Enrique Razon’s Malampaya bet

You have to hand it to ports and casino tycoon Enrique Razon. While other conglomerates have long been eyeing Malampaya, the country’s energy crown jewel, some of them were wary of the controversies surrounding it, raised by those opposed to Davao-based businessman Dennis Uy’s acquisition of a controlling stake in the project.

The Malampaya gas-to-power project in offshore Palawan is the country’s biggest natural gas find, supplying at least 20 percent of Luzon’s power requirements. For decades, a consortium led by Royal Dutch Shell operated it until Uy acquired a controlling stake.

Uy’s entry, however, stirred controversies. Critics questioned his capability to run the crown jewel, as well as the Department of Energy’s role.

Now here comes Razon with an eagle eye for opportunities. He did not hesitate and in fact, during negotiations with Dennis Uy’s camp when the deal was offered to him, he even made a counter offer to have Uy’s casinos in Cebu and Clark included in the deal.

Thus, the casinos served as a sweetener to the package, which industry sources said amounted to at least $400 million.

It’s a gutsy move, but in business, Razon perhaps may be equivalent to a firefighter – while everyone else is leaving the building, he isn’t afraid to go in – raging fire, clouds of soot, black smoke, and all.

Thus, last week, Razon’s Prime Infra Holdings announced that it is poised to acquire a controlling stake in Uy’s Udenna-led Malampaya project.

The acquisition process has kicked off, it said.

Issues

There will be issues of course, but if handled well, the deal will be another jackpot acquisition for Razon. It’s the crown jewel after all that other conglomerates were also eyeing.

But the transaction is still subject to approvals and it requires the consent of PNOC-Exploration Corp., which holds a 10 percent stake in the consortium.

Another issue is the expiration of Malampaya’s contract in 2024. The administrations of former president Noynoy Aquino and  outgoing President Duterte did not extend the contract (although there are still a few days to go in President Rody’s term).

I don’t know how the administration of president-elect Ferdinand Marcos Jr. will handle the Malampaya issue, although it should be noted that it was his father Marcos Sr. who issued Presidential Decree 87 or The Oil Exploration Development Act of 1972 to “hasten the discovery and production of indigenous petroleum through the utilization of government and/or private resources.” This law paved the way for exploration of the country’s resources that led to the discovery of the Malampaya gas field.

Razon said Prime Infra should be able to continue to operate while applying for the extension so it can invest in its expansion, which will sustain the economic and social benefits that Malampaya is providing for the country.

Thus, the transition of the operations of Malampaya is critically urgent, it said.

“Prime Infra and Udenna, as the new operators taking over from Shell Philippines, will need to immediately plan for the expansion to ensure the continuity of the production as long as the reserves support it,” Prime Infra also said.

Razon, for his part, said the project would help his group contribute more to the country’s transition from expensive and volatile coal and imported fuel prices to affordable cleaner and domestic energy resources like natural gas.

He also said his group is prepared to invest and sustain the development and production of domestic gas, as long as the terms of the operating license and the natural resources permit.

The next Energy Secretary

Another crucial point is who will be the next Energy Secretary. He or she must be competent and incorruptible and one with no vested interest.

Oil and gas prices

If these issues will be handled well, as I said, Razon would be making a good bet.

As with his other acquisitions, Razon’s timing is impeccable.

For one, oil and gas prices – which track each other – have been going up, making his entry into Malampaya viable.

Here’s a picture of natural gas prices across the globe. “The war in Ukraine and resulting concerns about global energy security have driven up commodity prices worldwide. But where the price of oil is up about 85 percent year-over-year, natural gas is up more than 200 percent,” according to the Natural Observer in a May 30 article.

Banks would be more than happy to finance the deal because Malampaya was already “self-financing” even when oil and gas prices were less than half of today’s prices.

And in a world that is trying to reduce the use of coal, natural gas, along with renewables, is the way to go.

Energy Secretary Alfonso Cusi said Razon’s entry is a positive development not only for the Malampaya consortium, but also for the power sector.

Does this mean he would ensure the immediate and urgent development of Malampaya given depleting reserves?

For the sake of our energy supply, I certainly hope so. The existing natural gas power plants in the country can only use condensate – equivalent to natural gas – for a limited period. If Malampaya shuts down – with no alternative – we will be facing power interruptions.

But if Razon’s Prime Infra indeed gets into Malampaya and gets the contract extension, the new contract should be crafted in a way that it is beneficial to all stakeholders, especially to the Filipino people.

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