MANILA – Uncertainties about government contracts and the fate of fiscal incentives for oil and gas contractors are hounding the country’s oil exploration industry.
The upstream industry has been in a steady decline in terms of exploration activities since 2010, Lorelei Quiambao Osial, Shell Philippines Exploration B.V.’s chief financial officer, said Thursday at Energy Smart Philippines 2018 summit in Parañaque City.
Osial noted the decline in global oil prices in 2014 to 2017 and geopolitical issues in the disputed West Philippine Seas capped new drilling activities.
But the “real issue” facing the industry is the “interpretation” of government service contracts, particularly the longstanding tax deficiency case of the Commission on Audit against the Malampaya consortium, she said.
The case is about the government’s share in earnings of the project.
In 2009, the commission slapped the Malampaya consortium with a P53.4-billion tax deficiency case.
The consortium consists of Shell Philippines Exploration, Chevron Malampaya LLC, and Philippine National Oil Co.-Exploration Corp.
Another pressing issue is related to concerns about the second tax reform package, which seeks to rationalize fiscal incentives given to various sectors.
There are provisions in the proposed tax reform measure which threaten to remove the fiscal perks enjoyed by oil and gas contractors, Osial noted.
“Those issues are basically something that will need to be addressed before the upstream industry can actually move forward,” she said.
The second package of the comprehensive tax reform program seeks to reduce the corporate income tax rates and rationalize fiscal incentives, according to the Department of Finance.
The Duterte administration wants to repeal 123 laws and consolidate them into one omnibus incentive code.
The Marcos-era Presidential Decree No. 87 details the privileges of oil and gas contractors in the Philippines, particularly Section 12 on exemption from all taxes – except the income tax – tariff duties, and compensating levy on importation of machinery and equipment. (GMA News)
