Clear fiscal uncertainty to secure PH energy supply, policymakers say

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MANILA, Philippines — Philippine policymakers must carefully manage the country’s impending transition from dependence on the declining resources of Malampaya’s natural gas fields, including making the business environment more investor-friendly, in order to to ensure the country’s energy security in the medium term.

An industry expert said such a transition will not happen overnight due to technological and financial limitations and should be started as soon as possible.

“As the developed world is finding out today, a poorly managed transition can hurt economic growth and increase poverty instead of reducing it,” former Energy Secretary Rafael PM Lotilla said in an interview.

Lotilla will be part of a four-person panel who will participate in a webinar on Tuesday October 19 morning – hosted by UP Vanguard Inc., SMC Global Power and the Philippine Daily Inquirer – to discuss the reliability and resilience of the the country’s energy supply during and after the COVID-19 pandemic.

The former energy chief noted that the country’s upstream oil and gas industry will play a key supporting role for the transition of the Malampaya gas project, whose reserves could run out as early as 2024 according to some conservative estimates.

“Natural gas would certainly play a role in the transition phase,” Lotilla said. “The Philippines has an existing gas-to-electric project and it needs to be used fully for this purpose. “

He noted, however, that there are policy issues that need to be addressed for the upstream sector as a whole, and even for a productive but declining gas field like Malampaya.

Topping the list is resolving tax issues that cause uncertainty for potential investors.

Lotilla explained that, since the 1970s, the Philippine government has consistently told investors that any corporate tax owed is borne by the government and is part of its 60 percent share of net revenues from these energy projects.

“Foreign companies have invested money based on this representation,” he said.

However, the 2011 Audit Commission decision overturning this rule introduced uncertainty.

“This needs to be resolved if the service contract 38 and surrounding areas are to be optimized, as well as regulatory approvals on the sale of Shell’s stake in the SC 38 consortium and the transfer of its operator role,” a- he declared.

In addition to resolving the pending taxation on Malampaya, the expiration of the gas service and purchase contract and the build-operate-transfer contract for the 1,200 megawatt Ilijan gas plant next year must also be resolved.

“[It is] It is important to resolve them for the rest of the industry in order to plan for contingencies, ”Lotilla said, adding that potential investors also need more certainty before embarking on exploration and development work in other areas. areas of service contracts.

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