DOWNSTREAM

OIL INDUSTRY
DEREGULATION
 Historical Background and
Related Laws
( as enumerated in TATAD vs
Sec. of Energy and Finance,
GR 123460; GR 127867)
 Prior to 1971

 There was no government agency regulating the

oil industry, other than those dealing with
ordinary commodities
 Oil companies were free to enter and exit market
without any government interference
 There were four refining companies ( Shell,
Caltex, Bataan Refining Company and Fil Oil) and
six petroleum marketing companies ( Esso ,
Caltex, Fil Oil, Getty, Mobil and Shell ).
 All these oil and petroleum companies were
owned by foreigners
 1971

The government enacted Oil Industry

Commission Act. It created the Oil Industry
Commission ( OIC ).
The OIC was vested with power to fix market
prices of petroleum products, to regulate the
capacities of refineries, to license new
refineries, and to regulate the operations and
trade practices of the industry.
 November, 1973

 Creation of Philippine National Oil Corp.( PNOC)

 PNOC operated under the business name
PETRON Corporation.
 For the FIRST time, there was a Filipino presence
in the Philippine oil market
 Acquired ownership of ESSO and FilOil to serve
as marketing arm.
 PNOC engaged in refining, marketing, shipping,
transporting and storing petroleum
 1984

Establishment of Oil Price Stabilization Fund (

OPSF ) through Sec.8 of PD 1956
 The fund is used :
Reimburse the oil companies for cost
increases in crude oil and imported oil
petroleum products resulting from exchange
rate adjustment and/or in world market
prices of crude oil
 1984
And…

To reimburse oil companies for cost under

recovery incurred as a result of reduction of
domestic prices of petroleum products
 1985

Only three oil companies were operating :

Caltex, Shell and PNOC.
 May, 1987

 Enactment of E.O. 172 creating ERB ( Energy

Regulatory Board )
 It regulates the business of importing,
exporting, re-exporting shipping, processing,
marketing and distributing energy resources
“when warranted and only when the public
necessity requires
 December, 1992

Congress enacted R.A. 7638 which created

the Department of Energy
 Under this law, it aims to encourage free and
active participation of investment by the
private sector in all energy activities.
Pursuant to this policy, the government
approved the privatization of PETRON in
1993. PNOC sold 40% of its equity in PETRON
to the Aramco Overseas Company
 1996, March

 Congress enacted RA 8180 “Downstream Oil Industry

Deregulation Act of 1996.
 Under the deregulated environment “ any person or
entity may import or purchase any quantity of crude
oil and petroleum products from a foreign or
domestic source, lease or own and operate refineries
and other downstream oil facilities and market such
crude oil or use the same for his own
requirement,”…subject only to monitoring of DOE.
 On Feb., 1997, the government implemented the full
deregulation of the Downstream Oil Industry
 Republic Act 8180
However, on Nov. 1997, R.A. 8180 was held unconstitutional
and E.O. 392 void by the Court, to wit:
xxx…“ Without the new players belonging to the league of
Petron, Shell and Caltex, competition in our downstream
oil industry is an idle dream…Again, we underline in
scarlet that the fundamental principle espoused by
section 19, Article XII of the Constitution is competition
for it alone can release the creative forces of the market…
The aftermath of RA 8180 is a deregulated market where a
competition can be corrupted and where market forces
can be manipulated by oligopolies.” Xxx
Thus, the whole statute had to be invalidated
 Feb., 1998

 After the struck down of RA 8180, Congress enacted

a new deregulation law, RA 8749 known as
Downstream Oil Industry Regulation Act of 1998.”
 Under the law, any person or entity may import or
purchase any quantity of crude oil and petroleum
products from a foreign, or domestic source, lease or
own and operate refineries and other downstream oil
facilities and marhet sch crude oil and petroleum
products either in a generic name or his or its own
trade name, our use the same for his or ots own
requirement.It is required, however, that any person
or entity who shall engage in any such activity
 Republic Act 8479
activity shall give prior notice thereof to the DOE
for monitoring purposes. Moreover, such
persons or entity shall, for monitoring purpose,
report to the DOE his or its every
importation/exportation.
 Deregulation of the Oil Industry is a policy of
determination of the “highest order.”
 Under this new Act, to ensure fair competition
and prevent cartels and monopolies in the
industry, Sec. 11 of RA 8479 prohibits the ff:
 Sec.11, RA 8479
• Cartelization
• Predatory Pricing means selling or offering to sell any oil
product at a price below the seller’s or offeror’s average
variable cost for the purpose of destroying competition.
• Failure to comply with
.> submission of reportorial requirements
>use of clean and safe technologies
>any order or instruction of the DOE secretary issued in
the exercise of his enforcement powers under Sec.15 of
this Act
> registration of any fuel additive with the DOE prior to its
use as an additive
 Validity of RA 8479
A new challenge to its validity was mounted
by Petitioner Cong. Enrique Garcia, seeking to
declare Sec.19, which sets the time of full
deregulation, unconstitutional.
• Petitioner contends that Sec.19 which prescribes
the period for the removal of price control of
gasoline and other finished products and for the
full deregulation of the local downstream oil
industry, is patently contrary to public interest
and therefore
 Constitutionality of RA 8479
…unconstitutional because within the short
span of five months, the market is still
dominated and controlled by an oligopoly of
the three private respondents, namely SHELL,
Caltex and Petron.
However, the Court upheld the validity of
RA 8479, thus:
 Ponencia: Garcia vs Corona
RA 8479 actually allows the free play of
supply and demand to dictate prices. Petitioner
wants a government official or board to
continue performing this task. Indefinite and
open ended price control as advocated by
petitioner would be to continue a regime of
legislated regulation where free competition
cannot possibly flourish…To grant the petition
would mean that the government is not keen on
allowing a free market to develop…The Court
further noted that instead of price controls
advocated by the petitioner, Congress has
 RA 8479
RA 8479 actually allows the free play of supply and
demand to dictate prices. Petitioner wants a government
official or board to continue performing this task. Indefinite
and open ended price control as advocated by petitioner
would be to continue a regime of legislated regulation
where free competition cannot possibly flourish…To grant
the petition would mean that the government is not keen on
allowing a free market to develop…The Court further noted
that instead of price controls advocated by the petitioner,
Congress has enacted anti-trust measures which it believes
will promote free and fair competition…The remedy against
unreasonable price increases is not the nullification of
Sec.19 of the RA8479 but the “ setting into motion its
various other provisions.”
 Garcia vs Exec. Secretary, April 2009
the Court held:
RA 8479 has provided, aside from prosecution for
cartelization, several anti-trust mechanisms,
including enlarged scope of the DOE monitoring
power and the creation of a Joint Task Force to
immediately act on complaints against
unreasonable rise in the price of petroleum
products… His belief (Garcia) that these oversight
mechanisms are unrealistic and insufficient does
not permit disregard of these remedies.”
 J. Panganiban Concurring Opinion
GR123460
“ I am sure there are patriots among them
who realize that, in times of economic turmoil,
the poor and the underprivileged
proportionately suffer more than any other
sector of society. There is a certain threshold of
pain beyond which the disadvantaged cannot
endure. Indeed, it has been wisely said that, “ if
the rich who are few will not help the poor who
are many, there will come a time when the few
who are filled cannot escape the wrath of the
many who are hungry.”
Thank you and
Have a nice
evening ahead 