The Malampaya gas field deal forged by Udenna Corp. and the government will give the Dennis Uy-owned company billions of pesos worth of state assets, with the Filipino people shouldering losses. This should qualify as the nation's biggest scam, say Ombudsman petitioners.
NO SCAM in recent history could match the deal between Udenna Corporation and Malampaya service contractors—Shell and Chevron Philippines—which are now being sued before the Ombudsman for violation of graft and corrupt practices law and government negligence.
The Philippine National Oil Co., a member of the service consortium, and the Department of Energy (DOE), the regulatory body, are blamed for negligence under Presidential Decree 87 which mandates the requirement of “prior approval.”
Curiously, the common factor in this anomalous transaction is Energy Secretary Alfonso Cusi—both as regulator and as chairman of the PNOC-Exploration Company. As regulator, DoE should have stopped the “wholesale” transaction between Chevron (with Shell forced to acquiesce in the all- or- nothing- deal) and presidential campaign funder, Dennis Uy’s Udenna Corporation, had the deal abide by the provision of PD 87 on “prior approval.”
Cusi, in previous hearings at the Senate, said the deal is purely private transaction. Cusi also claimed that Chevron did not offer its shares to PNOC-EC, which clearly violates the statutes on service contracts, explained geologist Eduardo Manalac, in a radio interview.
A party to a service contract (Chevron) must first inform the government (DoE) of its intention to end the deal so that government can either take over (on behalf of the state, the rightful owner of the project) or offer it through public bidding to companies with financial, operational, technical and legal expertise, Manalac said adding that a Chevron official claimed (in a recent Senate hearing) this was not necessary.
The service contract was signed in mid- 1990s up to 2024 or during the terms of Presidents Cory, Fidel Ramos and Gloria Macapagal Arroyo, who inaugurated it. “So much time and money were sunk into it. The Malampaya field is not part of the disputed area with China.
Named respondents to the case are 26 personalities (from Chevron, Shell, PNOC-EC, DoE) which is why since its filing last October 18 before the Ombudsman, there is yet no notice of hearing. Taking the cudgels for the Filipino people are geologists Balgamel de Belen Domingo and two FilAm lawyers Loida Nicolas Lewis and Rodel Rodis with former president/CEO of PNOC Undersecretary of Department of Energy (another geologist) Eduardo Manalac.
Manalac identified the pertinent points in the case as: 1) the process (under PD 86) of prior approval was not followed (including even bidding out the project if government did not really want to get back the 90 percent shares of Shell and Chevron) and 2) the contract was given (without public notice and bidding) to a ‘non-qualified service contractor (technically and financially with UC Malampaya having only a capitalization of $100 or P5,000).
Chevron apparently acted in bad faith since “Hinain ni Chevron sometime in November sa PNOC-EC kasi nagpirmahan sila ni Udenna nung October pa. So it was presented to the partners in November. But in December 2019, Cusi said he would match the offer of Udenna only on the proportionate share of 10 percent held by PNOC-EC. After that nothing was heard from the deal,” Manalac said.
Since PNOC was willing to match only up to 10 percent in proportionate share, Shell did not accept the offer so PNOC was bound to match the entire 45 percent Chevron share. The deal was all or nothing. Hindi kumibo si Cusi until around February or May when he said he would not get the entire 45 percent share of Chevron due to the COVID-19 pandemic. They just had to match the offer of Udenna at $575 million, he said.
Cusi had a second chance to negate the deal between Chevron and Udenna, taking the position as government taking over Chevron. If Chevron really left, the government could have taken over for free since it had been paying (40 percent of net profits in cash from the sale of gas from Malampaya) the contractors their percent of revenues from Malampaya operations for 20 years.
Shell and Chevron invested $4.5 billion, which had been paid several times more by the government from the gas operations. DoE had the chance on prior approval but missed. Dapat ipina-bid out to qualified parties yung Chevron ng DoE para kumite ang government. He asked, so sino ang kumita?
He said up to now, DoE is hard-pressed to justify why it did not vet Udenna’s financial, technical and legal capabilities. “There was no evaluation at all. Some of the reasons it cites is binili lang ang kumpanya.” But if the former company left, there must be transfer of rights and responsibilities, that include the escrow funds to be maintained so that when the productive life of the wells expire, they will pay for the removal of pipeline, platform and other peripherals. Where and how much are these funds now?
Manalac also said that after 3 hearings over one and a half years, Uy can’t even submit papers proving they have financial and technical capability. In the hearings they openly admitted they don’t have exploration and production experience. Also, after 1.5 years, the financials they present are unaudited and unsigned, which led Senator Nancy Binay to ask DoE why it accepted the deal.
Another senator, Sherwin Gatchalian, said the government should not have recognized the deal with Udenna because it was done without prior approval and neither was the sale cleared with the government hence the contract should be voided.
Malampaya’s importance
Malampaya gas field supplies gas that powers up to 3,000 megawatts of the generation plants of FirstGen of the Lopez group and San Miguel in Ilijan, Batangas. This is so because the pipeline from the platform on the West Philippine Sea (considered the deepest gas field in the world) all lead to the Batangas plants.
Malampaya supplies 25 percent of the Luzon generating capacity benefitting 4 million households or 16 to 20 million people. The supply contract with Malampaya will end in 2024 for FirstGen and 2022 for Ilijan.
Malampaya gas field cost $4.5 billion. It is a major project, which includes all the exploration and development of five wells, plus the platform at 800 plus meters water depth or almost a kilometer down to reach the soil below and then drill another 3 plus kms. down to get to the gas reservoir. The pipe is about 4 kms., a technological feat and the technology was supplied by Chevron and Shell.
Once the gas is siphoned from 3 kms down the seabed, it goes all the way to a long pipeline in Batangas. But first it goes to the platform located in shallower waters. The wells are deep down. From the platform there is a 500 km., 24- inch pipeline that takes the gas to Batangas.
The crew operating and maintaining it had been trained by Shell (operator) but the technology comes from their home office (regional office where the engineers, researchers, and others help out if there is a problem). Workers are mostly Filipinos as stipulated in the contract. The owner of the pipeline, platform and the suction pump is the government of the Philippines. Shell and Chevron are just service providers. The place had been issued a service contract by the government.
All oil and gas is owned by the state. The service contract does not bequeath ownership to the contractor but to the state at 60 (government) and 40 (contractors) sharing agreement.
Losses to govt. with Udenna deal
The service contract is up to 2024 but Malampaya still has gas for at least three more years. That is why Udenna is asking for an extension of the contract for another 16 years.
Chevron and Shell have been asking for an extension since 2017 because they will drill to find new reserves, but Cusi has not been giving it. “Was it all planned for Udenna?” Manalac asked.
What was lost in this deal? Two things, if DoE took over 90 percent plus the PNOC share of 10 percent, the 90 percent share (Chevron and Shell) would have fetched yearly revenues of P18 billion per 45 percent share of the partners so in three years that could have fetched P138 billion for government.
If Cusi reasoned that he had no money to buy out Chevron and Shell shares, the government could have borrowed and paid interest. It could have paid the loan and interest through the sale of gas and stood to earn P42 billion in three years.
Now all this goes to Uy and not to the Filipino people, who rightfully own the gas field and its operations through the government, Manalac said.v