DOE may face legal action over Malampaya “midnight deal”


The Department of Energy (DOE) may run into legal trouble if it continues to push through with approving Udenna Corporation’s purchase of the 45% share of Shell Philippines Exploration B.V. (SPEX) in the Malampaya gas-to-power project, according to Sen. Sherwin Gatchalian.

He particularly raised alarm bells over the possibility of the government entering into a “midnight deal” to extend Malampaya’s Service Contract (SC) 38, which would expire in 2024.

Gatchalian, who chairs the Senate Committee on Energy, noted the speed in the current negotiations when Malampaya Energy XP (MEXP) entered the picture while SPEX was never given assurance by the DOE since 2016 if they would be extended or not.

MEXP, a unit of Dennis Uy-led Udenna, bought SPEX in May for $460 million in May. The DOE is currently reviewing the deal, specifically MEXP’s financial and technical capability to operate Malampaya.

“Hindi talaga maiaalis sa isip na baka magkaroon ng midnight deal dahil 2016 pa lang, gusto na itong i-renew ng Shell. I know that for a fact. I can attest. Ngayong pumasok sa eksena si Udenna, biglang bumilis yung negotiations,” Gatchalian said in a statement.

A “midnight deal” is a transaction made by an outgoing administration close to the end of its term.

Energy officials told the committee that serious negotiations started in the middle of this year along with the creation of a negotiating team.

Gatchalian shares concerns raised by some senators in sealing the sale of SPEX’s stake in the gas field project especially with MEXP already negotiating with the government. One of the conditions being discussed in the negotiations is the possible 70-30 royalty sharing in favor of the government.

“I think it’s really quite premature and unethical for [MEXP] to negotiate with the government. It’s too presumptuous in fact. We already laid down that [DOE Department Circular No. 2007-04-003] should be applied to the transfer,” Gatchalian said.

The said circular sets the guidelines and procedures for the transfer of rights and obligations in petroleum service contracts as underpinned by Presidential Decree 87 or the Oil Exploration and Development Act of 1972.

Gatchalian has also questioned the DOE once again on the “insufficient foundation for legal basis” for Udenna’s purchase of Chevron’s 45% share in Malampaya in March 2020, which was approved last April. The DOE used unaudited financial statements in the approval, which drew flak from senators.

“What you need to address first is your insufficient foundation for legal basis and I will not tolerate that in the evaluation of Shell. I will take every recourse possible to hold you to account because operations na ang pinag-uusapan dito. Then we look at the Chevron deal. I will likewise hold you to account in this Chevron-Udenna deal,” the senator said.

“As Filipinos, we want an operator who is qualified, experienced, and who can assure us of continuous flow of gas to our power plants. Also as a consumer, I want my public servants in the DOE to exercise prudence, diligence and integrity,” Gatchalian emphasized.

Uy, Udenna’s founder and chairman, was a major contributor to the presidential campaign of then Davao City Mayor Rodrigo Duterte in the 2016 elections.