DOE pushes bill rationalizing perks for oil search ventures

MANILA, Philippines - To entice more investors, the Department of Energy (DOE) is pushing for a bill in Congress that would rationalize incentives for the country’s upstream oil industry.

DOE Undersecretary Jay Layug told reporters that they may seek the help of the legislators with regard to this proposal.

“This year, what we plan to do is to pass an exploration bill to be a law, which will serve to address all the issues and provide more incentives to exploration companies,” he said.

Layug said the proposed law aims to rationalize provisions under the Oil and Gas Exploration Act of 1972 or Presidential Decree (PD) 87, which was legislated during the Marcos administration.

According to Layug, there is a need to revise the existing law on exploration to keep it attuned with the times.

“PD 87 is an antiquated law. It should be better in the sense that it will be a win-win situation for both the investors and government,” he said.

The DOE official said they are now trying to figure out the best model to use on revenue and/or production sharing, which could “enhance” current policies without impairing existing service contracts.

“We hope to submit it by next month,” Layug said.

Energy Secretary Jose Rene Almendras earlier announced that they are suspending the bidding for petroleum contracts until it is able to address the Commission on Audit’s concerns on taxes.

The DOE earlier lined up as many as 15 oil and gas sites for auction this month in its bid to jumpstart the stalled bidding for petroleum contracts.

Recently, COA’s concerns on government’s revenue sharing agreement with petroleum contractors have put the bidding for upstream oil and gas projects on the backburner.

COA, in particular, questioned why the Malampaya consortium led by Shell Philippines Exploration B.V. was allowed to deduct their corporate income tax, which amounted to roughly P53 billion from 2003 to 2009, from government’s 60-percent share in the gas field’s revenues.

PD 87 allows service contractors to deduct all operating and capital expense of up to 70 percent of their gross income.

The remaining 30 percent will be divided between the contractor (40 percent) and the government (60 percent). Once the oil firms recover their cost, the revenue sharing is shifted in favor of the government.