Government junks plan to sell 4.9% Malampaya stake

The National Government has junked plans to sell the 4.9-percent stake of state-owned Philippine National Oil Co.-Exploration Corp. (PNOC-EC) in the $4.5-billion Malampaya natural gas development project.

In a disclosure to the Philippine Stock Exchange (PSE), PNOC-EC general counsel Elpidio Gamboa Jr. said the Committee on Privatization, which decides on the privatization schemes for government assets, deemed the price offer made by the Korean consortium led by LG International Corp. "not reflective of the current oil price".

"The Privatization Council, during its meeting held on April 12, 2005, withdrew its March 22, 2005 approval for PNOC-Exploration Corp. to accept the offer of LG International Corp. (LGI) to acquire 49 percent of its 10-percent participating interest in Service Contract 38," Gamboa said.

He added, the National Government will maintain the privatization of the shares as pre-condition to the sovereign guarantee it extended to the loan used to finance the acquisition of the 10-percent stake in the Malampaya project.

The PNOC-EC official did not disclose but said they would proceed with the sale of the 4.9 percent interest in SC 38 in the future.

"The Privatization Council added that the privatization of the subject interest shall remain as a condition for the National Government providing its guarantee on the loan borrowed by PNOC to acquire the subject interest and that sale of the interest shall still be pursued in the future when optimal value reflective of market conditions can be obtained," he said.

With the COP’s decision, Gamboa said "PNOC-EC will comply with the April 13, 2005 letter of the Privatization Council and will no longer proceed with the privatization or sale given on March 22, 2005 had already been withdrawn."

The COP earlier granted its approval for LGI to purchase the shares at half a price, or $140 million, of its current value of $280 million. EC borrowed $175 million to finance its purchase of the 10-percent stake in the oil and gas development project.

But the Malampaya consortium, composed of Shell Philippines Exploration B.V. (SPEX) and Chevron Texaco, which controls 45 percent stake each in the project, exercised the right to match the offer made by LGI.

It was not clear why the PNOC-EC allowed the Malampaya consortium to match the offer of LGI when in the first place, the COP would not accept the price offer of LGI.

Market observers pointed out that government’s backtracking in the middle of a crucial investment exercise may take its toll on the overall privatization process.

Last year, the National Government decided to hold a public bidding for the privatization of the National Transmission Corp. (Transco) although it has already started negotiations with a group of interested investors.

The government is selling the stake to raise funds to help reduce its $3.6-billion annual budget deficit.

The Malampaya natural gas project in Northern Palawan could yield three trillion cubic feet of gas that could be used to fuel up to 3,000 megawatts of electricity for 20 years, which is equivalent to more than half of the electricity requirements of Luzon even during peak hours. It also has recoverable reserves of 85 million barrels of condensate.

At present, it fuels three power stations with a combined capacity of 2,700 megawatts.