The chairman of the Senate Committee on Energy on Monday threw his support behind the Petroleum Association of the Philippines’s (PAP) request to the government to keep the incentives for the upstream petroleum industry intact, amid “hard times” in the exploration and discovery of new reserves.
“They [PAP members] are not asking money from the government. They just want consistency and stability. So, I’m inclined to support that they not be included in Tax Reform for Acceleration and Inclusion [TRAIN 2],” said Sen. Sherwin T. Gatchalian at a forum organized by the Samahang Plaridel’s Kapihan on Monday morning.
The PAP cited fiscal incentives such as 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 cited under Presidential Decree (PD) 87.
These incentives will no longer be offered when the proposed Package 2 of the tax-reform program of the Duterte administration is implemented.
PD 87 was issued by the late strongman former President Ferdinand E. Marcos to amend the earlier PD 8, which promotes the discovery and development of the country’s indigenous petroleum resources.
PAP noted that commercial oil and gas discoveries happened only after the promulgation of PD 87 in 1972.
“None of major oil companies are engage in oil exploration. At the moment, it’s a wait-and-see attitude on the part of major companies. TRAIN 2 seeks to minimize or remove incentives. While we support the tax reform in general, we believe it’s not time to remove incentive in the petroleum industry,” said PAP President Rufino Bomasang, who was present during the forum.
He stressed that for the Philippines to attract technically and financially qualified exploration companies, the incentives should not be touched.
PAP Vice President Edgar Bendict Cutiongco called for stability in fiscal regime. “We don’t want to be included in TRAIN 2. The main effect on us is that if these incentives are no longer present, investors will go to Malaysia, Indonesia, Thailand— where they perceive a stable regime,” he said.
The senator agreed, saying the government needs to address these problem areas in the fiscal regime in order for the country to encourage more oil explorations and achieve energy security.
“We have to come up with policy stability in terms of fiscal incentives. I saw in the TRAIN 2 that there are items that are not logical, like importation of equipment. Seismic equipment, we don’t have it here that’s why we import it,” Gatchalian pointed out.
The retention of existing fiscal incentives is necessary for the senator’s oil and gas exploration initiative to work.
The country potentially has 3.5 billion barrels of oil deposits and 24.7 trillion cubic feet of gas deposits that are considered undiscovered. Of which, only 4.6 percent of 160 million barrels of oil and 3.8 trillion cubic feet of gas had been discovered since 2016.
The Philippines has been importing around 94 percent of its oil requirements, spending around $9.89 billion in 2017, a jump of 31.2 percent from the $7.54-billion import bill in 2016.
Energy Secretary Alfonso G. Cusi for his part, said that the country needs to tap its own oil and gas reserves in order to be energy self-sufficient.