Malampaya: The plot thickens

The plot thickens, indeed, and more characters have joined this continuing story about the controversial sale of the Malampaya stake to Davao’s prominent son and Duterte pal Dennis Uy.

There are three main issues: The sale of Chevron’s stake to Udenna, the subsequent sale of Shell, and the government allowing both transactions to happen

A former country chairman of a multinational company called it the biggest money heist in the energy sector; Sen. Win Gatchalian dubbed it as “Lutong Macau,” while other industry sources see a grand conspiracy that  forced the Malampaya consortium to sell its stake to the Udenna Group because the Duterte administration refused to extend its contract beyond 2024.

On the other hand, Energy Secretary Alfonso Cusi said the issues surfacing now are all politically motivated, calling it mere harassment. He said it was a private transaction between the sellers and the buyer, stressing that members of the consortium are allowed by law to sell their stakes.

Indeed, as I said in previous columns, the transactions were private and legitimate, and went through rigorous processes. I doubt if anyone can prove graft and corruption between the sellers and the buyers.

‘Key question’

But three sources from the energy industry said the key question is why the government did not vie instead for the Malampaya stake.

State-owned Philippine National Oil Co., a member of the Malampaya consortium, has the right of first refusal in case another member was selling a stake, a former PNOC president told me.

Another source from the power sector, who previously worked with one of the two companies in the Malampaya consortium, also said Sec. Cusi was wrong in saying the government would be at the losing end if it acquired the stake of Chevron or Shell, or both.

“While the sale of Chevron’s, and subsequently Shell’s shares, to Udenna are private transactions, the key question is why the PNOC did not exercise its option to match, first in the Chevron sale where either Shell or PNOC had the right and option to match,” the source said.

Assignment of proceeds

Sec. Cusi told me that it would have been risky for the government to bet on Malampaya given its uncertain future.

But my source argued: “His argument that it is risky for the government is not correct. Malampaya is a producing field. If banks were prepared to lend money to Udenna, which has no experience in exploration and production and has very little capital, I’m sure banks would be more than happy to lend to PNOC, which has more experience and capital.”

In short, the source said, banks would have been ready to lend to PNOC as they readily lent to Udenna because banks are secured with the assignment of the proceeds from the sale of Malampaya gas.

“This is a producing asset and not one on an exploratory stage.  Therefore, there is no risk to the banks.”

The former president of PNOC, for his part, said if it happened at this time, he would have exercised PNOC’s right of first refusal because it involved sovereign assets.

Stressing the revenue potential for PNOC, the former PNOC president said that it would even be positive for the state-owned corporation because it would now have a bigger share from the billions in revenue generated from the Malampaya project.

Malampaya generates over $1 billion a year and 60 percent of that goes to the government while 40 percent goes to the consortium.

DOE assured thorough review

In a statement on Tuesday, the DOE said both Chevron and Shell followed rigorous global standards when they sold their stakes to Udenna.

The DOE also said there is no law or regulation “that squarely directs the agency to review the sale of shares of stocks between the corporations.”

A former DOE Secretary, on the other hand, said that while transactions between private parties are allowed, it should go through the government for review and approval if it involves national sovereignty or state assets.

In the end, the DOE said it conducted a review of the Chevron sale “because the Malampaya Gas Field is a backbone of the country’s power generation mix.”

The DOE said it used as benchmark Department Circular 2007-004-0003, “Prescribing the Guidelines and Procedures for the Transfer of Rights and Obligations in Petroleum Service Contracts under Presidential Decree 87.” PD 87 is the law governing the discovery and development of indigenous petroleum in the country.

Financial soundness

It also said the DOE reviewed the financial soundness and capability of Chevron Malampaya, but not Udenna because it is Chevron Malampaya which will remain as operator of the project.

The DOE stressed that it is the financial soundness and capability of the implementing corporation that should be evaluated because it is the one that is operating the project.

Moving forward, the DOE said it would also review the sale of Shell’s stake to Udenna.

For this transaction, Sec. Cusi needs to address all issues raised concerning the country’s energy crown jewel.

It’s exciting to see how this important story will unfold. As I said, the plot thickens every day.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com