THE Petroleum Association of the Philippines (PAP) strongly urged the Duterte administration not to remove incentives for the upstream petroleum industry, especially due to the difficulty of discovering new reserves.
“Considering the importance and urgency of finding indigenous petroleum, and given the current lack of active exploration activities due to apparent policy instability, this is certainly not the time to remove the incentives,” said PAP Chairman Rufino Bomasang in his speech during the British Chamber of Commerce Joint Economic Forum. In the last four to five years, he said petroleum exploration in the country has stopped with no major foreign oil and gas company coming in, mainly on perceived instability of government policies—the Commission on Audit (COA) ruling on the Malampaya project’s income tax, the Supreme Court ruling on the validity of service contracts and the proposed Tax Reform for Acceleration and Inclusion Package Two, which seeks to remove most of the incentives under PD 87.
The COA overruled the petition of the Malampaya consortium that income tax was already imputed in the government’s 60-percent share in the Malampaya royalties. The tax, they argued, was deductible from the government’s share of the Malampaya earnings. However, the COA said there is no provision in the law stating the income tax of the contractors forms part of the share of the government. The COA noted a P53.14-billion tax deficiency.
Under PD 87, fiscal incentives including tax-free importation of equipment and supplies, exemption from all taxes except income tax, income tax assumption (i.e. payment of income tax out of the government’s share), accelerated depreciation, free- market determination of crude oil price, and easy repatriation of investments and profits, are offered.
These incentives will no longer be offered when the proposed Package 2 of the tax-reform program is implemented.
“This is a very high-risk industry which is different from all others, but of vital and strategic importance to national energy security. It definitely needs these incentives more than ever before. I therefore suggest that PD 87 be excluded altogether from Train II. Excluding it and hopefully a favorable resolution of the COA case will definitely result in important strategic and economic benefits for the country,” Bomasang said.
Bomasang said PD 87 resulted in successive commercial discoveries in offshore northwest Palawan by various foreign-owned oil companies. The biggest hydrocarbon discovery has been the Camago-Malampaya gas complex.
He said the service-contract system with all its incentives under PD 87 enabled the Philippines to attract local and foreign companies, including the majors, who were finally able to discover indigenous oil and gas in commercial quantities.
“The Malampaya gas is going to be depleted in a few years. We should already be looking for the next Malampaya. Major exploration companies have all adopted a ‘wait and see’ attitude. Nobody is actively looking for indigenous oil or and/or for the next Malampaya because of apparent instability of government policies,” he said.