Prseident Arroyo's Executive Order 565 revoked a contract awarded to Malaysian oil company for production in the Philippines.
Mitra Energy Ltd. had won a tender to take part in the development of oil deposits in the Camago-Malampaya field off western Palawan Island. Mitra had secured the rights in a preliminary agreement with a unit of Philippine National Oil Co. The contract was made null and void by an order that directed PNOC and other government agencies from subcontracting out work covering exploration or development in the Camago-Malampaya reservoir with no warning and no explanation, sending a shudder through the foreign investment community.
Peter Wallace, a cosultant for foreign multinational corporations with over 30 years of experience in the Philippines, said that investors were concerned about the "sanctity of contracts in this country".
Upstream, an oil exploration publication, said the move was “understood to be due to pressure from influential Filipino business interests, which do not want the potentially lucrative projects to be awarded to a foreign company.”
The unease over the order was reflected in other agencies such as PNOC and the Department of Energy which were taken by surprise and the French Chamber of Commerce which stated that "this occurence would not help the establishment of confidence in the Philippine market which we have been fighting for."
Chris Whitmee, a spokesman for Mitra, said that the company has spent upwards of a million dollars preparing for the bid and had already lined up contracts with international vendors. The sudden directive has taken them completely by surprise particularly as the objection has been based on subcontracted exploration (farm-in) and development (farm-out) contracts, which are worldwide energy sector benchmarks.
Whitmee said that Mitra was waiting for an explanation and had not given up on the project.
Others in the industry are watching to see how the government justifies its decision to revoke a contract after it has been assigned.
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