(Press Release) — A criminal complaint against Energy Secretary Alfonso Cusi, businessman Dennis Uy, Chevron Philippines officials, and several others was filed with the Office of the Ombudsman over alleged anomalies in the Malampaya project leading to a minimum of over 21 to 42 billion pesos or $413 million to $826 million in total losses to the Philippine government.
The complainants — Balgamel de Belen Domingo, Rodel Rodis, and Loida Nicolas Lewis — assert that they are “concerned citizens who advocate for the Filipino people’s right to energy security, which includes the Malampaya Deep Water Gas-to-Power Project, a major energy source which delivers a fifth of the country’s rapidly growing electricity needs.”
In a 48-page complaint for violation of Republic Act 3019 or the Anti-Graft and Corrupt Practices Act, they alleged that Cusi and other respondents conspired to give unwarranted benefits and advantage to Uy’s Udenna Corporation and its subsidiary, UC Malampaya, in the sale of Chevron’s share and transfer of rights in the Malampaya Project, “thereby causing undue injury to the Government.”
Also included in the complaint are officials of Shell Philippines Exploration or SPEX which, a Philippine Senate testimony revealed, plans to exit the country and was negotiating a deal with Udenna early last year. Aside from Cusi, who is also the ex-officio chairman of the Board of Directors of the PNOC Exploration Corporation or PNOC-EC, also named respondent was retired Gen. Rozzano Briguez, PNOC-EC president and CEO.
The government’s monetary losses from the Chevron sale to Udenna is estimated at $413 million, based on the average 45% gross share of Chevron, as member of the Malampaya consortium, for the years 2018, 2019, and 2020, the complaint said.
The gross monetary losses could double to $826 million a year if combined with the SPEX deal with Udenna.
The complaint alleged that Cusi “acted with gross inexcusable negligence and for personal gain” when he “facilitated the effective transfer of Chevron’s rights and obligations, as well as its 45% participating share, to Udenna despite knowledge that the transaction had no prior approval from the Department of Energy, and without ascertaining Udenna and UC Malampaya’s legal, technical and financial qualifications to perform Chevron Malampaya’s obligations.”
The complainants said the sale ensued despite an admission in a Senate committee hearing in July that “Udenna has no experience in the exploration, extraction and production of any oil or gas reservoir in the Philippines or outside of the Philippines, and holds no service contract in or outside of the Philippines.”
They complainants cited the finding of the Senate energy committee that Udenna “did not shell out a single” cent in its questionable purchase of Chevron’s Malampaya shares amounting to $565 million.
According to the complaint, Udenna’s transaction could not have been consummated with Chevron “without: (a) external financing amounting to $375 million from the NZB Group (New Zealand Banking Group in Australia) and the ING Bank (of Singapore); (b) its net entitlement of $157 million [in] the proceeds of Chevron’s 45% interest from the Malampaya Project as partial payment of the purchase price; and (c) increase of Udenna’s capital stock amounting to $33 million, which was not yet issued and subscribed.”
The questionable transaction, the complainants said, violates Malampaya’s service contract executed pursuant to Presidential Decree No. 87 which requires prior approval of the Department of Energy or DOE in the transfer and assignment of contractual rights and obligations.
“From the time Chevron and UC Malampaya executed the sale on 30 April 2019 until its closing on 11 March 2020, no approval from the DOE was secured or obtained. In fact, UC Malampaya was incorporated only on September 1, 2019, and yet it already ‘entered into the subject transaction’ on April 30, 2019. On this score alone, the transaction is considered as illegal, and thus, null and void,” the complaint stated.
It added that Cusi had acknowledged that purchasing Chevron’s share is an opportunity for the Philippine government to invest and “the return will be good” especially because the proceeds of the 45% gross share of Chevron, amounting to $157 million, form part of the payment of the purchase price.
But despite anticipated good returns on investment in Chevron’s Malampaya shares, the Philippine government did not exercise its right to match Udenna’s offer “for reasons only known to Sec. Cusi… and other respondent public officers,” the complainants said.
“The Government, through the PNOC-EC, should have matched the same and accessed the required equity and debt by leveraging on either or both the Government’s 60% share of the operating revenues and/or the PNOC-EC’s 10% share out of the 40% of the overall operating revenue…. No cash outflow would have been required from the PNOC-EC given that its superior balance sheet, including the concession’s existing fixed assets, such as platform, production wells, pipeline, valued at an acquisition cost of over $4.5 billion, carries more than enough equity value to comply with the creditors’ debt-to-equity requirements,” the complainants said.
“This very profitable opportunity was squandered due to not properly exercising the right of first refusal prior to the closing of the sale transaction,” they said. “This certainly is a lost opportunity of PNOC-EC and/or the Bureau of Treasury that currently struggles with raising revenues in the past months to address the country’s widening budget deficit to fund the unpaid frontline healthcare manpower, additional hospital facilities and supplies, and much delayed vaccine deliveries due to the ravaging pandemic.”
“Assuming that due to the negative effects of the Covid-19 pandemic on the Philippine gross domestic product, a very conservative 10% discount is applied on Chevron’s average annual revenue performance equivalent to 18 billion pesos [or $354 million] per year for the next three years ending on the contract’s expiry date by December 2024, the consolidated potential losses to the Government and its designated instrumentality amount to 54 billion pesos [or $1.06 billion]. Even after deducting the whole $565 million acquisition cost representing the equity and loan availed plus, say 5% per year, cost of debt or equivalent to over 32 billion pesos [or $630 million], the net monetary losses to the Government and its designated instrumentality translate to at least over 21 billion pesos [$413 million], or if and when combined with the impending SPEX sale transaction, an overall sum of 42 billion pesos [$826 million],” the complaint stated.
It added that Cusi reneged on his duty and committed gross inexcusable negligence when he failed to intervene in the transaction of Chevron and Udenna which was done without the energy department’s prior approval, and when he failed to exercise the government’s right to purchase Chevron’s Malampaya shares.
On the liability of SPEX, the complaint said a Senate testimony which revealed it plans to leave the Philippines and was negotiating a deal with Udenna “is proof that SPEX, as the designated Operator of the Contractor Consortium in the Service Contract, knew or ought to have known and was notified of Respondent Chevron’s transfer and assignment of its rights and obligation to Respondent Udenna.”
Other respondents include Lourdes Gelacio, PNOC-EC former OIC and CEO; PNOC-EC directors Carlo Magno Aldevera, Farah Cañezal, Alejandro Cobol, Oscar Rabena, Johnny Tuason, Karl Ignatius Young, Avelino Tayag, Albert Dela Cruz; and Udenna directors Cherylyn Uy, Henry Albert Fadullon, Chryss Alfonsus Damuy, Ignacia Braga IV, Leandro Abarquez, Ma. Concepcion de Claro, Wilfredo Placino, Raymundo Martin Escalona.
Also named respondents were Chevron Philippines Inc, chairman and president Billy Liu, vice president Modesto Vergel de Dios, and treasurer Maria Emma Ruiz; Chevron Malampaya president Melinda Racela; Shell Philippines Exploration managing directors Rolando Paulino Jr. and Paul Michael Nugent; Raouf Kizilbash, managing director and owner of UC Malampaya Philippines Ltd.; and several John and Jane Does.
Malampaya is a deep-water gas field located in the West Philippine Sea (South China Sea) approximately 50 kms northwest of the Philippine island of Palawan.
