Chances of selling government stake in Malampaya getting slimmer

MANILA, Philippines - The chances of selling the government’s crown jewel in the power sector – its stake in the Malampaya deep water-to-gas project by end-June are getting slimmer following a delay in the formation of a new board of the Philippine National Oil Co.-Exploration Corp. (PNOC-EC).

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.

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.

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 board of PNOC-EC needs to approve the sale but this may take time as the state-owned company has yet to have a new board.

A shareholders meeting was earlier scheduled to take place last June 3 wherein a new board would be elected.

However, Finance Secretary Margarito Teves said the shareholders meeting had been postponed to this week.

“The shareholders’ meeting has been postponed to (this week). So the formal board meeting will follow a week after,” Teves said.

The proposed sale of the government’s 10-percent stake in Malampaya has earlier been cleared of all impediments but the actual privatization is still expected to be delayed as it would still need the approval of the new board.

Earlier, the Department of Finance has already secured legal opinions from the Department of Justice (DOJ) and the Office of the Government Corporate Counsel (OGCC) for the proposed sale of the 10-percent stake of PNOC-EC in the government’s Service Contract 38.

Both the DOJ and OGCC have said that PNOC-EC may pursue a negotiated sale with interested parties. Moreover, they said the existence of the right to match by Shell and Chevron provides transparency and competition.

Despite this clearance, however, the Finance department said the government still has to wait for the new board of PNOC to decide on the matter.

Last March, the DOF presented to the 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.