[OPINION] Malampaya’s over P48 million a day take 1

[OPINION] Malampaya’s over P48 million a day take

Dean Dela Paz

Posted at Jan 14 2022 12:35 AM

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When it was reported by the Chief Executive Officer of the government entity owning 10% stake in the billion dollar Malampaya offshore gas field project that they would not be granting consent to the divestment of a second 45% stake to the same group that purchased the first 45% in 2020, only the arithmetic changed. The charges of criminal graft and corruption filed against officials and others in the original sale remain.

Compared to the millions malversed and spirited to a small purchasing office within the bowels of the Department of the Budget and Management, Malampaya involves exponential billions channeled straight to a start-up, technically ill-qualified and inexperienced save for a lengthening string of million-peso affiliations mostly under the Duterte administration. 

Both would not have been possible had not powers been funneled, quickly enriching, and earning for the entitled billions that could have gone to far better uses during a crisis. Where Pharmally involved minions, and aides of minions as well as foreign nationals wanted for securities fraud, Malampaya, in a petition before the Ombudsman, implicates a former general, presidential appointees, billionaires and a foreign-pedigreed oil company. These are neither krill nor fingerlings. These are Kraken.

The Malampaya controversy however requires simplification. Its economic impacts are multidimensional, its labyrinthine relationships, a web of proxies.

But rather than on the accused, let us focus on the arithmetic. Simplified, let the math flesh out and reduce the complexity into its simplest. The calculus is ours albeit our bases are testimony, official records, transcripts and sworn statements.

In 2019, the combined revenues of Malampaya’s foreign affiliated service contractors sans the Philippine National Oil Corporation - Exploration Corp. totaled P45.36 billion. This fell to P32.47 billion in 2020. As gas prices are indexed to global oil prices, applying 2021’s headline inflation rate of 4.9%, P32.47 billion rose to P34.06 billion, or P17.04 billion for the 45% of the first contractor that divested. As energy demand gradually increases, allow us a 5% increment to ratchet that up to P18 billion.

On the cost side, the 45% seller was paid $565 million due March 2020. From PNOC testimony, we know over $375 million was borrowed from external creditors. Let us compute for the present value of the interest cost and net that out. At a 4% prime rate for 4.5 years, interest cost would be $72.38 million.

Following discounted cash flow protocols, the costs of purchasing are netted out at year zero. One such cost involves the six-month pre-approval revenue entitlement accrued by the purchaser from the seller’s balance sheet amounting to $157 million. Accrued from the seller, these should not require actual cash outflows but simply accounting entries.

Another cost involves P30 billion accounts payable (AR) from banked gas due PNOC from the contractors. At P50 to the dollar, this costs $600 million. AR are considered current assets in a balance sheet. These can be monetized. If sold to the same buyer of the 45% interest, then again, it should not form part of the cash outflows but merely treated as an accounting entry.

Consequently, to derive the normal yearly average revenues, subtract the $157 million pre-closing entitlements and the $600 million one-time deal. This totals $123.23 million yearly or $554,535,000 for 4.5 years from the sale before the contracts end in 2024. In pesos, the equivalent is P27,726,750,000 yearly.

On a daily basis the take for 45% share averages from P38.00 million to over P50 million net of the six-month entitlement and banked gas values. Add back the entitlement and the loss to us increases to P48.74 million. On a normal year, our daily loss, albeit the gain of the start-up, well exceeds P50 million.

Simplified, over P48.74 million are placed in the hands of a single start-up every day. Quod erat demonstrandum, Pharmally was nothing but popcorn and peanuts.

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(Dean dela Paz is a former investment banker and a managing director of a New Jersey-based power company operating in the Philippines. He is the chairman of the board of a renewable energy company and is a retired Business Policy, Finance and Mathematics professor.)

Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.