Salvaging the Malampaya Fund (Part One)

Since the inception of the Malampaya natural gas project in 1989, accumulating P183.57 billion between 2002 and October 2013 in revenue, both the national and local government of Palawan have been contending to gain control and shares in the project.

In this toss-up between the national and local government, the Malampaya fund—also known as the Malampaya Special Account under Fund 151, created to hold “the revenues from service contacts and the exploration, development, and exploitation of energy resource” (Presidential Decree 910)—has been largely subject to misspending on both sides.

Created by former president Ferdinand Marcos during martial law on March 22, 1976, Presidential order No. 910, Section 8 mandated the creation of the Special Fund to account for “government share representing royalties, rentals, production share on service contracts and similar payments on the exploration, development and exploitation of energy resources,” “to be used to finance energy resource development and exploitation programs and projects of the government and for such other purposes as may be hereafter directed by the President.”

Former president Gloria Macapagal-Arroyo issued Executive Order 848 on October 13, 2009, which reads, “The Department of Budget and Management (DBM) is hereby authorized to release funds, in such amount as may be necessary, from the SAGF-151 of the DOE, to the implementing agency (IA) concerned, for purposes as may be authorized by the President of the Philippines.” Another Presidential decree No. 1234 signed in 1977 placed the special fund within the general fund, obscuring the status of the Malampaya fund by rendering it an ambiguously defined hybrid of the two types of funds.

At the national level, the Office of the Ombudsman has charged former president Gloria Macapagal-Arroyo, along with “pork barrel queen” Janet Napoles and other government executives and officials, with plunder due to the misuse of P900 million from the Malampaya fund.

After tropical storm Ondoy and typhoon Pepeng devastated various parts of Luzon, Arroyo’s administration released the P900 million through the Department of Budget and Management after Secretary Rolando Andaya Jr. of the Department of Energy requested to use Malampaya funds for “relief operations, rehabilitation, reconstruction and other works and services to areas affected by natural calamities.”

Arroyo issued EO 848 to permit the release of funds to the Department of Agrarian Reform (DAR) for non-energy related projects—specifically, to assist farmers affected by the typhoon.

Through the DAR, the funds were received by twelve fake NGOs set up by Janet Napoles. The full audit report by the Commission on Audit as to the P900 million and the rest of the funds plundered by the Arroyo administration, on account of PD 910 and EO 848, is in progress.

But the audit has been criticized for not including spending of the Malampaya fund under the Aquino administration.

President Pnoy has faced criticism for using the Malampaya fund to finance the Armed Forces of the Philippines and the Defense department, instead of environmental and social infrastructure projects. Pnoy has claimed that the defense spending is intended to ensure the protection of the Malampaya field, thus it is in fact energy related.

In September 2013 the Supreme Court put a temporary restraining order on the release of the Malampaya funds due to its misuse being connected to the Priority Development Assistance Fund (PDAF) pork barrel scandal.

Recently the constitutionality of these martial law-era presidential orders, as well as Macapagal-Arroyo’s 2009 executive order, has been under evaluation by the Supreme Court. Critics of these orders have highlighted the susceptibility to misspending and opaque processes of transactions from the Malampaya Fund.

More recently, the Supreme Court rendered the pork barrel system unconstitutional, which is inclusive of spending Malampaya under PD 910, as well as PD 1869 and PD 1993.

The Supreme Court has yet to decide on another vital Malampaya issue—whether the reservoir belongs to the Palawan province or resides in national territory. Macapagal-Arroyo claimed that Malampaya was not part of Palawan province but national territory.

The dispute has significantly changed how the 60 percent share intended for the Philippine government was released. Instead of the 40 percent share guaranteed to the Palawan local government via the Local Government Code (RA 7160) of 1991, it is said to receive an undefined fraction, that is, “financial assistance,” from the Malampaya revenue as given by the national government.

The provincial government under Reyes and the two congressional districts accepted “financial assistance” from the national government.

Misspending of the local government’s already dubious share occurred at the local level. The Commission on Audit has advised that charges be filed against former Palawan governor Joseph Reyes due to the creation of fake projects, misspending, and connection to the murder of advocate Gerardo Ortega.

Because of Arroyo’s claim that Malampaya fell under national territory and did not belong to Palawan province, Arroyo and Reyes signed an Interim Agreement in 2005 stating that while the Supreme Court settled Malampaya’s territory dispute, the national government and the local government of Palawan are to equally split the 40 percent that was originally to go to the Palawan local government alone.

One option for the government is to think about creating a sovereign wealth fund from the proceeds of extractive industries like Malampaya and mining. Such sovereign wealth fund would allow the revenue to grow by investing it in a diverse portfolio of resources.

Countries such as Timor-Leste have been able to benefit from investing their revenue from natural resources.

The sovereign wealth fund has the potential to push for transparency in government spending, since the fund would be subject to oversight by a mult-stakeholder’s board, direction by investment advisors, and limits on withdrawals capped by an estimated sustainable income (ESI). Additionally, public awareness of the fund would be made possible through public disclosure of investments and return on investments, outflows and inflows. This will allow public monitoring and will prevent the rampant problem of Malampaya fund misspending (to be continued).

Patino is a fellow researcher of Bantay Kita.

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