The Use and Abuse of Malampaya

Since the infamous reign of the Marcos “conjugal dictatorship,” corruption, of the scale that alarmed even international anti-graft bodies, continued to sully the image of the Philippines. But few enterprises matched the avarice and brazenness that attended the controversial Malampaya Fund.  In this illuminating essay, Carlos Isagani T. Zarate explains the legal aspects of the controversial project, and argues why change must come sooner, and not later, for the Filipino people.


A Resurgent Exclusive

In November 19, 2013, the Supreme Court issued one of its most wide-ranging and most welcomed anti-corruption ruling: declaring the pork barrel system, both the congressional and presidential ones, as unconstitutional.  

The  Belgica versus Ochoa (G.R. 208566) case is now the doctrinal ruling that hounds many who “voraciously partake of the pork”, particularly the so-called congressional pork barrel now officially deleted from general appropriation’s act (GAA), the Priority Development Assistance Fund (PDAF).

However, the Belgica ruling is not only about the congressional pork; in fact, it was also about the  abuse of the even bigger “presidential pork”, like the  so-called off –budget accounts, like the Malampaya funds.   

In the same case, the High Court ruled the use of the Malampaya funds by the previous administrations as unconstitutional because “the Executive department has, in fact, used the Malampaya Funds for non-energy related purposes”, contrary to the avowed purposes  and intentions of Presidential Decree 910, the Marcosian edict that governs the use of the fund.

The Malampaya Contract covering the gas field off the Palawan shores, from which the fund is created, has long been criticized as a “disadvantageous agreement between the Philippine Government and the big oil companies represented by Shell and Chevron. In June 2012, during a privilege speech, then Bayan Muna Rep. Neri J. Colmenares exposed the anomalies in this onerous contract, which in essence defrauded the government in terms of profit sharing.  Rep. Colmenares claimed that the contract practically favors Shell and Chevron at the expenses of the Filipino people.  

The Malampaya gas field is a natural gas field located in the West Philippine Sea. Discovered in 1992, it is now  being operated by Shell Philippines Exploration B.V. Royal Dutch Shell, in partnership  with Chevron Corporation and Philippine National Oil Company Exploration Corporation. The field began production in 2001 and produces natural gas and natural gas condensate. It has total proven reserves of around 3.7 trillion cubic feet (105 billion m³).

Yet, more than being a product of a  “sweetheart deal”, the Malampaya fund was also subject to various anomalous disbursements.  As a lump sum amount in a special account, its  disbursement is subject solely to the president’s discretion, which makes its disbursements very vulnerable to corruption and patronage politics.  

Before the Supreme Court’s decision in Belgica,  PD No. 910,  promulgated during the Marcos regime,  authorizes the  to use the funds not only to finance energy resource development and exploitation programs and projects, but also for such other purposes as may be directed by the President. 

This overarching presidential discretion over the use of the funds has prompted  calls for the repeal of  such Marcosian decree that gives sole power to the  to use these funds.   In its place, it is recommended that the income collected by the Department of Energy (DOE) from its service contractors should be taken up as income of the General Fund pursuant to EO No. 292 and PD 1445, which would then make the proceeds part of the national treasury and become once and for all subject to congressional scrutiny and allocation to the most important needs of the people,  including basic social services for health and education.

This was in fact the recommendation of the Commission on Audit (COA) as early as 2011 when it publicly stated that: 

“It would be favorable to the government if subject funds were transferred to the unappropriated surplus and made available for appropriation by the Congress of the Philippines. This will not only augment depleting funds of the National Government and greatly ease current financial pressures but will also facilitate the fair allocation of resources to agencies in accordance with their identified plans/programs/activities,” the COA said.

From 2002 to 2009, the Malampaya project generated gross proceeds of US$8,920.26 Million from which cost recovery worth US$3,221.03 Million was deducted and yielded net proceeds of US$5,699.23 Million.  In 2014, the Malampaya fund has accrued a total of P173 Billion but the Department of Energy admitted during the deliberation of their 2014 budget that only P132 Billion of the fund remains.  According to Marites Vitug “This whopping amount is unimaginable to many government departments: 30 times more than the budget of the energy department (P4.5 billion), 8 times more than the judiciary budget (P15 billion), and 6 times more than the agrarian reform department budget (P21 billion)”.

In its 2010 Annual Report, the Commission on Audit (COA) observed that out of the total releases to NGAs, only P250 Million or 1.27% were given to DOE while P19.39 Billion or 98.73% were given to other agencies for other purposes not related to energy. 

Source: COA Memorandum June 27, 2011

COA in the 2010 Annual Report further observed that the fund allocation were solely determined by the Executive Department and made through Administrative Orders, Executive Orders and other presidential directives. 

This prompted COA to recommend, as early as 2010, that the provisions of PD No. 910 be revisited, and that the income collected by the DOE from its Service Contractors be taken up as income of the General Fund pursuant to EO No. 292 and PD 1445, which respectively provides:

Sec. 44, Chapter 5, Book VI of EO 292:

“All income accruing to the departments, offices and agencies by virtue of the provisions of existing laws, orders and regulations shall be deposited in the National Treasury or in the duly authorized depository of the Government.”

Sec. 65 of PD 1445:

“Unless otherwise specifically provided by law, income accruing to the agencies by virtue of the provisions of law, orders and regulations shall be deposited to the National Treasury or in any duly authorized government depositary and shall accrue to the unappropriated surplus of the General Fund of the Government.”

A look at how then former President Gloria Macapagal-Arroyo dispensed with the Malampaya funds from 2002-2010 is aptly described by an audit report of the Department of Energy itself in 2010:

“Analysis of the fund releases from SAGF-Malampaya Funds revealed that, out of the P19.643 Billion released to national government agencies, only P250 Million or 1.27% represented release to DOE for electrification of 211 barangays while P19.393 Billion or 98.73% was released to other national government agencies for various purposes other than exploration, development and exploitation of energy resources. Further, huge increasing balances of the fund with year-end balance amounting to P77.187 Billion, for Malampaya alone, remained continuously idle for the past 8 years.”

President Arroyo handed out projects to various districts of her allies totaling about P7.094 Billion through the Department of Public Works and Highways (DPWH), all in 2009 just before the 2010 elections.  Where these went and how they were spent, or whether the projects were ghost projects remain unclear until now. 

This abuse is highlighted by the fact that in one year alone (2009) 138 Statements of Allocation and Release Order (SARO) were released to the DPWH  for non-energy related expenses amounting to P7,094,806,659.00 Billion.  This will swell up to P8.003 Billion if we include the DPWH SAROS amounting to P909 Million released for the first and second districts of Palawan in 2006-2008.  

Meanwhile, a huge amount of the funds have been released for Palawan as early as 2006 through the provincial government, the city government, DPWH and Department of Transportation and Communication (DOTC) in the total amount of P3.961 Billion broken down as follows:

P1.6     Billion - Philippine National Police (PNP) and another for 

P 540  Million - PNP

P2.140 Billion - Department of the Interior and Local Government (DILG)-PNP 

The P2.14 Billion given to DILG-PNP was for “disaster preparedness” which according to reports were spent on rubberized boats and other overpriced projects in 2009.  This was exposed during the budget deliberation of the DILG in the 2012 budget upon the interpellation of Bayan Muna.  Then DILG Secretary Jesse Robredo promised an immediate investigation during the plenary when he cannot explain how or where these funds were spent. 

The Department of Agriculture (DA) was given a lump sum amount of P5.82 Billion for again, a vague purpose called the “Agricultural Guarantee Fund” and to “rehabilitate areas affected by typhoon Ondoy and Pepeng.”

The Department of Agrarian Reform (DAR) was given a lump sum amount of P900 Million, again for the vague purpose of giving “support services to Agrarian Reform Communities (ARC) as assistance in the recovery of losses/damages brought about by typhoons Ondoy & Pepeng.”.  The P 900 Million was reportedly siphoned to the fake NGOs and non-existent beneficiaries of Janet Lim-Napoles, 

The DND also managed to get P1 Billion for its modernization fund in 2009, again, just before the election. Strangely, there is no SARO number for this account because according to the DOE, no SARO was found on the records. Another P198 Million was spent to buy a “generator set” and repair the roofs and structures of the Philippine Military Academy. 

When former President Benigno Aquino III came to power in 2010, he continued this anomalous practice. Among others, he disbursed the Malampaya fund in the following projects:

  1. Lump sum given to the National Power Corporation (NPC) - P2 billion
  2. Lump sum for the Public Transport Assistance Program (PTAP) - Pantawid Pasada, P300 million
  3. Another Lump sum for PTATP - Pantawid Pasada, P150 million
  4. Acquisition  of US Coast Guard Cutter Hamilton, P423,063,900
  5. Fuel requirement, lease/rental and half of capital expenditures requirements of NPC-SPUG, P1,624,500,000
  6. Given to the AFP-DND  P4,954,580,167
  7. Sitio Electrification Project, P814,411,357
  8. Payment for NPC's short term loan facility  P3 billion
  9. Barangay Line Enhancement Projects, P1,108,245,890
  10. Transfer, dry-docking and hull maintenance costs of  Coast Guard Cutter ship, P880,615,176

Available records would show that in his first thre years in office, former Pres. Aquino already disbursed P 15,255,416,490 Billion or P5 Billion each year, much more than former Pres. Arroyo’s average Malampaya spending of P2.4 Billion per year.

In a 2004 Senate Committee hearing,  the Commission on Audit revealed  that among the agencies where “red flags” were raised in the use of the Malampaya funds are  the Dept. of Agriculture, which received P5.8 billion in 2008 and 2009; the Dept. of Public Works and Highways, P7.6 billion in 2009; and the Dept. of Interior and Local Government with P2.3 billion received in 2009 and 2011. 

Former Agrarian Reform Secretary Virgilio de los Reyes also admitted that some  P900 Million Malampaya funds coursed through his department in 2009 went to ghost projects of businesswoman Janet Lim-Napoles. The P900 Million was meant for victims of Tropical Storms “Ondoy” and “Pepeng” in 2009 in agrarian reform communities in 97 municipalities but had gone instead to Lim-Napoles’ 12 NGOs.

For all the anomalies and irregularities related to the use and abuse of the Malampaya Fund -- some of which have already been uncovered, though, many others may have yet to be disclosed -- it only showed how such a Special Fund becomes vulnerable to abuse because PD 910 grants the President unbridled authority to spend the funds even at his whim.  It is even a clear violation of the Congressional “power of the purse” as the funds are disbursed without the approval or knowledge of Congress.  

The Malampaya Fund is now estimated at P183 billion, more or less, and is growing at an estimate of P2 billion a month in recent years. With such an income stream, it is only equitable that the said fund be used for appropriate purposes that benefits more the people, rather than only a few. It is now time that this hundred billion fund be subjected to Congressional scrutiny and control through its power of appropriation.  Change must now come to Malampaya!

(Mr. Zarate, a lawyer, is a member of the Philippine House of Representatives. —ed.)