In The Know: The Malampaya Gas Project


Malampaya funds represent the royalties that the government collects from the Malampaya gas project in Palawan.

Started in 2002, the $4.5-billion project involves the extraction of natural gas from the waters off Palawan. It is operated by Shell Philippines Exploration B.V. and Chevron Malampaya LLC, which holds controlling shares in the project. PNOC Exploration Corp. holds a minority share.

The service contract provided a production-sharing scheme in which the government gets 60 percent of earnings from project operations, after deducting certain charges.

Citing its territorial jurisdiction over the project, the Palawan government demanded 40 percent of the proceeds as provided for under the Local Government Code.

However, the national government under the Arroyo administration contended that the project’s location was beyond Palawan’s territory and instead was within the national territory.

The dispute led the provincial government to file a case in the regional trial court in Palawan. The court ruled in favor of Palawan but this was reversed by the Court of Appeals (COA) in 2006, prompting the local government to bring the matter to the Supreme Court.

The court, meanwhile, ordered to put the disputed local government share in escrow until the case was resolved.

Pending the final resolution of the case, the Palawan and the national governments signed an interim agreement in February 2005 to jointly spend half of the province’s 40-percent share mandated by the Local Government Code. The interim agreement was set to lapse on June 30, 2010, or until the court made its final decision.

In December 2007, Malacañang issued Executive Order No. 683, which provides for a provisional implementation agreement wherein half of the 40 percent of the proceeds of the project could be used for development projects in Palawan. The release of the funds is subject to certain conditions.

The executive order also provides that the money be released based on the directive from the Office of the President or Palawan, and a Bureau of Treasury certification on the availability of funds from half of the 40 percent being claimed by the province.


Pork barrel

The scheme was, however, criticized as a pork barrel appropriation for the province’s top political leaders.

Slain broadcaster and environmentalist Gerry Ortega was a known critic of the handling of the revenue from Palawan’s share of the natural gas from Malampaya.

As part of the “interim” agreement, the national government released a total of P2.9 billion between 2005 and 2010 to Palawan.

In its 2010 report, the COA said that P77.2 billion of the Malampaya funds had been lying “idle” for eight years while P19.4 billion was released to national government agencies and went mostly to projects unrelated to energy development.


Graft charges

In November 2011, the COA recommended the filing of graft and criminal charges against former Palawan Gov. Joel T. Reyes and members of the provincial bids and awards committee under his administration for alleged irregularities in the use of nearly P3 billion in Malampaya funds.

The COA report alleged that the Reyes administration had favored certain private contractors to corner over 200 infrastructure projects funded by royalties from Malampaya, ranging from day care centers that cost a total of P30 million to a reclamation project that cost over P400 million.

Reyes, along with his brother, Coron Mayor Mario Reyes, is facing murder charges in relation to the killing of Ortega in 2010. The former governor is believed to have fled the country. Inquirer Research

Source: Inquirer Archives

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Disclaimer: The comments uploaded on this site do not necessarily represent or reflect the views of management and owner of We reserve the right to exclude comments that we deem to be inconsistent with our editorial standards.

  • catmanjohn

    Whoever allowed the Reyes brothers to leave the country should be investigated and thrown into jail. Enough of this kind of nonsense. 

  • Jasper Cuña

    nothing new this is the way they do business here in the Philippines

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