Rising energy player

Last May, President Marcos signed an agreement that would extend by 15 more years or until 2039 the service contract with the consortium operating the Malampaya gas field as the current 25-year contract is set to expire in February 2024.

According to the Department of Energy, this will allow for the continued production of the Malampaya gas field to ensure that the remaining gas reserves are explored and utilized

The Malampaya consortium is composed of Prime Energy Resources Development BV, a subsidiary of Prima Infrastructure Capital, which has a 45 percent stake, while Philippine National Oil Co. (PNOC) and UC8 LLC of the Udenna Group of businessman Dennis Uy have a 10 percent and 45 percent stake, respectively.

The Malampaya gas field located off Palawan is crucial to the energy sector since it is the country’s only indigenous commercial source of natural gas. It supplies over 20 percent of the electricity requirements of the Luzon grid. Unfortunately, it is expected to be commercially depleted by 2027.

Prime Infra chairman Enrique Razon said the agreement is a significant development for the country’s energy security and independence. He added that the Malampaya asset will continue what it has started in operating this world-class installation for further exploration and utilization of the country’s remaining gas reserves, as well as open up the other potential near field areas for future production.

According to the DOE, extending Service Contract 38 allows full production of the Malampaya field through full utilization of its remaining gas reserves of about 147 billion cubic feet aside from the fact that it will jumpstart the exploration and development of other fields in the area believed to hold up to 210 billion cubic feet more of natural gas.

The Malampaya gas field continued operations by an all-Filipino team that showed it was not only skillful in running the energy facilities, but did so at a level not seen in the gas field’s 20-year history.

In July of 2022, Razon-led Prime Exploration formalized its purchase of Malampaya Energy XP which had acquired the 45 percent stake of Shell Philippines Exploration BV in SC 38. This resulted in an all-Filipino consortium operating the Malampaya deepwater gas-to-power project, the largest upstream petroleum operations in the country. MEXP is a subsidiary of Prime Infra.

The one-year-old Prime Energy has shown that despite its youth, it has been able to work seamlessly and efficiently with its Malampaya partners UC38 and PNOC.

Malampaya’s record is in itself a display window of Filipino excellence.

For 22 years, it has been successfully implementing its Goal Zero campaign of no accidents and leaks across all Malampaya operations. This, Prime Energy officials said, has served as a continuing reminder of how they should conduct their business.

Prime Energy’s reliability may also be the reason why more foreign companies want to partner with it. In partnership with Abu Dhabi National Oil Co., the Italian firm Eni SpA and the Austrian government, Prime Energy will bring condensate for production at the Malampaya facilities.

Meanwhile, Prime Energy is also doing its share to help the environment when it donated oil spill cleanup materials and food for volunteers and villagers affected by the recent Mindoro oil spill accident.

Vape smuggling continues

Here is another situation that would show that imposing too much taxes on legitimate businesses only encourages smuggling.

While the government has been imposing increasing amounts of excise taxes on e-cigarettes, illicit trade involving vapor nicotine and non-nicotine products has been on the rise.

Last October, the Bureau of Customs raided a warehouse located in Valenzuela City storing 14,000 illegally imported boxes containing around 1.4 million pieces of 10 ml disposable e-cigarettes marked with Flava labels valued at almost P700 million and P728 million in taxes.

Meanwhile, the House committee on ways and means is preparing a report that would recommend the filing of criminal charges against technical smugglers of e-cigarettes.

This was after the committee received reports that certain products being sold in the market contain higher nicotine content than their formally registered amount. Among these e-cigarettes are Flava products and Chillax whose product labels and registration declare only freebase nicotine. However, third-party tests revealed that these products also contain nicotine salts and benzoic acid. Excise tax rates for freebase nicotine and nicotine salt are at P60 per 10 ml and P52 per one ml, respectively.

The issue involves two Filipino-owned e-cigarette companies, Flava which distributes 78 brands of e-cigarettes, and Denkat which is considered as the oldest and biggest vape distributor in the Philippines owned by a certain Dennis Rostata.

Other personalities and entities were also named during the two committee hearings. The House committee learned that the raided warehouse where the confiscated Flava products were stored is leased to Reynald Llanto, CEO of vape company Hyperbar. Flava and Hyperbar collaborated for the Flava x Hyperbar vape product which is one of those vape products tested to contain undeclared nicotine salts, per the independent report.

Meanwhile, the confiscated e-cigarettes are manufactured by Shenzhen Maoanda Technology Co., a manufacturer based in mainland China.

Albay Rep. Joey Salceda noted in a report that 80 percent of revenues from vape sin taxes is spent for universal health care and government hospitals and therefore tax evasion involving these products “is stealing from our hospitals and our sick.”

In this regard, the evaded excise taxes for P728 million could have covered a significant part of the P10-billion budget cut for the Department of Health for 2024.

Aside from foregone revenues for the government, illegal importation of e-cigarettes is dangerous since these there is no assurance about their quality and compliance to health standards as they might contain dangerous substances and toxic ingredients.

However, illegal importation and tax evasion are not the only problems Flava might be facing. During a congressional hearing, Rep. Rodante Marcoleta cited the absence of government health warnings in Flava products, store and events as well as other possible violations of Republic Act 11900 or the law that regulates the importation, sale, distribution of vape products, including selling to minors.

Equally disturbing though are reports that after vape distributors and retailers have complained about Flava’s delayed delivery of the e-cigarettes they ordered due to the October 2023 warehouse raid, Flava all of a sudden was able to deliver these products to the concerned retailers. If Flava has not been able to pay the right taxes, then why was it allowed to import again?

Government’s failure to disincentivize and end smuggling is penalizing legitimate businesses paying the right taxes even if that means that their prices will be higher than those not paying the correct taxes or not paying taxes and import duties at all.

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