[OPINION] Malampaya’s corporate decapitation 1

[OPINION] Malampaya’s corporate decapitation

Dean Dela Paz

Posted at Dec 02 2021 03:06 AM

Many by now know who the former entities were that comprised the consortium of qualified and pedigreed service contractors behind the invaluable Malampaya gas field that contributes greatly not simply to Philippine energy security but substantially mitigates much of the devastating impacts of global run-away petroleum prices and cost-push inflation inflicted throughout our economic value chain.

So critical were the control of these offshore deep-water gas fields that as much as 40% of the energy required for Luzon depended on hydrocarbons extracted, processed, and piped from the high seas to at least five power plants that sustain our economy. In the whole of Asia, Malampaya was known as a $4.5 billion engineering marvel. It is the first locally-designed and Filipino-built oil and gas platform. And it established us among builders in the oil and gas industry.

All assets and control were in Filipino hands while we contracted to two of the most experienced, technically skilled, and most financially muscled oil companies on the planet.

The current Malampaya scandal not only highlights those lost attributes but likewise reveals how our infernal descent into cronyism and corruption worsened by our propensity to install in critical positions incompetents, former generals and political operators, squander hard-earned gains and tarnish our global reputation as developers of oil and gas infrastructure. 

In this unfolding theft of billions that could have gone to fortifying our public health systems and general welfare instead of enriching a singular corporate entity, we have seen where statutorily demanded requisites of technical competence and financial wherewithal have been brazenly violated. Our officials skirted vital prior approval protocols, and through colossal dereliction, enabled a negatively capitalized, unqualified start-up of a parent company buried deep in debt and shorn of any relevant experience.

Add to the toxic brew legal requisites where the start-up lacks affiliate equity demanded by law.

At the very top of the consortium as originally envisioned were global oil titans then among the legendary “Seven Sisters’’. At the head was Royal Dutch Shell with a direct umbilical to its Malampaya domestic developer and service contractor Shell Philippines Exploration B.V. (SPEX). SPEX is in partnership with Chevron Malampaya LLC whose parent corporation is Chevron Corporation. Both partnered with the Philippine National Oil Corporation-Exploration Corporation to form a tripartite consortium under a Joint Operating Agreement covering a specific submarine block off Palawan.

Service Contract 38 (SC 38) is located northwest off Palawan. It covers 830 square kilometers or five times the area of Quezon City. When awarded, SC 38 incorporated in its Section 16.4 the provisions of Section 11 of Presidential Decree No. 87 (PD 87) which limit the transfer of rights and obligations, thus requiring an affiliate voting relationship between the original transferor, in this case Chevron, holding at least 50% of the service contractor’s outstanding shares. This ensures the “transferee is as qualified as the transferor.”

Note two legal requisites. One, an affiliate relationship with the original transferor must remain. Two, that affiliate relationship is based on equity of ‘’at least fifty percent (50%) of the contractor’s outstanding shares’’.

Now analyze the Chevron sell-out. The effective divestment from the consortium totally severs the affiliate relationship between Chevron Corporation at the top and the local service contractor below. With the decapitation, the minimum 50% ownership between Chevron as the original transferor and the contractor falls to zero thus rendering the transfer illegal.

Watch more on iWantTFC

(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.