May 22, 2018, 4:42 am
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Malampaya consortium should pay P146.8B: COA

THE Commission on Audit has junked the appeal filed by the Solicitor General and the Department of Energy seeking to excuse the Malampaya consortium from paying P146.791 billion as the country’s share in the Malampaya Natural Gas Project (MNGC) from 2003 to 2016.

In a 15-page decision dated January 24, 2018 but only released last May 15, the COA Commission Proper affirmed its April 6, 2015 ruling that ordered Shell Philippines Exploration B.V. (SPEX), Chevron Malampaya LLC, and Philippine National Oil Company-Exploration Corp. (PNOC-EC) to repay the full amount representing the contractors’ income taxes that was passed on to the government for the past 14 years.

COA Commissioners Jose A. Fabia and Isabel Agito said the contractors’ income taxes were charged against the State’s 60 percent share while the consortium’s 40 percent slice was paid in full. Commission chairman Michael Aguinaldo inhibited from the proceedings.

The COA said the arrangement was in violation of Presidential Decree Nos. 87 and 1459 setting the government’s portion of the proceeds at a minimum 60 percent of the net earnings of Malampaya gas project.

Separate motions for reconsideration were filed by the DOE, SPEX and Chevron on June 18, 2015 and by PNOC-EC on June 30, 2015. While all MRs were filed beyond the deadline set, the COA decided to give them due course “in the interest of justice.”

The DOE contested the ruling as an undue interference by the COA, assailing the audit body for having “overstepped and exceeded the legal bounds” of its authority.

According to the DOE, the discretionary powers of the DOE and the (Office of the) President were violated by the COA when it tried to substitute its judgment in the setting of the 60 percent share of the government.

It claimed that no law bars the inclusion of all taxes to be paid by the contractor in the computation of the government’s share as what was done in Service Contract (SC) No. 38.

The department claimed the COA’s notice of charge ordering repayment of under-collections would result in a violation of the principle of non-impairment of contractual obligations and cause “irreparable harm to the country’s long-term interest” by eroding the confidence of foreign investors.

On September 18, 2017, the Office of the Solicitor General informed the COA that it is appearing as counsel for the DOE. The following day, Energy Secretary Alfonso Cusi informed the COA that the department is reiterating and adopting the MR filed by his predecessor.


In a memorandum to the COA, the OSG argued that the notice of charge should be reversed at it insisted that the pass-on of income tax against the government share under Service Contract No. 38 was a “valid and lawful contractual undertaking of the government.”

It added that “it is the policy of the administration of President Rodrigo Duterte to honor the government’s contractual obligation under the same service contract.

The Malampaya consortium members challenged the COA ruling, saying auditors were wrong in saying that passing on the tax to the government amounted to a tax exemption. Instead, they called it a “tax-assumption.”

They likewise invoked the principle of estoppel, claiming that the enforcement of the COA’s notice of charge is already barred by prescription due to the lapse of the 10-year prescriptive period because the Service Contract was signed in 1990 but auditors questioned it only in 2004.
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