Malampaya gas royalty can’t be spent until 2009
Thursday, December 07, 2006
By MYRNA M. VELASCO
In the wake of proposals to scrap royalty of natural gas fuels to bring down cost of electricity, Energy Secretary Raphael P.M. Lotilla has set the record straight that the royalty shares remitted to national government cannot be touched until year 2009.
He, however, indicated that it would be prudent to consider reviewing the royalty sharing scheme for natural gas development projects, to see if they fare well as compared to neighboring countries within the Southeast Asian region.
"We will take a look at that very closely," the energy chief noted, though he emphasized that the Philippines has a more generous royalty sharing arrangement as compared to the incentives being extended by ASEAN neighbors.
"For purposes of comparison, the overall royalties in the country is more generous than other countries in the ASEAN region, but nevertheless, we will continue to look at the numbers and we will have to relay that with the Department of Finance," Lotilla emphasized.
The energy chief pointed out that the royalty share of government from the Malampaya gas field, is in part banked and aligned to support state-owned National Power Corporation’s (NPC) offtake arrangement with gas seller Shell Philippines Exploration B.V., especially in case of a shortfall, until year 2009.
There can be two scenarios that will happen with the natural gas royalties, he said. That would be either to reduce the share of the national government so as to incentivize investors in oil and gas upstream ventures; or the amount collected will be used for some socio-economic enabling policies, such as reduction in electricity rates.
The energy czar disclosed he already made initial presentation in the Cabinet on that concern, but all these, he emphasized shall be reconciled and set parallel with the revenue collections target of the finance department.
Another area that is worth studying, especially for the inflow of future downstream businesses in natural gas industry (such as the power plants using the fuel), would be the pricing simulations adhered to by the first wave of gas buyers NPC and First Gas Power Corporation.
"We understand that those were business decisions then, but we also want to look into the formulas on how these were packaged," he stressed.
It was calculated that the government will stand to lose $ 637-million (over P30 billion) revenues annually with the scrapping of the Malampaya gas royalty.
Presidential Decree 87 is the enabling law that provides government 60 percent royalty share from natural gas development projects.
The royalty cut proposal was put forward by First Gen Corporation president Federico R. Lopez as he noted this will help bring down power rates of Manila Electric Company (Meralco) by P1.79 per kilowatt hour.
"We are proposing that the royalties be taken out which will require amending the PD," he said.
He noted that since Meralco gets a big chunk of its power supply from power plants run by Malampaya-sourced natural gas, its customers would be able to benefit from the royalty scrapping.
Lopez said he is aware that the government will lose revenues from the royalty phaseout, but he proposed that this be offset from on-going value added tax (VAT) collections.
The Electric Power Industry Reform Act (EPIRA) has in fact provided for the equalization of taxes of fuels used for power generation, but this is revenueneutral for the government.
Until now, however, the Department of Finance (DoF) has not inched further in pushing for its implementation due to some remaining concerns. Section 35 of the EPIRA provides that the President shall reduce the royalties, returns and taxes collected for the exploitation of all indigenous sources of energy.
This will primarily cover natural gas and geothermal steam to effect parity of tax treatments with imported fuels such as coal, crude oil and bunker fuel.
posted by philpower @ 8:25 AM,
