Malampaya royalties to continue even if government sells stake in PNOC-EC

MANILA, Philippines - Royalties from the Malampaya deep water-to-gas project which proponents remit to state coffers yearly will continue even if the much-coveted government stake in Philippine National Oil Co.-Exploration Corp. is sold to private investors, a ranking Finance official privy to the privatization plans of PNOC-EC said over the weekend.

“The royalties will continue. It’s a totally different matter,” said a Finance official.

Critics of the government’s plan to privatize PNOC-EC’s 10-percent stake in Service Contract 38 have raised the alarm bells on the alleged impending loss of the royalties remitted to government by the contract’s proponents.

Service Contract 38 covers the right to explore, develop and utilize Malampaya gas off the province of Palawan. PNOC-EC, Shell Philippines Exploration B.V. (SPEX) and Chevron Malampaya LLC are partners in the exploration and development of this service contract.

The government is trying to sell PNOC-EC’s 10-percent stake in Service Contract 38 as part of its privatization program. It hopes to raise P17 billion from the transaction but critics have noted that the government has not been transparent when it opted for a negotiated sale with interested investors.

Essentially, the sale of its stake in Service Contract 38 means that the government is selling its much-coveted stake in the Malampaya project, considered a crown jewel in the energy sector.

The Bureau of the Treasury (BTr) receives billions of pesos in royalties from the operations of the Malampaya deep water-to-gas project.

In 2008, the proponents of the Malampaya project remitted as much as P13 billion in royalties. The amount varies, depending on the revenues generated in a particular year.

The government has yet to proceed with the sale as the new board of PNOC-EC needs to approve the sale. The company has installed a new board of directors during its annual stockholders’ meeting last June 8.

The new board, which will have a term until next year is chaired by Minita Chico-Nazario. Members are Tirso Danga, William Dichoso, Armando Galimba, Jose Leviste Jr., Christopher Lindo and Guillermo Hernandez. Rafael del Pilar retained his post as president and chief executive officer. 

Last March, the Finance department presented to the old board of PNOC-EC its plan to sell its stake in the company.

The government needs the approval of the board because it has changed the privatization mode for PNOC-EC to an asset-sale mode instead of the original plan of selling its shares or its 60-percent stake in the exploration firm.

However, Finance officials said the asset-sale mode is deemed as a faster way to privatize PNOC-EC and is expected to raise more than P14 billion which is the amount estimated from the original privatization plan of selling the government’s 60-percent stake in the exploration firm.