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NEWS UPDATES Asean Affairs        20 January 2011

Philippines wants more fuel discovery incentives

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The Philippines Department of Energy (DOE) is pushing for legislation that will rationalize and provide additional incentives to oil and gas exploration in the country. Undersecretary Jay Layug said the proposed bill would help attract investments in the upstream petroleum industry.

"This year, what we plan to do is to pass an exploration bill to be a law, which will serve to address all the issues and provide more incentives to exploration companies," he said.

The proposed law seeks to improve upon the Oil and Gas Exploration Act of 1972 or Presidential Decree (PD) 87. Under the said law, oil exploration firms are exempted from all taxes except on profits.

They are also allowed to recover up to 70 percent of their cost of production with the balance going to public coffers. Once they recover their expenses, the revenue sharing shifts to a 60:40 split in favor of the government.

"PD 87 is an antiquated law. It should be better, at all, in the sense that it will be a win-win situation for both the investors and government," Layug said.

He said the DOE already identified several models for production sharing, which could "enhance" current policies without impairing existing service contracts.

"We hope to submit it by next month," he added.

Earlier, the Commission on Audit (COA) questioned the DOE's revenue sharing agreement with petroleum contractors.

COA cited the Malampaya consortium led by Shell Philippines Exploration B.V., pointing out that the company should not have been allowed to deduct its corporate income tax of roughly P53 billion for the period 2003 to 2009, from government's 60-percent share in the gas field's revenues.

Because of the standoff between DOE and COA, the bidding for oil and gas contracts scheduled for last December was canceled.

"We're still hoping to come to a resolution. We are engaging COA in discussions right now," DOE Secretary Jose Rene Almendras earlier said.

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