the takeover by Uy had all the markings of a “favored” deal depriving the State of an indigenous source that could have blunted the impact of importing oil, prices of which have soared in recent months.
He lamented as well the failure of the Philippine National Oil Company (PNOC) to exercise its mandate in taking first crack in purchasing the service contractors’ stake.
Speaking partly in Filipino, Gatchalian said: “From my analysis, the PNOC should have bought this stake because first, there’s an automatic income stream for them there. In fact our computation shows that PNOC lost, from its failure to buy the stakes, close to about P80 billion for the next three years.”
Udenna, through subsidiary Malampaya Energy, now controls 90 percent of the operator of the facility, having bought 45 percent of Chevron’s shares, and subsequently the 45 percent of Shell, two of the service contractors in the consortium.
“After conducting four hearings, our opinion is that this deal is a ‘lutong Makaw’ [a sham] because the law that should be used to evaluate a contractor was not applied, and the rules bent in order to favor a new contractor, in this case, Udenna,” Gatchalian told DWIZ.
“The law is strict and says the government must first approve it before any sale. The [DOE] Department Circular, which governs this, also says the government must give its approval before any purchase can be done. So it’s very simple: the government must first give its go-signal, its approval before any sale but in this particular case, what happened is that the rules were not followed and bent,” the senator told “Sapol” hosts Jarius and Marissa Bondoc.
“And as I said, because the rules for evaluation were bent, and the evaluation was defective,” the transaction was “invalid,” he added.
Gatchalian clarified that selling per se is not prohibited by law. However, “because the oil and gas is owned by the people,” the State should first approve the transaction before any purchase is cleared.
“Because we own the oil and gas, the service contractors cannot simply exchange stakes just like that. We gave them a contract for them to tap and use those resources and give them to us for our use. So that’s the essence of the contract because the State owns the oil and gas,” he added, partly in Filipino.
Gatchalian said at least three aspects must be scrutinized and cleared by the government before any transaction is consummated between the contractors: first, the legal standing of the new contractor. Second, the financial capacity of the buyer of the stake. And third, the technical expertise of the party that will take over the operation of the Malampaya facility.
He noted that the Udenna group had no track record in running an oil and gas facility, especially something as critical as Malampaya, which accounts for 20 percent of the country’s total energy supply, and 40 percent of Luzon’s.
Moreover, he had earlier noted, it is heavily reliant on debts for its ambitious projects.
“These three things are scrutinized,” the senator said, referring to the legal, financial and technical reviews necessary.
Gatchalian was asked for comment on claims that time was of the essence since the government needed to avert a future supply crunch and Malampaya was projected to dry up in 2024. Thus, with a very strict Government Procurement Reform Act and GOCC Governance Act, and given the pandemic, the process of turnover had to be fast-tracked.
While that may be so, Gatchalian noted, “Malampaya is not an ordinary business. It provides electricity to nearly 20 percent of our people. This means that if the operator does not know how to run it properly, 4 million households could face outages and business will suffer. That’s why the law is strict. It was made strict to ensure the contractor that will come in knows its work and will not give us problems.”
There is as well a cost implication because, being indigenous, the power supply from Malampaya is not impacted when oil prices climb in the world market as is happening now.
The experience of Udenna’s sister company Chelsea in importing gas and diesel cannot count in Udenna’s track record, because “exploration and importation are two very different businesses,” Gatchalian said. He recalled how, in his field visits to the Malampaya facility, he was impressed by the high level of technical expertise required of all the employees there. These are people in whom their companies invested much in terms of training as well. Absent a firm assurance that the same work force will continue to operate Malampaya once the new contractor takes over, this could have implications on the facility’s ability to keep providing the same level of supply and service to people, he explained.