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Shell focused on tax fight, not Malampaya extension

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By Victor V. Saulon, Sub-Editor

MALAMPAYA’S natural gas reserves can last up to 2029, the operator of the country’s offshore gas-to-power project believes, but its focus for now is not a contract extension beyond 2024 but its pending tax case with the government.

“Based on what we know… depending on the drawdown there will still be gas until 2027 to 2029,” Cesar G. Romero, Pilipinas Shell president and chief executive officer, told reporters on the sidelines of a media event hosted by the company on Wednesday night.

The often-cited timeline of 2024 “does not mean the field is zeroed out,” said Mr. Romero, who also chairs all Shell companies in the Philippines.

Shell companies in the Philippines include Shell Philippines Exploration B.V. (SPEx).

SPEx and consortium partners Chevron Malampaya LLC and PNOC Exploration Corp. operate the Malampaya natural gas platform, which fuels several power plants in Batangas and supplies Pilipinas Shell’s refinery and compressed natural gas refilling station. The project delivers about a fifth of the country’s electricity requirements.

In July last year, SPEx filed a new arbitration case against the state before the International Centre for Settlement of Investment Disputes, a World Bank-backed independent dispute-settlement institution based in Washington D.C.

SPEx, a unit of Anglo-Dutch company Royal Dutch Shell plc, previously challenged the interpretation of the Commission on Audit (CoA) in the computation of the 60-40 sharing of the proceeds from the Malampaya project.

A 2009 report of the CoA found P53.14 billion of underpayments involving corporate income taxes due from the Malampaya consortium.

Under previous administrations, the Department of Energy (DoE) held the position that the tax liabilities had been covered by the 60% share remitted by the agency from 2002 to 2009. But the state auditor maintained that the consortium members underpaid their taxes. The dispute resulted in SPEx previously seeking arbitration in Singapore.

“Any action we think about at the moment is put on hold because we have to sort out CoA first,” Mr. Romero said.

“2024 is still a long time. Hopefully we’ll be able to work something out with the government and CoA reverses its decision,” he added.

Sought for comment, Energy Secretary Alfonso G. Cusi did not directly respond to Shell’s comment on Malampaya’s productive life. But he said the government’s plan to build an integrated liquefied natural gas (LNG) facility at a cost of around $2 billion would go ahead even if the Malampaya contract is extended beyond 2024.

“That’s part of [energy] security,” he said.

On Thursday, Mr. Cusi told participants at an energy industry forum that he believes there is an opportunity for the Philippines to benefit from an expected surge in LNG supply because of the country’s strategic location. He said a huge number of ships and vessels already pass through the country via Subic.

“If we plan ahead, we can be the gateway for future gas exports into Southeast Asia,” the DoE chief said.

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