Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 112399 July 14, 1995

REPRESENTATIVE AMADO S. BAGATSING, petitioner,

vs.
COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY and THE
HONORABLE EXECUTIVE SECRETARY, respondents.

G.R. No. 115994 July 14, 1995

NEPTALI A. GONZALES, ERNESTO A. MACEDA, JOHN H. OSMEA, WIGBERTO E. TAADA,

JOKER O. ARROYO, AMADO D. BAGATSING, and RENE A.V. SAGUISAG, petitioners,
vs.
DELFIN LAZARO, in his capacity as Chairman of the Philippine National Oil Company,
MONICO JACOB, in his capacity as President of PNOC, COMMITTEE ON PRIVATIZATION,
PHILIPPINE NATIONAL OIL COMPANY, PETRON CORPORATION, and ARAMCO OVERSEAS
COMPANY B.V., respondents.

QUIASON, J.:

The petition for prohibition in G.R. No. 112399 sought: (1) to nullify the bidding conducted for the
sale of a block of shares constituting 40% of the capital stock (40% block) of Petron Corporation
(PETRON) and the award made to Aramco Overseas Company, B.V. (ARAMCO) as the highest
bidder in the bidding conducted on December 15, 1993; and (2) to stop the sale of said block of
shares to ARAMCO. The Supplemental Petition in said case sought to annul the bidding of the 40%
block held on December 15, 1993 and to set aside the award given to ARAMCO (Rollo, pp. 94-99).

The petition for prohibition and certiorari in G.R. No. 115994 sought to annul the sale of the same
block of Petron shares subject of the petition in G.R. No. 112399.

The petition in G.R. No. 112399 asked for the issuance of a temporary restraining order to stop
respondents from selling the 40% block to a foreign buyer (Rollo, p. 15). The petition for a temporary
restraining order was reiterated in a motion filed subsequently (Rollo, pp. 107-108).

The petition in G.R. No. 115994 asked for the issuance of a temporary restraining order and a writ of
preliminary injunction to restrain and enjoin public respondents "from proceeding with the projected
initial public offering on July 18, 1994 of the 20% of Petron" (Rollo, p. 33).

The Urgent Supplemental Petition in said case reiterated the prayer for the immediate issuance of a
preliminary injunction to enjoin the initial public offering of the Petron shares (Rollo, pp. 223-225).
Actions on the petitions and motions for the issuance of a temporary restraining order and a writ of
preliminary injunction were deferred.

The petition in G.R. No. 112399 was filed by Representative Amado S. Bagatsing while the petition
in G.R. No. 115994 was filed by Senators Neptali A. Gonzales, Ernesto A. Maceda, John H. Osmea
and Wigberto E. Taada, Representatives Joker Arroyo and Amado D. Bagatsing and former
Senator Rene A.V. Saguisag all in their capacity as members of Congress, taxpayers and
concerned citizens, except in the case of Mr. Saguisag, who sued as a private law practitioner,
member of the Integrated Bar of the Philippines, taxpayer and concerned citizen.

Respondent Monico V. Jacob was impleaded in G.R. No. 115994 in his capacity as President of
respondent Philippine National Oil Company (PNOC). At the time of the filing of the petition, he had
ceased to be the President of PNOC and a member of its governing board. However, he is the
Chairman of the Board of Directors and Chief Executive Officer of PETRON, a respondent in both
cases. He asked for the dismissal of the petition on the ground that having ceased to be PNOC
President, petitioners had no more cause of action against him. We deny the motion in view of the
fact that the petition questions his acts as President of PNOC.

In G.R. No. 115994, ARAMCO entered a limited appearance to question the jurisdiction over its
person, alleging that it is a foreign company organized under the laws of the Netherlands, that it is
not doing nor licensed to do business in the Philippines, and that it does not maintain an office or a
business address in and has not appointed a resident agent for the Philippines (Rollo, p. 240).

PETRON was originally registered with the Securities and Exchange Commission (SEC) in 1966
under the corporate name "Esso Philippines, Inc." (ESSO) as a subsidiary of Esso Eastern, Inc. and
Mobil Petroleum Company, Inc.

In 1973, at the height of the world-wide oil crisis brought about by the Middle East conflicts, the
Philippine government acquired ESSO through the PNOC. ESSO became a wholly-owned company
of the government under the corporate name PETRON and as a subsidiary of PNOC.

In acquiring PETRON, the government aimed to have a buffer against the vagaries of oil prices in
the international market. It was felt that PETRON can serve as a counterfoil against price
manipulation that might go unchecked if all the oil companies were foreign-owned. Indeed, PETRON
helped alleviate the energy crises that visited the country from 1973 to 1974, 1979 to 1980, and
1990 to 1991.

PETRON owns the largest, most modern complex refinery in the Philippines with a nameplate
capacity of 155,000 barrels per stream day. It is also the country's biggest combined retail and
wholesale market of refined petroleum products. In 1992, it garnered a 39.8% share of all domestic
products sold, and at year end its assets totalled P24.4 billion. PETRON's income as of September
1993 was P2.7 billion. It is listed as the No. 1 corporation in terms of assets and income in the
Philippines.

On December 8, 1986, President Corazon C. Aquino promulgated Proclamation No. 50 in the

exercise of her legislative power under the Freedom Constitution.
The Proclamation is entitled "Proclaiming and Launching a Program for the Expeditious Disposition
and Privatization of Certain Government Corporations and/or the Assets thereof, and Creating the
Committee on Privatization and the Asset Privatization Trust."

Implicit in the Proclamation is the need to raise revenue for the Government and the ideal of leaving
business to the private sector. The Government can then concentrate on the delivery of basic
services and the performance of vital public functions.

On December 2, 1991, President Fidel V. Ramos noted that "[t]he privatization program has proven
successful and beneficial to the economy in terms of expanding private economic activity, improving
investment climate, broadening ownership base and developing capital markets, and generating
substantial revenues for priority government expenditure," but "[t]here is still much potential for
harnessing private initiative to undertake in behalf of government certain activities which can be
more effectively and efficiently undertaken by the private sector" (G.R. No. 112399, Rollo, p. 31).

In its meeting held on September 9, 1992, the PNOC Board of Directors approved Specific Thrust
No. 6 and moved "to bring to the attention of the Administration the need to privatize Petron whether
or not there will be deregulation [of the oil industry]" (G.R. No. 112399, Rollo p. 67).

In a letter dated October 21, 1992, Secretary Ramon R. Del Rosario, as Chairman of the Committee
on Privatization, endorsed to President Ramos the proposal of PNOC to "privatize 65% of the stock
of Petron, open to both foreign as well as domestic investors." Secretary Del Rosario added: "The
entry of foreign investors in this field is expected to result in improved technology and know-how and
will enable Petron to have access to international information network as well as access to external
markets and refining contracts" (G.R. No. 112399, Rollo, p. 72).

On January 4, 1993, a follow-up letter was sent by Secretary Del Rosario informing the President
that: "The privatization of Petron, recommended by both the management of Philippine National Oil
Company (PNOC) and the Committee on Privatization (COP), will send the right signals that may re-
ignite investor interest in the Philippines for 1993" (G.R. No. 112399, Rollo, p. 73).

In a letted dated January 6, 1993, Secretary designate Delfin L. Lazaro of the Department of Energy,
favorably endorsed for approval the plan to sell up to 65% of the capital stock of PETRON. He also
noted that the said plan was "consistent with the Energy Sector Action Plan approved by the
President and the Cabinet on November 27, 1992" (G.R. No. 112399, Rollo, p. 74).

On January 12, 1993, the Cabinet approved the privatization of PETRON as part of the Energy
Sector Action Plan.

On March 25, 1993, the Government Corporate Monitoring and Coordinating Committee (GCMCC)
recommended a 100% privatization of PETRON.

On March 31, 1993, the PNOC Board of Directors passed a resolution authorizing the company to
negotiate and conclude a contract with the consortium of Salomon Brothers of Hongkong Limited
and PCI Capital Corporation for financial advisory services to be rendered to PETRON.

On April 1, 1993, the GCMCC recommended to COP the privatization of only 65% of the capital
stock of PETRON, instead of the 100% privatization previously recommended.
On June 10, 1993, in a letter addressed to Secretary Ernesto C. Leung, the COP Chairman,
President Ramos approved the privatization of PETRON up to a maximum of 65% of its capital
stock.

The Petron Privatization Working Committee (PWC) was thus formed. It finalized a privatization
strategy with 40% of the shares to be sold to a strategic partner and 20% to the general public
through the initial public offering and employees stock option plan.

The Commission on Audit (COA) was consulted as to the valuation methodologies and privatization
process. The privatization plan was also presented to the COP on July 23, 1993, and to the
President on July 31, 1993 for their approval.

On August 10, 1993, the President approved the 40% 40% 20% privatization strategy of
PETRON. In the press release on the presidential approval of the said privatization, the Office of the
President commented:

For Petron, gaining a long-term strategic partner that will ensure stable crude oil
supplies and/or advance its technological and financial position will be a definite
advantage. In addition, its partial privatization will provide the flexibility and level
playing field it needs to remain a major, and therefore influential player in the oil
industry. In 1992, Petron dominated the oil industry with a commanding 40% market
share (G.R. No. 112399, Rollo, p. 83).

The invitation to bid was published in several newspapers of general circulation, both local and
foreign. The deadline for the submission of proposals was set for December 15, 1993 at 5:00 P.M.

PETRON furnished the Office of the Solicitor General (OSG) with copies of the draft of the stock
purchase agreement and shareholders' agreement, with a request for the review of the same.

In a meeting of the Petron PWC held on December 15, 1993 at 12:00 noon, it decided that
Westmont Holdings (WESTMONT) was disqualified from participating in the bidding for its alleged
failure to comply with the technical and financial requirements for a strategic partner.

Salomon Brothers valued PETRON at US$600 million and the 40% block at US$240 million. For the
entire Petron shares, respondent Secretary Lazaro proposed a valuation of US$1.4 billion; Petron
management, US$857 million; and Frances Onate, a member of the Petron PWC, a valuation of
US$743 million to US$1 billion.

Finally, the floor price bid for the 40% block was fixed at US$440 million.

The bids of Petroliam Nasional Berhad (PETRONAS), ARAMCO and WESTMONT were submitted
while the floor price was being discussed.

At about 6:15 P.M. and before the bids were opened, WESTMONT through its representative,
Manuel Estrella, submitted additional documents to prove its financial capability to carry out the
purchase of the 40% block. The PNOC Board of Directors adopted Resolution No. 865, S. 1993,
rejecting the bid of WESTMONT for not having met the pre-qualification criteria of financial capability,
long-term crude supply availability, and technical and management expertise in the oil business. It
was further resolved that the bid submitted by WESTMONT would be returned unopened.
At 6:30 P.M., the other two bids were opened. The bid of ARAMCO was for US$502 million while the
bid of PETRONAS was for US$421 million. The PNOC Board of Directors then passed Resolution
No. 866, S. 1993, declaring ARAMCO the winning bidder.

On December 15, 1993, the OSG informed PETRON that the drafts of the stock purchase
agreement and shareholders' agreement contained no legally objectionable provisions and could be
the basis for PETRON's negotiation with the winning bidder.

On December 16, 1993, respondent Monico Jacob, in his capacity as President and Chief Executive
Officer of PNOC, endorsed to the COP the bid of ARAMCO for approval. The COP gave its approval
on the same day. Also on the same day, Manuel Estrella filed a complaint in behalf of WESTMONT
with PNOC, questioning the award of the 40% block of Petron shares to ARAMCO. The COP
answered Estrella's letter on January 14, 1994, explaining why WESTMONT's bid was returned
unopened.

On February 3, 1994, PNOC and ARAMCO signed the Stock Purchase Agreement and on March 4,
1994, the two companies signed the Shareholders' Agreement.

Public respondents submitted to the Securities and Exchange Commission (SEC) a proposed price
for the initial public offering of the 20% block set for July 18, 1994, the second phase of PETRON's
privatization. PETRON proposed a price of between P7.00 and P16.00 per share but the SEC
approved a price of P9.00 per share.

II

PETRON questions the locus standi of petitioners to file the action (Rollo, pp. 479-484). Petitioners
however, countered that they filed the action in their capacity as members of Congress.

In Philippine Constitution Association v. Hon. Salvador Enriquez, G.R. No. 113105, August 19, 1994,
we held that the members of Congress have the legal standing to question the validity of acts of the
Executive which injures them in their person or the institution of Congress to which they belong. In
the latter case, the acts cause derivative but nonetheless substantial injury which can be questioned
by members of Congress (Kennedy v. James, 412 F. Supp. 353 [1976]). In the absence of a claim
that the contract in question violated the rights of petitioners or impermissibly intruded into the
domain of the Legislature, petitioners have no legal standing to institute the instant action in their
capacity as members of Congress.

However, petitioners can bring the action in their capacity as taxpayers under the doctrine laid down
in Kilosbayan, Inc. v. Guingona, 232 SCRA 110 (1994). Under said ruling, taxpayers may question
contracts entered into by the national government or government-owned or controlled corporations
alleged to be in contravention of the law. As long as the ruling in Kilosbayan on locus standi is not
reversed, we have no choice but to follow it and uphold the legal standing of petitioners as taxpayers
to institute the present action.

III

A. Petitioners in G.R. Nos. 112399 and 115994 claim that the inclusion of PETRON in the
privatization program contravened the declared policy of the State to dispose of only non-performing
assets of the government and government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain. They contend that PETRON is
neither a non-performing asset nor is it unnecessary or inappropriate for the government to maintain
or operate (G.R. No. 112399, Rollo, pp. 3-4, 8-13; G.R. No. 115994, Rollo, pp. 14-17, 216-217).

To say that only non-performing assets should be the subject of privatization does not conform with
the realities of economic life. In the world of business and finance, it is difficult to sell a business in
dire, financial distress. As entrepreneur Don Eugenio Lopez used to advert to his younger
executives: "Don't buy headaches. Don't even accept them if they are offered to you on a silver
platter." It is only in a fire sale that the government can expect to get rid of its non-performing assets,
more so if the sequencing pattern insisted by petitioners (initial public offering of 10% block to small
investors) is followed.

While Proclamation No. 50 mandates that non-performing assets should promptly be sold, it does
not prohibit the disposal of the other kinds of assets, whether performing, necessary or appropriate.

Section 1 of the Proclamation reads:

Statement of Policy. It shall be the policy of the State to promote privatization

through an orderly, coordinated and efficient program for the prompt disposition of
the large number of non-performing assets of the government financial institutions,
and certain government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain.

The said provision classifies two types of assets: (1) Non-performing assets of government financial
institutions; and (2) Government-owned or controlled corporations which have been found
unnecessary or inappropriate for the government sector to maintain.

Under the Proclamation, it is the COP which is tasked with the duty of identifying and arranging the
sale of government assets. Section 5(1) of the Proclamation provides:

Powers and Functions. The Committee shall have the following powers and
functions:

(1) To identify to the President of the Philippines, and arrange for transfer to the
National Government and/or to the Trust and the subsequent divestment to the
private sector of (a) such non-performing assets as may be identified by the
Committee, and approved by the President, for transfer from the government banks
for disposal by the Trust or the government banks, and (b) such government
corporations, whether parent or subsidiary, and/or such of their assets, as may have
been recommended by the Committee for disposition, and Provided, that no such
identification, recommendation or approval shall be necessary where a parent
corporation decides on its own to divest of, in whole or in part, or liquidate a
subsidiary corporation organized under the Corporation Code; Provided further, that
any such independent disposition shall be undertaken with the prior approval of the
Committee and in accordance with the general disposition guidelines as the
Committee may provide; Provided, finally, that in every case the sale or disposition
shall be approved by the Committee with respect to the buyer and price only;
(Emphasis supplied).
 xxx xxx xxx

After a long study by PNOC, PETRON was found to be "inappropriate or unnecessary" for the
government to maintain because refining and marketing of petroleum is an aspect of the industry
which is better left to the private sector. In making such finding, PNOC was guided by Section 4(a) of
Proclamation No. 50, which provides:

. . . (a) divesting to the private sector in the soonest possible time through the
appropriate disposition entities, those assets with viable productive potential as going
concerns, taking into account where appropriate the implications of such transfers on
sectoral productive capacities and market limitation, . . . . These objectives are to be
pursued within the context of furthering the national economy through strengthened
and revitalized private enterprise system.

The decision of PNOC to privatize PETRON and the approval of the COP of such privatization, being
made in accordance with Proclamation No. 50, cannot be reviewed by this Court. Such acts are
exercises of the executive function as to which the Court will not pass judgment upon or inquire into
their wisdom (Llamas v. Orbos, 202 SCRA 844 [1991]).

Such identification by the COP of the government corporations to be privatized was not even
necessary in the case of PETRON. Under Section 5(1) of Proclamation No. 50 ". . . [N]o such
identification, recommendation or approval shall be necessary where a parent corporation decides
on its own to divest of, in whole or in part, or liquidate a subsidiary corporation organized under the
Corporation Code; . . . ."

The only participation of the COP in the sale of the Petron shares by PNOC, the parent corporation,
was the approval of the buyers and price. The last sentence of paragraph (1) of Section 5 provides:

. . . Provided, finally, that in every case the sale or disposition shall be approved by
the Committee with respect to the buyer and price only.

PNOC, in privatizing PETRON, was simply exercising its corporate power to dispose of all or a
portion of its shares in a subsidiary. PNOC was created under P.D. No. 334, as amended by P.D. No.
927, which empowers it to acquire shares of the capital stock of any other corporation and to
dispose of the same shares.

Besides, if only non-performing assets are intended to be sold, it would be unnecessary to provide in
the Proclamation for the rehabilitation of government corporations to make the same more attractive
to investors and potential buyers.

Section 5 (5) of Proclamation No. 50 provides:

In its discretion, to approve or disapprove, subject to the availability of funds for such
purpose, the rehabilitation of assets pending disposition by the Trust or any other
government agency authorized by the Committee, or the Trust with the approval of
the Committee, Provided that, the budget for each rehabilitation project shall be
likewise subject to prior approval by the Committee.
Nowhere in the Proclamation can one infer that it prohibits a partial privatization of vital, appropriate
and performing corporations owned by the government.

Proclamation No. 50 contained an Annex listing the corporations to be privatized and those to be
retained. While PETRON was mentioned among the corporations to be retained, Section 6 of the
Proclamation directed a continuing study on what corporations should be recommended for
privatization.

It is markworthy that the said Annex did not indicate the percentage of shares that will be privatized
or that will be retained. It can be interpreted to mean that all the shares of the corporations in the list
to be privatized may be sold, while only some of the shares of the other corporations may be sold. It
is also worthy of note that the list of corporations to be retained added the phrase "As of 31 August
1992," meaning that any of the corporations mentioned therein may be delisted after that date if a
study would justify such action.

The government is not disposing of all of its shares in PETRON but is retaining a 40% block.
Together with the widely-held 20% of the private sector control of PETRON by the government is
assured. With such equity in PETRON, the government can also maintain a window to the oil
industry and at the same time share in the profits of the company.

The privatization of PETRON could well be undertaken under laws other than Proclamation No. 50.

Of significance is Section 2(c) of R.A. No. 7181, which provides that:

Privatization of government assets classified as a strategic industry by the National

Economic and Development Authority shall first be approved by the President of the
Philippines (Emphasis supplied).

Section 6, the repealing clause of R.A. No. 7181, expressly repealed Sections 3 and 10 of
Proclamation No. 50 and all other laws, orders and rules and regulations which are inconsistent
therewith.

The only requirement under R.A. No. 7181 in order to privatize a strategic industry like PETRON is
the approval of the President. In the case of PETRON's privatization, the President gave his
approval not only once but twice.

PETRON's privatization is also in line with and is part of the Philippine Energy Program under R.A.
No. 7638. Section 5(b) of the law provides that the Philippine Energy Program shall include a policy
direction towards the privatization of government agencies related to energy.

Under P.D. No. 334, the law creating PNOC, said corporation is granted the authority "[t]o establish
and maintain offices, branches, agencies, subsidiaries, correspondents or other units anywhere as
may be needed by the Company and reorganize or abolish the same as it may deem proper."

B. Petitioners next question the regularity and validity of the bidding (G.R. No. 112399, Rollo, pp. 97-
99; G.R. No. 115994, Rollo, pp. 17-24, 221). Petitioners in G.R. No. 115994 claim that the public
bidding was tainted with haste and arbitrariness and that there was a failed bidding because there
was only one offeror (Rollo, pp. 17-24).
Taking the cudgels for WESTMONT, petitioners urge that said bidder was only given two days to
conduct a review PETRON's vast business operations in order to comply with the technical and
financial requirements for pre-qualification. Petitioners also complain that the pre-qualification and
actual bidding were conducted on the same day, thus denying a disqualified bidder an opportunity to
protest or to appeal. They question the fixing of the floor price on the same day as the public bidding
and only after the bids had been submitted. Likewise, they say that the approval of the bid of
ARAMCO by the Assets Privatization Trust on the same day it is submitted is anomalous (G.R. No.
115994, Rollo, pp. 22-24).

On the claim that there was a failed bidding, petitioners contend that there were only three bidders.
One of them, PETRONAS, submitted a bid lower than the floor price while a second, failed to pre-
qualify. Citing Section V-2-a of COA Circular No. 89-296 dated January 27, 1989, they argue that
where only one bidder qualifies, there is a failure of public auction (G.R. No. 115994, Rollo, p. 22).

When a failure of bidding takes place is defined in Circular No. 89-296 of the Commission on Audit,
which prescribes the "Audit Guidelines on the Divestment or Disposal of Property and other Assets
of the National Government Agencies and Instrumentalities, Local Government Units and
Government-Owned or Controlled Corporations and their Subsidiaries."

V. MODES OR DISPOSAL/DIVESTMENT:

xxx xxx xxx

2 Sale Thru Negotiation

For justifiable reasons and as demanded by the exigencies of the service, disposal
thru negotiated sale may be resorted to and undertaken by the proper committee or
body in the agency or entity concerned taking into consideration the following factors:

a. There was a failure of public auction. As envisioned in this Circular, there is a

failure of public auction in any of the following instances:

1 if there is only one offeror.

In this case, the offer or bid, if sealed, shall not be opened.

2 if all the offers/tenders are non-complying or unacceptable.

A tender is non-complying or unacceptable when it does not comply

with the prescribed legal, technical and financial requirement for pre-
qualification.

Under said COA Circular, there is a failure of bidding when: 1) there is only one offeror; or (2) when
all the offers are non-complying or unacceptable.

In the case at bench, there were three offerors: SAUDI ARAMCO, PETRONAS and WESTMONT.
While two offerors were disqualified, PETRONAS for submitting a bid below the floor price and
WESTMONT for technical reasons, not all the offerors were disqualified. To constitute a failed
bidding under the COA Circular, all the offerors must be disqualified.

Petitioners urge that in effect there was only one bidder and that it can not be said that there was a
competition on "an equal footing" (G.R. No. 112399, Rollo, p. 122). But the COA Circular does not
speak of accepted bids but of offerors, without distinction as to whether they were disqualified.

The COA itself, the agency that adopted the rules on bidding procedure to be followed by
government offices and corporations, had upheld the validity and legality of the questioned bidding.
The interpretation of an agency of its own rules should be given more weight than the interpretation
by that agency of the law it is merely tasked to administer.

The case of Danville Maritime, Inc. v. Commission on Audit, 175 SCRA 701 (1989), relied upon by
petitioner, is inappropriate. In said case, there was only one offeror in the bidding. The Court said: ". .
. [I]f there is only one participating bidder, the bidding is non-competitive and, hence, falls short of
the requirement. There would, in fact, be no bidding at all since, obviously, the lone participant
cannot compete against himself."

C. According to petitioners, the law mandates the offer for sale of 10% of the Petron shares to small
investors before a sale of the 40% block of shares to ARAMCO can be made.

They theorize that the best way to determine the real market price of Petron shares was to first have
a public offering as required by R.A. No. 7181. The reverse procedure followed by private
respondents, according to petitioners, gave unwarranted benefits to private respondents because
they bought the Petron shares at only P6.70 per share when the shares fetched as high as P16.00
per share in the stock market (G.R. No. 115994, Rollo, pp. 24-27).

To bolster their theory, petitioners cite Section 2(d) of R.A. No. 7181, which provides:

A minimum of ten (10) percent of the sale of assets in corporation form shall first be
offered to small local investors including Filipino Overseas Workers and where
practicable also in the sale of any physical asset.

Petitioners also invoke the Implementing Guidelines promulgated to implement R.A. No. 7181, which
provides:

In the sale of assets in corporate form, at least 10% of the total shares for
privatization shall first be offered to small local investors. Employees Stock
Ownership Plans (ESOPS) and public offerings shall count towards compliance with
these provisions . . . (Sec. 3).

We agree with PETRON that the language of Section 2(d) of R.A. No. 7181 does not mandate any
sequencing for the disposition of shares in a government-owned corporation being privatized.

It is the unfortunate use of the word "first" in Section 2(d) of R.A. No. 7181 that threw petitioners off
track and caused them to misread the provision as one requiring a mandatory sequencing of the
sale. As a wit once said, if a centipede would be compelled to follow a prescribed sequencing of its
steps, it could never move an inch.
A reasonable reading of the provision is that it merely gives a right of first refusal by the small
investors vis-a-vis the 10% block of shares. As far as the 10% block is concerned, the small
investors shall have a first chance to subscribe thereto whenever it is offered. The offer may be
made before, after or simultaneous with the offer of the shares to strategic partners or major
investors depending on the prevailing condition of the market. Certainly, in an initial public offering, it
is good judgment and business sense that should prevail, rather than the rigid and inflexible rules of
step one, step two, etc.

The Rules and Regulations issued by the COP to implement R.A. No. 7181 set aside 10% of the
shares subject of the privatization to be offered first to the small local investors, and made clear that
as far as said 10% block is concerned, the small investors shall have the first crack to buy the same.
These Rules have been consistently applied in previous privatizations, and they constitute a
contemporaneous construction and interpretation of a law by the implementing, administrative
agency. Such construction is accorded great respect by the Court (Nestle Philippines, Inc. v. Court of
Appeals, 203 SCRA 504 [1991]).

What Congress clearly mandated in R.A. No. 7181 was that at least 10% of the shares of a
privatized corporation must be reserved and offered for sale to the general public. In the deliberation
of the Congressional Committee on Government-Owned and Controlled Corporations on December
18, 1991, the Committee spoke of having the 10% set aside without impeding the privatization
process.

Note that when the bidding of the 40% block of Petron shares had been announced, the 10% block
for offering to the small local investors had been identified, reserved and set aside. This is more than
a substantial compliance with the mandate of law.

There is great risk in first making an initial public offering of the 10% block before bidding out the
40% block to a strategic partner. It may happen that the price of the shares offered initially to the
public plunges below the offering price approved by the SEC.

The sensitive market forces involved in initial public offerings render unrealistic any legislative
mandate to follow a sequencing in the sale of government-owned shares in the market. The
legislators, practical men of affairs as they are, were aware of the vagaries, variables and
vicissitudes of the stock market when they enacted R.A. No. 7181. It is more reasonable to read the
said law as leaving to the COP and the government corporations concerned to determine the
sequencing of the sale to strategic investors and the general public. To require the offer of 10% to
the general public before the sale of a block to a strategic partner may delay or even impede the
entire privatization program.

The clear policy behind Proclamation No. 50 is to give the COP and APT maximum flexibility in their
operation to ensure the most efficient implementation of the privatization program.

Under Section 5(3) of the Proclamation, full powers are given the COP to establish "mandatory as
well as indicative guidelines for . . . the disposition
of . . . assets." Under Section 12(2) thereof, the APT is given the "widest latitude of flexibility . . .
particularly in the areas of . . . disposition . . . ."

Petitioners can not rely on Opinion No. 126, Series of 1992 dated September 28, 1992. The query
posed to the Secretary of Justice in said opinion was the legality of the plan of National Development
Corporation to pass on to the prospective buyer of its shares in a local bank the responsibility of
complying with the requirement prescribed in Section 2(d) of R.A. No. 7181 that a minimum of 10%
of the shares of a corporation "shall first be offered to small local investors . . . ." The Secretary of
Justice naturally opined that said proposal could not legally be done on the principal ground that the
"observance of this legal requirement is incumbent upon the disposition entity, which in this case is
NDC, but as contemplated, the sale to small investors shall be undertaken by the private buyer of
the [local bank's] shares." The query posed to the Secretary of Justice was not about the sequencing
of the sale of the 10% block.

We can not see how the failure to dispose the 10% block to the general public before the sale of the
40% block to ARAMCO gave the latter unwarranted benefits.

Actually ARAMCO paid a total of P14,671,985,306.00 for the acquisition of the Petron shares. This
aggregate amount represents in peso terms: (1) the US$502 million winning bid paid by ARAMCO to
PNOC on March 4, 1994; and (2) the additional amount of US$30,327,987.00 remitted on July 11,
1994, representing the "purchase price adjustment" stipulated in the Stock Purchase Agreement.
Consequently, ARAMCO's acquisition cost was P7.336 per share.

A fair comparison between the ARAMCO price and the IPO price should take into consideration the
levels of financial, legal and miscellaneous costs directly related to the ARAMCO purchase, including
the consequent opportunity cost or income to PNOC and the National Government, had the
proceeds been invested in Philippine Treasury Bills from March 4 and July 11, respectively, to
September 7, 1994. On this basis, the effective proceeds on the ARAMCO purchase amount to
P7.8559 per share, and not P6.70 as claimed by petitioners (G.R. No. 115994, Rollo, pp. 506-507).
On the other hand, the seller's expenses incurred in connection with the IPO, including taxes and
other fees paid to the National Government, reached a total of P833.081 million or P0.833 per share
(G.R. No. 115944, Rollo, p. 507).

To make further a fair comparison between the two prices, the proceeds from the IPO should be net
of PNOC's share in PETRON's net income from March to August 1994, because in effect it was
giving up this amount in favor of the IPO investors. As projected, the total net income of PETRON
from March to August 1994 is P1,870,500.00. Twenty percent of this is P374,100.00 which translates
to a per share reduction of P0.3741 from the IPO proceeds. This would further erode the effective
proceeds from the IPO sale to P7.7929 per share.

Finally, cash dividends of P2 billion and property dividends of P153 million, or a total of P2.153 billion
was declared and transferred to PNOC before the ARAMCO purchase was effected. Imputing such
dividends would translate the effective proceeds to PNOC from the ARAMCO sale to P8.2865 per
share (P7.8559 plus P0.4306 [or 40% of P2.153 Billion]). Using this figure, the IPO proceeds of
P7.7929 per share is definitely lower than the ARAMCO proceeds of P8.2865.

Unlike the ordinary buyers of shares listed in the stock exchange, ARAMCO, as a strategic investor,
had to spend for the due diligence review of the business and records of PETRON.

Aside from this monetary considerations, PNOC derived the following value-added benefits:

1) PNOC is assured of an adequate supply of crude oil. The element of uncertainty on sources of
crude oil supply is reduced, if not eliminated, ARAMCO being the world's largest known producer
and exporter of five different types of crude oil.
2) PNOC's refinery can achieve optimum efficiency because of better crude slates.

3) ARAMCO has to hold on to the Petron shares for the next five years. Aside from its stabilizing
effect on the market price of Petron shares, this holding period will prevent ARAMCO from deriving
any speculative gains. Unlike ARAMCO, the buyers of the IPO can sell their shares any time without
constraints.

4) ARAMCO's presence in PETRON has a tremendous, unquantifiable influence in investor's

confidence in PETRON as a publicly-listed company. This confidence could not be generated if
PETRON's partner has a bad track record.

5) ARAMCO will assist PNOC in raising funds to finance the more than P12 billion in projected
capital expenditures required over the next four years to make PETRON competitive.

The pricing of shares of stock is a highly specialized field that is better left to the experts. It involves
an inquiry into the earning potential, dividend history, business risks, capital structure, management,
asset values of the company; the prevailing business climate; the political and economic conditions;
and a myriad of other factors that bear on the valuation of shares (Van Horne, Financial
Management and Policy 652-653 [8th ed.]); Leffler and Farwell, The Stock Market 573-575 [3rd ed.]).

D. Finally, petitioners contend that PETRON is a public utility, in which foreign ownership of its equity
shall not exceed 40% thereof and the foreign participation in the governing body shall be limited to
their proportionate share in its capital. According to petitioners, ARAMCO is entitled only to a
maximum of four seats in the ten-man board but was given five seats (G.R. No. 112389, Rollo, pp.
30-64; G.R. No. 115994, Rollo, pp. 30-31, 202-212).

This issue hinges on whether the business of oil refining is a "public utility" within the purview of
Section 11, Article XII of the 1987 Constitution (adopted from Sec. 5, Art. XIV of the 1973
Constitution), which provides:

No franchise, certificate, or any other form of authorization for the operation of a

public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at least sixty per centum
of whose capital is owned by such citizens, nor shall such franchise, certificate or
authorization be exclusive in character for a longer period than fifty years. Neither
shall any such franchise or right be granted except under the condition that it shall be
subject to amendment, alteration, or repeal by the Congress when the common good
so requires. The State shall encourage equity participation in public utilities by the
general public. The participation of foreign investors in the governing body of any
public utility enterprise shall be limited to their proportionate share in its capital and
all the executive and managing officers of such corporation or association must be
citizens of the Philippines (Emphasis supplied).

Implementing Section 8 of Article XIV of the 1935 Constitution, the progenitor of Section 5 of Article
XIV of the 1973 Constitution, is Section 13(b) of the Public Service Act, which provides:

The term "public service" includes every person that now or hereafter may own,
operate, manage, or control in the Philippines, for hire or compensation, with general
or limited clientele, whether permanent, occasional, or accidental and done for
 general business purposes, any common carrier, railroad, street railway, . . . and
other similar public services: . . . .

More pertinent is Section 7 of R.A. No. 387, the Petroleum Act of 1949, which provides:

Petroleum operation a public utility. Everything relating to the exploration for and
exploitation of petroleum which may consist naturally or below the surface of the
earth, and everything relating to the manufacture, refining, storage, or transportation
by special methods of petroleum, as provided for in this Act, is hereby declared to be
of public utility (Rollo, p. 519; Emphasis supplied).

A "public utility" under the Constitution and the Public Service Law is one organized "for hire or
compensation" to serve the public, which is given the right to demand its service. PETRON is not
engaged in oil refining for hire and compensation to process the oil of other parties.

Likewise, the activities considered as "public utility" under Section 7 of R.A. No. 387 refer only to
petroleum which is indigenous to the Philippines. Hence, the refining of petroleum products sourced
from abroad as is done by Petron, is not within the contemplation of the law.

We agree with the opinion of the Secretary of Justice that the refining of imported crude oil is not
regulated by, nor is it within the scope and purview of the Petroleum Act of 1949. He said:

Examination of our statute books fails to reveal any law or legal provision which, in
explicit terms, either permits or prohibits the establishment and operation of oil
refineries that would refine only imported crude oil (Opinion, No. 267, S. 1955).

WHEREFORE, the petitions are DISMISSED.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-28329 August 17, 1975

COMMISSIONER OF CUSTOMS, petitioner,

vs.
ESSO STANDARD EASTERN, INC., (Formerly: Standard-Vacuum Refining Corp.
(Phil.), respondent.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Antonio A. Torres and
Solicitor Antonio M. Martinez for petitioner.

Carlos J. Valdez & Associates for respondent.

ESGUERRA, J.:

Appeal from the decision of the Court of Tax Appeals reversing the Commissioner of Customs'
decision holding respondent ESSO Standard Eastern, Inc., (formerly the Standard-Vacuum Refining
Corporation (Phil.) and hereinafter referred to as ESSO) liable in the total sum of P775.62 as special
import tax on certain articles imported by the latter under Republic Act No. 387, otherwise known as
the Petroleum Act of 1949.

Respondent ESSO is the holder of Refining Concession No. 2, issued by the Secretary of Agriculture
and Natural Resources on December 9, 1957, and operates a petroleum refining plant in Limay
Bataan. Under Article 103 of Republic Act No. 387 which provides: "During the five years following
the granting of any concession, the concessionaire may import free of customs duty, all equipment,
machinery, material, instruments, supplies and accessories," respondent imported and was
assessed the special import tax (which it paid under protest) on the following separate importations:

1) One carton, scientific instruments with C & F value of assessed a special import
tax in the amount of P31.98 (Airport Protest No. 10);

2) One carton of recorder parts with C & F value of $221.56; assessed special import
tax in the amount of P43.82 (Airport Protest No. 11);

3) One carton of valves with C & F value of $310.58; assessed special import tax in
the amount of P60.72 (Airport Protest No. 12);

4) One box of parts for Conversion boilers and Auxiliary Equipment with C & F value
of $2,389.69; assessed special import tax in the amount of P467.00 (Airport Protest
No. 15);

5) One carton of X-ray films with C & F value of $132.80; assessed special import tax
in the amount of P26.00 (Airport Protest No. 16); and

6) One carton of recorder parts with C & F value of $750.39; assessed special import
tax in the amount of P147.00 (Airport Protest No. 17). 1

The Collector of Customs on February 16, 1962, held that respondent ESSO was subject to the
payment of the special import tax provided in Republic Act No. 1394, as amended by R.A. No. 2352,
and dismissed the protest. 2

On March 1, 1962, respondent appealed the ruling of the Collector of Customs to the Commissioner
of Customs who, on March 19, 1965, affirmed the decision of said Collector of Customs. 3

On July 2, 1965, respondent ESSO filed a petition with the Court of Tax Appeals for review of the
decision of the Commissioner of Customs.

The Court of Tax Appeals, on September 30, 1967, reversed the decision of herein petitioner
Commissioner of Customs and ordered refund of the amount of P775.62 to respondent ESSO which
the latter had paid under protest. 4
This decision of the Court of Tax Appeals is now before this Court for review.

Petitioner contends that the special import tax under Republic Act No. 1394 is separate and distinct
from the customs duty prescribed by the Tariff and Customs Code, and that the exemption enjoyed
by respondent ESSO from the payment of customs duties under the Petroleum net of 1949 does not
include exemption from the payment of the special import tax provided in R.A. No. 1394. 5

For its stand petitioner puts forward this rationale:

A perusal of the provisions of R.A. No. 1394 will show that the legislature considered
the special import tax as a tax distinct from customs duties as witness the fact that
Section 2(a) of the said law made separate mention of customs duties and special
import tax when it provided that ... if as a result of the application of the schedule
therein, the total revenue derived from the customs duties and from the special
import tax on goods, ... imported from the United States is less in any calendar year
than the proceeds from the exchange tax imposed under Republic Act Numbered Six
Hundred and One, as amended, on such goods, articles or products during the
calendar year 1955, the President may, by proclamation, suspend the reduction of
the special import tax for the next succeeding calendar year ....

If it were the intention of Congress to exempt the holders of petroleum refinery

concessions like the protestant (respondent herein), such exemption should have
been clearly stated in the statute. Exemptions are never presumed. They must be
expressed in the clearest and most unambiguous language and not left to mere
implication. 6

Specifically, petitioner in his brief submitted two assignment of errors allegedly committed by the
Court of Tax Appeals in the controverted decision, to wit:

1st assignment of error:

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE TERM

"CUSTOMS DUTY" IN ARTICLE 103 OF REPUBLIC ACT NO. 387 INCLUDES THE
SPECIAL IMPORT TAX IMPOSED BY REPUBLIC ACT NO. 1394;

2nd assignment of error:

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT EXEMPTION FROM

PAYMENT OF CUSTOMS DUTIES UNDER REPUBLIC ACT NO. 387 INCLUDES
EXEMPTION FROM PAYMENT OF THE SPECIAL IMPORT TAX.

On the other hand, the Court of Tax Appeals rationalized the ground for its ruling thus:

If we are to adhere, as we should, to the plain and obvious meaning of words in

consonance with settled rules of interpretation, it seems clear that the special import
tax is an impost or a charge on the importation or bringing into the Philippines of all
goods, articles or products subject thereto, for the phrase "import tax on all goods,
articles or products imported or brought into the Philippines" in explicit and
unambiguous terms simply means customs duties. It is hardly necessary to add that
 "customs duties" are simply taxes assessed on merchandise imported from, or
exported to a foreign country.

And being a charge upon importation, the special import tax is essentially a customs
duty, or at least partakes of the character thereof.

Citing numberous American decisions and definitions of terms "customs duties," "duties," "imposts,"
"levies," "tax," and "tolls," and their distinctions, including some pronouncements of this Court on the
subject, the Court of Tax Appeals in its decision, went to great lengths to show that the term "special
import tax" as used in R.A. No. 1394 includes customs duties. It sees the special import tax as
nothing but an impost or a charge on the importation or bringing into the Philippines of goods,
articles or products. 7

To clinch its theory the Court of Tax Appeals cited the similarity in the basis of computation of the
customs duty as well as the similarity in the phraseology of Section 3 of Republic Act No. 1394
(which established the special import tax) and Section 9-01 of the Tariff & Customs code (the basic
law providing for and regulating the imposition of customs duties and imposts on importations). 8

For its part, private respondent, ESSO, in its answer to the petition, leaned heavily on the same
arguments as those given by the Tax Court, the burden of which is that the special import tax law is a
customs law. 9

It is clear that the only issue involved in this case is whether or not the exemption enjoyed by herein
private respondent ESSO Standard Eastern, Inc. from customs duties granted by Republic Act No.
387, or the Petroleum Act of 1949, should embrace or include the special import tax imposed by R.A.
No. 1394, or the Special Import Tax Law.

We have examined the records of this case thoroughly and carefully considered the arguments
presented by both parties and We are convinced that the only thing left to this Court to do is to
determine the intention of the legislature through interpretation of the two statutes involved, i.e.,
Republic Act No. 1394 and Republic Act No. 387.

It is a well accepted principle that where a statute is ambiguous, as Republic Act No. 1394 appears
to be, courts may examine both the printed pages of the published Act as well as those extrinsic
matters that may aid in construing the meaning of the statute, such as the history of its enactment,
the reasons for the passage of the bill and purposes to be accomplished by the measure. 10

Petitioner in the first assignment of error took exception to the finding of the Court of Tax Appeals
that "The language of Republic Act No. 1394 seems to leave no room for doubt that the law intends
that the phrase 'Special import tax' is taken to include customs duties" and countered with the
argument that "An examination of the provisions of Republic Act No. 1394 will indubitably reveal that
Congress considered the special import tax as a tax different from customs duties, as may be seen
from the fact that Section 2(a) of said law made separate mention of customs duties and special
import tax ..." Thus:

... if as a result of the application of the schedule therein the total revenue derived
from the customs duties and from the special import tax on goods, ... imported from
the United States is less in any calendar year than the proceeds from the exchange
tax imposed under Republic Act Numbered Six Hundred and One, as amended, on
 such goods, articles or products during the calendar year 1955, the President may,
by proclamation, suspend the reduction of the special import tax for the next
succeeding calendar year ...

Petitioner further argues:

Customs duties are prescribed by the Tariff and Customs Code, while the special
import tax is provided for by Republic Act No. 1394. If our legislature had intended to
classify the special import tax as customs duty, the said Art would not have expressly
exempted from payment of the special Import tax importations of machinery,
equipment, accessories, and spare parts for use of industries, without distinguishing
whether the industries referred to are the industries exempt from the payment of
Customs duties or the non-exempt ones (Sec. 6). It is sufficient that the imported
machinery, etc., is for the use of any industry. 11

A study of petitioner's two assignments of errors shows that one is anchored on practically the same
ground as the other: both involve the interpretation of R.A. No. 387 (The Petroleum Act of 1949) in
relation with R.A. No. 1394 (The Special Import Tax Law).

While the petitioner harps on particular clauses and phrases found in the two cited laws, which in a
way was likewise resorted to by the respondent ESSO, it would do Us well to restate the
fundamental rule in the construction of a statute.

In order to determine the true intent of the legislature, the particular clauses and phrases of the
statute should not be taken as detached and isolated expressions, but the whole and every part
thereof must be considered in fixing the meaning of any of its parts. In fact every statute should
receive such construction as will make it harmonize with the pre-existing body of laws. Antagonism
between the Act to be interpreted and existing or previous laws is to be avoided, unless it was clearly
the intention of the legislature that such antagonism should arise and one amends or repeals the
other, either expressly or by implication.

Another rule applied by this Court is that the courts may take judicial notice of the origin and history
of the statutes which they are called upon to construe and administer, and of facts which affect their
derivation, validity and operation. 12

Applying the above stated rules and principles, let us consider the history, the purpose and
objectives of Republic Act No. 387 as it relates to Republic Act No. 1394 and other laws passed by
the Congress of the Philippines insofar as they relate to each other.

Republic Act No. 387, the Petroleum Act of 1949, has this for its title, to wit:

AN ACT TO PROMOTE THE EXPLORATION, DEVELOPMENT, EXPLOITATION,

AND UTILIZATION OF THE PETROLEUM RESOURCES OF THE PHILIPPINES;
TO ENCOURAGE THE CONSERVATION OF SUCH PETROLEUM RESOURCES;
TO AUTHORIZE THE SECRETARY OF AGRICULTURE AND NATURAL
RESOURCES TO CREATE AN ADMINISTRATION UNIT AND A TECHNICAL
BOARD IN THE BUREAU OF MINES; TO APPROPRIATE FUNDS THEREFORE;
AND FOR OTHER PURPOSES.
Art. 103 of said Act reads:

ART. 103. Customs duties. During the five years following the granting of any
concessions, the concessionaire may import free of customs duty, all equipment,
machinery, material, instruments, supplies and accessories.

xxx xxx xxx

Art. 102 of the Same law insofar as pertinent, provides:

ART. 102. Work obligations, taxes, royalties not to be charged. ...; nor shall any
other special taxes or levies be applied to such concessions, nor shall
concessionaires under this Act be subjected to any provincial, municipal, or other
local taxes or levies; nor shall any sales tax be charged on any petroleum produced
from the concession or portion thereof, manufactured by the concessionaire and
used in the working of his concession. ....

Art. 104, still of the same Act, reads:

ART. 104. No export to be imposed. No export tax shall be levied upon petroleum
produced from concessions granted under this Act.

The title of Republic Act No. 387 and the provisions of its three articles just cited give a clue to the
intent of the Philippine legislature, which is to encourage the exploitation and development of the
petroleum resources of the country. Through the instrumentality of said law, it declared in no
uncertain terms that the intensification of the exploration for petroleum must be carried on
unflinchingly even if, for the time being, no taxes, both national and local, may be collected from the
industry. This is the unequivocal intention of the Philippine Congress when the language of the
Petroleum Act is examined. Until this law or any substantial portion thereof is clearly amended or
repealed by subsequent statutes, the intention of the legislature must be upheld.

Against this unambiguous language of R.A. No. 387, there is the subsequent legislation, R.A. No.
1394, the Special Import Tax Law, which, according to the herein petitioner, shows that the
legislature considered the special import tax as a tax distinct from customs duties.

Republic Act No. 1394, otherwise known as the Special Import Tax Law, is entitled as follows:

AN ACT TO IMPOSE A SPECIAL IMPORT TAX ON ALL GOODS, ARTICLES OR

PRODUCTS IMPORTED OR BROUGHT INTO THE PHILIPPINES, AND TO
REPEAL REPUBLIC ACTS NUMBERED SIX HUNDRED AND ONE, EIGHT
HUNDRED AND FOURTEEN, EIGHT HUNDRED AND SEVENTY-ONE, ELEVEN
HUNDRED AND SEVENTY-FIVE. ELEVEN HUNDRED AND NINETY-SEVEN AND
THIRTEEN HUNDRED AND SEVENTY FIVE.

The title indicates unmistakably that it is repealing six prior statutes. As will be seen later, all these
laws dealt with the imposition of a special excise tax on foreign exchange or other form of levy on
importation of goods into the country.

Section I of Republic Act No. 1394 reads as follows:

 SECTION 1. Except as herein otherwise provided, there shall be levied, collected
and paid as special import tax on all goods, articles or products imported or brought
into the Philippines, irrespective of source, during the period and in accordance with
the rates provided for in the following schedule:

xxx xxx xxx

It would appear that by the provision of Section 1 of this Act, the pertinent provision of the Petroleum
Law, for which there appears to be no proviso to the contrary has been modified or altered.

Section 6 of Republic Act No. 1394 declares that the tax provided for in its Section I shall not be
imposed against importation into the Philippines of machinery and/or raw materials to be used by
new and necessary industries as determined in accordance with R A. No. 901 and a long list of other
goods, articles, machinery, equipment, accessories and others.

We shall now examine the six statutes repealed by R.A. No. 1394, namely:

R.A. No. 601 is an Act imposing a special excise tax of 17% on foreign exchange
sold by the Central Bank or its agents. This is known as the Exchange Tax Law;

R.A. No. 814 amended Sections one, two and five and repealed Sections three and
four of R.A. No. 601;

R.A. No. 871 amended Sections one and two of R.A. No. 601, as amended earlier by
R.A. No. 814;

R.A. No. 1175 amended further Sections one and two of R.A. No. 601, as amended;

R.A. No. 1197 amended furthermore R.A. No. 601 as amended previously by R.A.
No. 1175;

R.A. No. 1375 amended Sections one and two of R.A. No. 601 as amended by R.A.
Nos. 1175 and 1197.

As can be seen from the foregoing, in one fell swoop, Republic Act No. 1394
repealed and revoked six earlier statutes which had something to do with the
imposition of special levies and/or exemption of certain importations from the burden
of the special import taxes or levies. On the other hand, it is apparent that R.A. No.
387, the Petroleum Act, had been spared from the pruning knife of Congress,
although this latter law had granted more concessions and tax exemption privileges
than any of the statutes that were amended, repealed or revoked by R.A. No. 1394.
The answer must be that the Congress of the Philippine saw fit to preserve the
privileges granted under the Petroleum Law of 1949 in order to keep the door open
to the exploitation and development of the petroleum resources of the country with
such incentives as are given under that law.

This ascertained will and intention of the legislature finds a parallelism in a case
brought earlier before this Court.
A fishpond owner was slapped with taxes as a "merchant" by the Collector of Internal Revenue. He
paid under protest and filed an action to recover the taxes paid, claiming that he was an agriculturist
and not a merchant. When this Court was called upon to interpret the provisions of the Internal
Revenue Law on whether fish is an agricultural product which falls under the exemption provisions of
said law, it inquired into the purpose of the legislature in establishing the exemption for agricultural
products. We held:

The first inquiry, therefore, must relate to the purpose the legislature had in mind in
establishing the exemption contained in the clause now under consideration. It
seems reasonable to assume that it was due to the belief on the part of the law-
making body that by exempting agricultural products from this tax the farming
industry would be favored and the development of the resources of the country
encouraged. .... 13

Having this in mind, particularly the manner in which extrinsic aids the history of the enactment of the
statute and purpose of the legislature in employing a clause or provision in the law had been applied
in determining the true intent of the lawmaking body, We are convinced that R.A. No. 387, The
Petroleum Act of 1949, was intended to encourage the exploitation, exploration and development of
the petroleum resources of the country by giving it the necessary incentive in the form of tax
exemptions. This is the raison d etre for the generous grant of tax exemptions to those who would
invest their financial resources towards the achievement of this national economic goal.

On the contention of herein petitioner that the exemptions enjoyed by respondent ESSO under R.A.
No. 387 have been abrogated by R.A. No. 1394, We hold that repeal by implication is not favored
unless it is manifest that the legislature so intended. As laws are presumed to be passed with
deliberation and with full knowledge of all existing ones on the subject, it is logical to conclude that in
passing a statute it was not intended to interfere with or abrogate any former law relating to the
same matter, unless the repugnancy between the two is not only irreconcilable but also clear and
convincing as a result of the language used, or unless the latter act fully embraces the subject
matter of the earlier. 14

As observed earlier, Congress lined up for revocation by Republic Act No. 1394 six statutes dealing
with the imposition of special imposts or levies or the granting of exemptions from special import
taxes. Yet, considering the tremendous amount of revenues it was losing under the Petroleum Law
of 1949, it failed to include the latter statute among those it chose to bury by the Special Import Taw
Law. The reason for this is very clear: The legislature wanted to continue the incentives for the
continuing development of the petroleum industry.

It is not amiss to mention herein passing that contrary to the theory of the herein petitioner, R.A. No.
387 had not been repealed by R.A. No. 2352 which expressly abrogated Section 6 of R.A. No. 1394
but did not repeal any part of R.A. No. 387. Therefore, the exemption granted by Republic Act No.
387 still stands.

WHEREFORE, taking into consideration the weight given by this Court to the findings and
conclusions of the Court of Tax Appeals on a matter it is well-equipped to handle, which findings and
conclusions We find no reason to overturn, the petition of the Commissioner of Customs to reverse
the decision of the Court of Tax Appeals should be, as it is hereby, denied.

No costs.
SO ORDERED.