Wednesday, October 16, 2013

Depoliticizing Malampaya

So much of the controversy about the Malampaya Fund focuses on whether the President has the authority to use the Fund for purposes other than to finance energy resource development and exploitation programs as originally intended.
While the Malampaya gas field off the shores of Palawan would be discovered 18 years later, this is the intent of the Special Fund established by Presidential Decree 910 issued by Ferdinand Marcos during the second year of martial law in 1973. The aforementioned Fund shall be collected from fees, revenues, fines and penalties under the old Petroleum Act of 1949, as well as the government’s share representing royalties from service contracts and similar payments on the exploration, development and exploitation of the country’s energy resources.
The Malampaya Natural Gas Platform on the Palawan shore
The controversy surrounding the Malampaya Fund, however, is not just about the shifting of government funds, which came about only after the Commission on Audit reported that P900-million from the Fund were allegedly diverted to bogus NGOs by the pork barrel queen, Janet Napoles. This was on top of the enormous P10-billion congressional pork barrel that was also attributed to the plundering Napoles.
At the outset, the Malampaya Deep Water Gas-to-Power project—inaugurated in 2001 and now the biggest single source of the President’s Special Fund—is a Pandora’s Box filled with schemes of fraud, abuse of political power, usurpation of legislative authority, violation of the Constitution, and a host of possible irregularities by the current and previous administrations.
One of the largest and most significant industrial endeavors in Philippine history, the Malampaya natural gas project was considered a milestone for a country that has been hitherto been solely dependent on imported fuel. Malampaya changes this dependency as it now provides 40 to 45 percent of Luzon’s power generation requirements, thus enabling the Philippines to import less fuel for power generation.
Led by the Philippine Department of Energy (DOE), the Malampaya project was developed and operated by Shell Philippines Exploration B.V. (SPEX) on behalf of joint venture partners Chevron Malampaya LLC and the PNOC Exploration Corporation. At first blush, the project appears to be a perfect model for public and private cooperation, until one understands the investment structure and profit sharing arrangement of the Malampaya project.
When inaugurated in 2001, the $4.5-billion Malampaya natural gas project is and remains the largest single foreign investment in the history of the Philippines. The project is 45% owned by Shell Philippines Exploration, 45% by Chevron-Texaco and only 10 percent by Philippine National Oil Company (PNOC). What seems wrong with this picture?
Shell and Chevron-Texaco thus control virtually all of the country's proven natural gas reserves, and at the same time, ensnare the largest share of benefits from its exploitation. In return for their investment, Shell and Chevron-Texaco expect to get $14 billion back over 20 years, or P574 billion at current exchange rates.
What does the Philippine Constitution say about foreign exploration, development and utilization of our natural resources?
Article 12 of the 1987 Constitution allows ventures or production-sharing agreements with foreign companies up to 40 percent capitalization. This means that at least sixty percent of the capitalization of such joint ventures or projects must be owned by Filipino citizens.
The Malampaya natural gas project was an exception, if not an anomaly. It clearly violates the Constitutional limit on foreign capitalization to 40% on exploration, development and utilization of natural resources. The Philippine government has therefore allowed Shell and Chevron-Texaco to disproportionately benefit from our natural gas resources against the interests of the country.
In addition to their return on investment, Shell and Chevron-Texaco would also benefit from significant incentives under Presidential Decree No. 87 of 1972, the precursor to PD 910, and other related decrees leading to the creation of the Department of Energy. Among these incentives are tax credits that are exempted from income taxation, duty-free importation and unrestricted entry of foreign personnel. There could be more but without Freedom of Information legislation, the average Filipino would never know the exact details of Service Contract No. 38 that granted Shell and Chevron-Texaco free rein to exploit our natural gas reserves. The government also failed to negotiate any kind of meaningful technology transfer, which is important if we wish to end our perpetual reliance on foreign firms for exploitation of our energy resources.
Is it too late to correct this situation?
The current Constitution of the Philippines, which was adopted after the fall of the Marcos dictatorship, provides that existing laws, decrees, executive orders, proclamations, letters of instructions, and other executive issuances not inconsistent with this Constitution shall remain operative until amended, repealed, or revoked. Quite clearly, all presidential decrees made by Ferdinand Marcos are inconsistent with who has legislative authority under the Constitution. Besides, how can one morally justify perpetuating the vestigial decrees of a much-hated dictatorship? It amounts to continuing the dictatorship and its oppressive laws.
The Malampaya natural gas project is clearly unconstitutional because it violates the provisions of the Constitution on national economy and patrimony. The Special Fund created by PD 910 could likewise be inconsistent with the present Constitution because it was a law not passed by Congress but issued by a hold-over president under a dictatorship. If we can borrow an analogy from criminal law, the provisions of any presidential decree issued by Marcos during his dictatorship are tainted and are fruits from the same poisonous tree. We should junk all presidential decrees issued by the Marcos dictatorship if we are serious in enforcing the constitutional delineation of the power to legislate.
In the words of Supreme Court Justice Antonio Carpio, “PD 910 is functus officio [no force or authority].”
In view of the huge royalties from the Malampaya gas project, it appears ludicrous that allies of President Aquino in Congress would now like to amend PD 910 insofar as limiting the Special Fund to the financing of energy–related projects. President Noynoy Aquino apparently wants his authority to use the Special Fund for other purposes be clearly defined so that it would give him the discretion to use the Fund as he pleases. Of course, Congress can pass a law to this effect which makes it more legally palatable under the Constitution instead of relying on the provisions of a Marcos-issued presidential decree.
Even if Congress amends PD 910 or enacts a new law that would define and expand the authority of the President in using the Malampaya Fund, this is not a foolproof escape route from the onerous provisions of a martial law presidential decree and it will certainly not prevent misappropriation and misuse of the Fund and future pork barrel scams. By and large, it only enhances the probability of more abuses and opportunities for economic plunder by this administration and succeeding governments since the pie would be significantly enlarged, not to mention the broad discretion to use it.
It was estimated that the Malampaya project would yield over P12 billion annually in royalty shares for the national government. In 2012 and 2013, the royalty shares reached $1 billion or P40 billion annually.
During the Arroyo Administration, about P25 billion was spent while P15 billion has been used under President Noynoy Aquino. The Malampaya royalty will get larger and the opportunities for its misappropriation and abuse will increase exponentially. In fact, the Malampaya Fund has become a huge political pork barrel.
There is also an ongoing dispute before the Supreme Court regarding the legal framework on natural wealth sharing. Under the Local Government Code, the local government unit where a natural gas field, in this case the Malampaya gas project, is located gets 40 percent of the royalties while the national government, 60 percent. But Palawan has been denied by the national government of its share and it’s taking the Supreme Court an inordinate time to rule on the territorial jurisdiction issue.
The interim sharing between the national government and Palawan has not been subjected to public scrutiny and transparency. Although an initial release of P3.9 billion to Palawan has been made in 2008, the disposition of the fund did not follow the general provisions of PD 910 which prescribed that 80% must be spent in energy-related projects benefitting the local population.
As it was the case for the congressional pork barrel, local political leaders determined the projects and manipulated bidding rules to favour certain public works contractors. Like the Napoles pork barrel scam, there were ghost and overpriced projects.
To reverse the current situation, Congress must regain its power to legislate under the Constitution by revoking all presidential decrees issued by the Marcos dictatorship. It must exercise congressional oversight of the Malampaya royalty fund, with the end in view of depoliticizing the fund as a pork barrel.
In addition, the Supreme Court should now decide on the sharing arrangement between the national government and Palawan: the Malampaya royalty should be used where the law intends it to and the local population gets the benefits from the exploitation of their natural resource.

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