Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
Kirst Regular Session

HOUSE BILL No. ___ 4355

Introduced by Reps. ‘TEDDY A. CASINO, NERI JAVIER COLMENARES,
RAFAEL V. MARIANO, LUZVIMINDA C. ILAGAN, EMMI A. DE JESUS,
RAYMOND V. PALATINO, and ANTONIO L. TINIO

EXPLANATORY NOT’

‘The recent rurmoil in the oil producing countries of the Middle Hast and Northem Africa have vet again
given oil companies an added reason ro let their greed dictate the rapid price hikes of all oil products im the
Philippines.

Since January 2011, oil companies led by Shell, Chevron and Petron have raised pump prices etght (8) umes
to a toxal of « P5.25 increase for a liter of gasoline and a P3,00 increase {or a liter of diesel in Metro Manila,
‘The pump prices in the Visayas and Mindanao are higher by P5.00 (o P8,00 per leer compared to Metro
Manila

Oil companies cite the rapid upswing of mtemational market oil prices wherein the As
crude averaged more than $100 a barrel in February 2011, from an avere of US$9-
hitting a owo year-and-a-half bigh of aearly US$1 12 a barrel on February 24,

10 benchmark Dubai
a bartel in January,

What oil companies do nor reveal to the goverment and the public is the (rue inventory of oil products in.
the country that ranges from a 40 to 5 day reserve, and the actual costs of the crude and refined oil products
being, imported. Jf there is really a reason for the mrerease other than curteticy considerations in the world oil
price shocks, why raise pump prices immediately when the oil supplies in the so-called inventory were bought
with the cheaper international market rates? When there is a need for cil price rollbacks, oil companies fidget
and refuse to implement the same immediately compared to their alactity in increasing prices.

The deregulation of the oil industry that was brought about by Republic .\ct 8179, or the “Downstream Oil
Industry Deregulation Act of 1998”, completely tailed to ensure a truly competitive market under 2 regime of
fair prices through the liberalization and the deregulation of the local downstecam oil industry

Deregulation has allowed oil price increases to go unchecked. R.A. 8479 surrendered government cantrols on
oil peices. rendering the Departinent of Viner. (DOE) as an apologsst ~ if not de facto spokesperson - for
oil companies each and every line that oil prices are pushed upward. Crude oil and pefroleuin products are
sensitive commodities since its prices directly atfeet the cost of almost all other commodities and services
such as food, housing, social services, as tansporration.

Even withour factoring in increases m the world demand for oil, the artificial effects of speculation, and the
turmoil in ol producing counties, world oil prices are unjustifiably high hecause they are under the control of


monopolisae transnational oil corporations. iven this set-up, the State has a sesponsibitity tw promote social
Jusuice and an equrrable national economy for its people. Ie must regulate the viral downstream oi industry if
it wants to give immediate and medium-tecm relief to the people

This

Js a comprehensive measure ro immediately address the problematic downstream oil industry in light
1¢ abn ementioned facts by requiring the following:

4, the regular of the petroleum industry through the ereation uf a Petroleum Regulatory Council

bi « Butler Fund thar shall solely serve to cushion consumers against drastic increases in petroleum prices,
ankke the old Oil Price Stubilization Fund {OPSB) that reimbursed oil companies for dubious “cost under
werie

i *he government's ceacquisition ofa majority stake in the Petron Cosporation to market leveraging
nn -rpor regain f
anc price stabilin;

8. 4 centraled procurement of oil and pecroleum productss and
¢, the repeal of RA 8479 or the Downstream Oil Indusuy Deregulation Act of 1998.

in sew of the toregoing, the immediate approval thereof is highly recommended,

Vee tend. Cogn
TEDDY A. CASINO va
fox

Witamethe og OG
LUZVIMINDA C. ILAG: NER] JAVIER COLMENARES: i
Gabricla Women’s Party” Bayan Muna Party-list !

bead if
RAFAFL V. MARIANO. RAYMOND V, PALATINO
Analspawis Party-list Kabatadh Barty-list

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EMMI A. DE vane -ANTONIO¥: TINT
Gabriela Women’s Patty ACT Teachers Pacty-list


Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

FIFTEENTH CONGRESS
First Regular Session

HOUSE BLLNo,__ 4355

Tatroduced by Reps. TEDDY A. CASINO, NERI JAVIER COLMENARES,
RAFAEL V. MARIANO, LUZVIMINDA C. ILAGAN, EMMI A. DE JESUS,
RAYMOND V. PALATINO and ANTONIO L, TINIO

AN ACT

REGULATING THE DOWNSTREAM PETROLEUM INDUSTRY, REPEALING REPUBLIC

ACT NO. 8479 OR THE DOWNSTREAM OIL INDUSTRY DEREGULATION ACT OF 1998,
AND FOR OTHER RELATED PURPOSES

Be it enacted by the Senate and the Howse of Representatives of the Philippines in Conerese asenabled:

CHAPTER I
GENERAL PROVISIONS

SECTION 1, Short Title. — This Act shall be known as the “Downstream Qit Industry Regulation Act of
2011",

SECTION 2. Declaration of Policy. - Oil and petroleum products being, vital to national security and their
supply at reasonable prices being essential to the general welfare consistent with Article I (Social Justice) and
Arcicle XII (National Economy and Pateimony) of the 1987 Constitution, it is hereby declared the policy of
the State that the business of importing, exporting, re-exporting, marketing, distributing, and selling. both at
wholesale and revail, crude vil, gasoline, kerosene, diesel and other sucially and economically sensitive refined
petroleum or petroleum products, as well as operations and activities of natural and juridical persons, firms,
and entities engaged it such activities, shall be regulared and carried out in a manner consistent with the
public interest so as to altain the following objectives:

G) ‘To ensure a proper, adequate, and continuous supply of crude oil and refined petroleum products under
the most economic and cotnpetitive terms possible, considering all available sources of supply;

(by ‘Lo ensure reasonable and transparent prices for petroleum products and to prevent monopols,
combinations in restraint of trade, unfair competition, and economic domination in the industry; and

(To minimize the cost and the outflow of foreign exchange involved in the operations of the oil and
petroleum industry.

SECTION 3. Coverage. — This Act shall apply ro all narwral and juridical persons, firms, and enrities
engaged in any and all activities of the petrofeum industry, as well as persons or companies directly importing,


or esporting crude of refined petroleum products for their own use of for the use of other natural and
ies engaged in any and all activites of the petroleum industry.

‘These activities include the act and business of importing, exporung, re exporting, storing, distributing, and
selling, both at wholesale and retail, of crade oil, gasoline, kerosene. gas, and other refined peteoleum
produets.

SECTION 4. Definition of Terms,

(@) Crude Oi! shall refer eo oil in its natural stare before the same has been refined of otherwise treated,
but excluding water, bottoms, sediments and foreign substances. Crude oil or Oil shall be used
interchangeably with Perolum;

(b) Downstream Oil Industry o* Industry shall eeter wo the business of importing, exporting, re-exponting,
shupping, transporting, processing, retining, storing, distributing, marketing, and/or seltiny, crude oil, gasoline,
diesel, liquefied petroleum gas (1.PG), kerosene, and other petroleum products,

(Exchange shall incan the Philippine National Oil Company-National Petroleum Exchange
Corporation (PNOC-NPEC);

(S)_——_Laguties Company shall meas the Philippine National Oil Company Shipping, Transport, and Storage
Comoration (PSISC}:

(©) Petroleum shall refer to the aaturally occurring mixture of compounds of hydrogen and carbon with a
staall proportion of impurities and shall include any mineral oil, petroleum gus, hydrogen gas, bitumen,
asphalt, mineral wax, and all other similar or naturallr-associated substances, with the exception of coal, peat,
bituminous shale and/or other stratified mineral fuel deposits;

(© Petroleum products shall can peoducts formed in the cousse of refining crude petroleum through
distillation. craching, solvent refining and chemical treatment, coming out as primary stocks from the refinery
like: liquefied petrulcum gas (LPG), naphtha, gasolines, solvents, kerosenes, aviation turbine fuels,
automatic/industrial diesel oils, industrial/residual fuel oils, waxes and petrolatums, asphalts, bitumins, coke
and refinery sludges, or such cefincry peteolewn fractions which have not undcegone any process or treatment
as w produce separate chemically defined compounds in a pure or commercially pure state; and to which
various substances may have been added ro render them suitable for particular uses, provided that the
resultant product contains nor less than 5(P by weight of such petroleum products:

@)—_Phaippine national shall mcan a citizen uf the Philtppines, or 2 domestic partnership or association
wholly owned by citizens of the Philippines; or a corporation organized uixder the laws of the Philippines of
which at least sixty percent (60%) of the capital stock ontstanding and the entitlement to vote is owned and
held by citizens of the Philippines; or a corporation organized abroad aid registered as doing business in the
Philippines under the Corporation Code of which one hundred percetit (100%) of the capital stock
‘outstanding and the entitlement to vote is wholly owned by Filipinos or a trustee of funds for pensiva or
other employee retirement or separation benefits, where the trustee is « Philippine national and at least sixty
percent (60°) of the fund will accrue to the benefit of Philippine nationals: Provided, That where a
coporation and its non-Tilipino stockholders own stocks in a Securities und Exchange Commission (SEC)
registered enterprise, at least sixty percent (60%) of the capital stock outstanding and entitled to vote of cach
of both corporations must be owned and held by citizens of the Philippines and al least sixty percent (63)
of the members of the Board of Dizectors of each of both corporations must he citizens of the Philippines, in
‘order that the corporation shall Le considered a Philippine national; and

(b) Plan shall refer to the Centralized Petroleum Procucement Phan,


CHAPTER IL
PRICR REGULATION

SECTION 5. The Petroleum Regulatory Council. - There is hereby created an independent, quasi
judicial regulatory body to be nained the Petroleum Regulatory Council (RC), hereafter referced to as the
Council, whose function itis to strictly regntate the pricing of ceude oil and socially and economically
sensitive pettoleurn products at the Jevels of marketing, distribution, wholesale, and retail in the operations
and acuvities of natural and juridical persons, firms, and entiles engaged in such activiries.

SECTION 6. Composition of the Council,— (a) ‘The Council shall be composed of a Chairperson and six
(©) Members w be appointed by the President of the Philippines. The Chairperson and the Council Members
shall be natural bom citizens and residents of the Philippines; persons of good moral character; t least thieny~
five (35) sears of age; of recognized competence in any of the following fields: energy, law, economics,
finance, commerce and industry, and management; or the transportation and consumer sectors; and with at
least five (5) rears of actual and distinguished experience in their respective fields of expertise or sectors:
Provided, That out of the six (6) members of the Council, at least one (1) shall have had (10) years experience
in the fields of management, cconomies, or commerce and industry; one (1) shall be a certified public
accountant with at least tet: (10) years experience in active practice; and onc (1) shall be a recognized leader
who has been active for at least ten (10) years in the transportation, consumer, oF industrial sector.

(b) The term of office of the Chatrperson and the Council Merobers shall be Four (4) years: Provided, That
for the first appointees, the Chairperson shail bold office for four (4) years, two (2) Metnbers shall hold office
for four (4) years, another we for three (3) years. and the remaining two (2} Members shall hold office for
two (2) ears Provided, further, That for subsequent appointees, the successor of each Member shall have the
same tenure as bis predecesson Pmrided, further, that appointment to any vacancy shall only be for the
unexpired tenm of the predecessor: Provided, final, That in no case shall any member secve for more than four
1) sears in the Council

© The Chairperson and Members of the Council shall be Prohibited from holding any interest
whatsoever. cither as investor, stockholder, officer, or director, in any company or entity engaged in the
business of exploring. exploiting, importing, exporting, re-esporting, shipping, transporting, processing.
refining, storing, marketing, distributing, and selling both at wholesale and retail any petroleum resource. In
‘ease thes do, they must divest through sale ur legal disposition of any aud all interest in the petroleum
mdustry upon assumption of office.

Forner Chairpersons and members of the Council are prohibited from working directly ot indirectly in aor
Grm engaged in the petroleuin industry or aay other entity whose main business is directly o¢ indirectly
telated to any such firm within one (1} yeur for the ume ther have ceased to he offically connected with the
Council.

(@) The Chairperson and Members of the Council shall assume office upon their appointment and the

administration of their respective oaths of office. ‘Ther shall devore their full time to the Council and shall not
Pe

accept any other employment while in office.

SECTION 7. General Jurisdiction, Powers, Functions, and Duties of the Council. ‘Vhe general
jurisdiction, powers, functions, atid duties of the Couned shall include the following:

@ Price monitoring and compilation of the prices involved in the movement of eaw materials or
fatished products in the marketing, distribution, and sale both at wholesale and retail, of petroleum and
socially and economically sensitive petroleum bated resources. In order that no unnecessary costs mar be
included in the pricing of petroleum and its derivanves, price monitoring and compilation shall also be done



at the stages of shipment, transport, and storage. ‘This shall be conducted in coutdination with existing,
independent monitoring bodies. These records shall be submitted weekly, or upon request, for the review of
the Council, For cases where persons, finns, oF entities refuse such information, the Council shall issue
subpoenas ath bpoenas dues ecure to comspel such parties;

[) Compilation and analysis of information hereby required from local importers of crude vil and
socially and economically refined petrolcum products, refiners, dealers, and petroleum marketing companies
on the following:

1) Comprebensive sales reports;

3 Inventories;

3) Prices of all involved products af various time intervals, as determined by the Council for petroleum
and petrofeum products; and

4) Demand forecasts for subsequent time intervals, as determined by the Council for invalved.
petroleum and petrvleum products.

(©) The Council shall pursue systemanzed, random statistical sampling surveys to determine adherence
to and violations of price regulation by the Council. These surveys shall be done by rechnical groups formed
by the Council, in close coordination with Council-accredited organizations that undertake their own
petroleum price surveys;

fd) Issue subpsena and subpoena duces teem in any inquiry. stady, heating, investigation, or proceedings
which it may decide to undetlake in the exercise of its powers, functions, and duties under this Act; and

(©) Promulgate rules and regulations relevant to procedures governing hearings before it and enforce
compliance, through the imposition of penalties, with any rule. ruling, regulation, order, resolution, decision,
ot other requirements of this Act of acts of the Council in the exercise of its quasi-judicial functions;
Provided That said rules and regulations take effect fifteen (15) days alter publication in the Official Gazetve.

SECTION 8, Setting of Oil Prices. — Upon the effectivity of this Act, industry averages of prevailing,
market prices of sucially and economically sensitive pecroleum and petroleum products shall serve as the
starting point (or the determination of prices. Any succeeding modification shall hereby be required to
undergo public hearings, convened by the Council, before such become effective.

The Council shall revise oil prices only upon proper notice and hearing, in the exercise o!
fanctions, as follows:

powers and

{@) _Inrevising prices, che Council shall be guided by the following, considerations:

1) Whether claimed increases or decreases in costs, sales. or profits are real ot simulated

Whether expenses and costs which are claimed to have been incurred, or ate being incurred, or are to
be incutted are reasonable;

3) The impact of the proposed prices or change therein on the economy and on the consuming public,
Particularly low income groups and ndusteies essential to the national welfare ot security, given the
daily cost of living, and predominant wages;


4) The component costs and the profit levels oF rates of retuen not only of the petroleum industry but
also of other manufacturing industries in the country, and

5) The ability of the levels of the Oil Price Butler Fund to maintain, Uhrough subsidy disbursements,
current oil price tevels until the nest resetting.

(©) Hearings must have in attendance organizations from different sectors affected by the following
regularions, inchiding but not limited to consumer groups, the transport sector, other representative people's
‘organrzauons, producers, and sellers. as well as independent experts.

(©) Advance details of these public hearings. as well as for hearings required by Section 7 of this Act.
shall be published in a€ least two (2) newspapers of major circulation 2t least neo (2) weeks before the
scheduled consultations.

(@)—_Inexercise of its duties, che Council shall, for every hearing convened,

1) Present a concise report on the operations cegarding the administration of the Oil Price Buffer Fund,
including its complete sources and disbursements, since the last hearing of oil price adjustment;

2) Summarize data justifying and supporting the last oil price adj
and contributed to the necessity (@ revise ail prices; aad

ments and how these have changed

3) Publish the proceedings of concluded hearings in at least ro (2) newspapers of tational circulativa
at least one month before the implementation of newly set oil prices, for which period the Council
shall be open to petitions ad appeals subject for review by the Council

SECTION 9. Procedures of the Council. — All inquiries, studies, hearings, investigations, and proccedings
‘conducted by the Council shall be governed by rules adopted by the Council, and in the conduct thercof the
‘Counal shall not be bound by the technical rules of evidence: Provided, That the Council may summarily
punish for contempt by a fine not exceeding five thousand pesos or by imprisonment not exceeding thirty
G0} days or both, any person guilty of such misconduct in the presence of the Council or so near thereto as
to seriously interrupt any hearing or session or any proceedings before it, including cases in which a person
willfully Gals or refuses, withour just cause, to comply with summons, cahpoena ad resniivundur, subpoena dices
«coum, decision or order, rules and regulations legally issued or promulgated by the Council; or being present at
2 hearing, session, or investigation, refuses to be swom as a witness of fo answer questions when lawfully
required to do x0, or to furnish information required by the Council. 'Uhe sheriff and otlier police agencies of
the place where the hearing or investigation is conducted shall, upon reqquest of the Council, assist it ro

enforce the provisions of this Secuon,

‘The Council may, in any inquiry, stidy, hearing, investigation, or proceeding, by order in writing, cause the
deposiion uf witnesses within or without the Philippines to be taken in the manner prescribed be the Rules
of Conrt

SECTION 10. Petitions for Heacings. — Local vil subsidiaries, wholesalers and retailers are hereby required
to file a peution with the Couneil every time they intend to implement oil price adjustments. People’s
organizations, non-government organizations, and citizens may as well file petitions with the Council
proposing (© adjust oil prices.

SECTION 11. Organizational Structure. Within three (3) months from the creation of the Council, it
shall submit for the approval by the President of the Philippines the new oryanizational structure and plantilla
positions necessary to catty out the powers and fonctions of the Council, as well us its rules and regulations as
provided for in this Act, The Chairperson and the Members of the Council shall appoint and maintain


adequate officers, staff, and personnel, including technical boards, 1o be maintained according to the
functions, powers, and duties of the Council.

SECTION 12. Compensation and Other Emoluments of the Council, — (a) Tae compensation and
other emoluments for the Chairperson, Members, staff, and personnel of the Council shail be covered by
Republic Act No. 6758, otherwise known as the “Salan Standardization Act”.

(&) ‘The Chairperson of the Council shall be entitled to the same salaries, allowances, and benefits equal
to those of a Department Secretary while the Council Members shall recive the same equal to those of a
Department Undersecretary. The Chairperson and the other members of the Council shall, upon completion
of their term ot upon becoming eligible for retirement under existing laws, be entitled to the same retirement
benefits and rhe privileges provided for Department Secretaries and Department Lindersecretaties,
respectively

SECTION 13. Budget of the Council, — The amount of one hundred fifty million pesos

@PhP 130,000,000. 00) is hercby allocared from the Gencral Fund not otherwise appropriated for the initial
operations of the Petroleum Regulatory Council. Thereafter, the 2noual budget of the Council shall be
included in the regular or special approprations under the General Appropriation Act.

CHAPTER IL
THE OIL PRICE BUFFER FUND.

SECTION 44. Creation of the Oil Prive Buffer Fund. — (a) There is hereby created « trust fund directly
under the custody and administration of the Petroleum Regulatory Council as an account booked under its
abilities. ‘The trust fund shall be designated as the Oil Price Buffer Pund (OPBE), hercon referred to as the
Fund, for the strict and unique purpose of cushioning, consumers against rhe Frequent and drastic price
increases of loca! petroleutn and petroleum products

(b) In its initial period of operation, funds for the OPBF shall be provided for in the annual General
Appropsations Act.

SECTION 15. Dishursement of the Fund. - the Fund sball solely and strictly eelease disbursements (0
subsidize local market oil price fluctuations berween price resettings, as settled at heatiays conducted by the
Council uuder Section 7 of this Act, The Pund shall disburse as subsidies, initially on the first vear upon the
effectivity of this Acr, 2.5% of cumulative increases inn market prices across al socially and economically
sensnive petrolcum and pettoleuin products, benween public hearings, which decide on the modificarion of
Previously set prices. Revised amounts shal! become the new basis for Fund disbursements. ‘when world cil
prices decrease, the Council shall retain its existing prices, accrue all differences in set prices and market prices
to the Fund, and maintain cutrent prices until the nest hearing modifies such, Modifications of this subssidy
percentage shall likewise undergo public hearings before approval, and shall mainly depend on the needs of

consumers and industries and on the present levels of the Fund.

The Oil Price Buffer Fund shall be sctictly prohibited from being disbursed for the following purposes:
(3) To reisnburse persons, firms, and entities engaged in the petroleum industey for cost increases oa
crude oil and imported petroleum products resulumy [rom exchange rare adjustment and/or increases in
world matket prices of cme oil;

©) Cost “underrecoveries” itncurred by persons. firms. and encities enyaged in the petroleum industry as
a result of (uel oil sales ¢o the National Power Corporation (NPC);

(Projects relating to the consutnption or use of crude oil, gas, and other petroleum products;


(For the development of other sources of energe;

(© For exploration aud researches on conservauon, anti-pollution, and other similar stuches to subsidize
amportauon of crude oll and refined petroleum products br government agencies, of government owned or
contenlled corporations (GOCCs): and

(© Forany such purpose other than cushioning consumers against the high prices of local petroleum
and petroleum products.

‘The President of the Philippines is hereby prohibited from sourcing from the OPBF, through Executive
Onder, any projects, programs, and other activities whatsoever.

SECTION 16. Fund Investments. — The Petroleum Regulatory Council may, after the first five vears of the
existence of the Fand, invest part of the proceeds from the Fund in secure bank deposits like regular savings
accounts, current accounts, and titne deposits: Provided, hat these deposits are insured for the maximura
insurable amounts in the banking industry: Provided, further, That the Chairperson and all the Members of the
Council are informed and approve of cach and everr Hund mvestment, in specific amounrs: Provided,
farther, That proceeds from the Fund may only be invested when the size of the Fund has reached a
minimum amount wherein itis ten (10) umes the average dishursement for the preceding tive years: Provided,
finalh, That all eamings from such placements shall strictly and solely redound to the Fund.

SECTION 17. Extraordinaty Gains. — Whenever an authorized increase in the prices of petroleuin
products will result in an extraordinary gain from cxisting inventories, the Council is hereby empowered to
take measures, including the payrnent in the full amount of the extraurdinary gain by the persons, firms, or
emtities benefited to the OPBI:

SECTION 18. Annual Repotts of the Council. ‘Yhe Council shall publish an annual report, with or
without the convening of hearings, o0 the administration of the OPBF. including its complete sources and
disbursements; data that justify and support any and all adjustments in petroleum prices in the past year,
information on the general stare and prospects of the local downstream petroleum industry; and other such
vital information derived from inquiries, studies, and investigations by the Council in the exercise of its
powers, functions, and duties.

CHAPTER IV
PETRON CORPORATION

SECTION 19. Buy-back of Petron Corporation. (a) The Philippine National Oi Company (PNOC)
shall, upon the Grs¢ year of effectivity of this Act, reacquire equity in Petron Corporation by at least 31° of
its total subscribed stocks, PNOC shall initially buy back the shares at the Philippine Stock Exchange. If the
minimum shares to establish control is not repurchased from the PSE, the PNOC. shall cause the
expropriation, subject (0 just compensation, of Petron stocks from whoever/whichever has

possessing /ownership /couttol/custody thereof

(&) Thereafter, PNOC shall reacquire 100° ownership of Petcon Corporation within a peciod of four (4)
years, Reacquisition costs shall mainly be funded by the National Government, theough annual budget
sppruptiations. ‘The secondary source for the full repurchase shall be the expanding earnings of PNOX: from
Ns increasing stake in Petron Corporation over the period of reacyuisition; and

(9) Te achieve this objective, the PNOC is hereby required to aggressively and cousistently improve the
operations and income of Petron Corporation in line with the policies of this Act. The eventual corporate
merger of the PNOC and Petton Corporation shall hercby be a matter of policy.



SECTION 20. Policy Objectives of Petron. — Perron Corporation shall have the following policy
objectives:

(To adopt a pricing policy that keeps the prices of crude oil and petroleum products, especially
socially and economically sensitive products such as liquefied petroleum gas (IPG), naphtha, kerosene, dicscl,
as low as possible as allowed by the fulfillment of the objectives of this Act;

{b) Te control cartel and monopoly pricing, and thus check unreasonably high prices:

(©) Te naise and promote the local capacity for exploration, refining and exploitation, processing, and
development of peeoleum;

(Before or after the tull nationalization of Petron, or once deemed feasible and cost-effective by the
Board of Directors of Petron, to invest, through partnerships, joiut-venturcs, mergers, oF acquisivons, in
entities involved in activiries directly related to the policies of Petron provided under this Act. Such
ravesuments shall prioritize local Philippine nationals and government agencies such as the Philippine
National Oil Company (PNOC);

© To encourage the participation of tocal private capital by peioritizing such investments in joint
venmures it shall undertake consistent with the provisions of this Act; and

(© Teprioritize Filipino capital, technology, and labor through the investinent decisions and conduct of
‘operations of Peron.

CHAPTER V
CENTRALIZED PROCUREMENT OF OIL AND PETROLEUM PRODUCTS

SECTION 21. Creation of the National Petroleum Exchange Corporation. - ‘Where is herebs created
the National Perroteun Exchange Corporation (NPEC}, hereafrer referred to as the Exchange, with the
piimary objective of enabling the country ro get the best prices, and adequate and stable supplies for its
requirements of crude oil and petroleum products. The National Petroleum Exchange Corporation shall be a
subsidiary company of the Philippine Natonal Od Company (PNOC), making Philippine National Od
Company-Natonal Petroleumn Exchange Corporation (PNOC-NPEC} the coinpany’s formal corporate name.

SECTION 22. Board of Directors of the Exchange. — (a) ‘Uhe Board shall be composed of a Chairperson
and six (6) Directors to be appointed by the Board of Directors of the Exchange's mother comporauon, the
PNOC. The Chairperson and the Board Directors shall be nataral-bom citizens and residents of the
Philippines; persons of good moral character, at least thirty-five (35) years of age; of recognized competence
in any of the following fields: energy, law, economics, finance, commerce and industry, and management: or
the transportation and consumer sectors; and with at least Give (5) vears of actual and distinguished experience
in their respective fields of expertise or sectors: Provided Thac of the six (6) Directors of the Board, at least
‘one (1) shall have had (100) years experience in the fields of management, economics, or commerce and
industre; one (1) shall be a certified public accountant with at least ten (10) years experience in active practice;
and one {1} shall be a sector leader who has been active for at least ten (10) years in the transportation,
consumer, o¢ industrial sector,

‘Whe Chairperson and Directors of the Board shall be prohibited from holding any interest whatsoever, except
for the Chairperson of the PSTSC, cither as investor, stockholder, officer, or director, in any company or
entity engaged in the business of exploring, exploiting, importing, exporting, rc-exporring, shipping,
wansporting, processing, refining, storing, markemmg, distributing, and selling buth at wholesale and retail any

10


petroleum resource and must, therefore, divest through sale or legal disposition of any and all intexest in the
petroleum industry upon assumption of office,

Former Chairpersons and members of the Board are prohibited from working, ditectly or indirectly im any
firm engaged in the petroleum industry or any other entity whose main business is diteetly or indirectty
related to any such firm within one (1) year from the time they have ceased to be officially connected with the
Exchange.

The Give (3) appointed Board Directors shall devote their full ime to the Board and shall not accept any other
emplorment while sitting in the Board.

(b) The term of office of the Chairperson and the Board Directors shall be fous (1) years: Provided. That for
the first appointees, the Chairperson shall hold office for four (4) years, one [director shall hold office for
Four (4) years, another owo for three (3) years, and the remaining two Directors shall hold office for two @)
years: Provided further, That for subscquent appointees, the successor of cxch Director shall have the same
tenure as his predecessor: Provided firtber. That appoinment to any vacancy shall only be for the unexpired
term of the predecessor: Provided finally, That in no case shall any member serve for more than four (4) years
in the Board.

(Within ehrce (3) months from the creation of dhe Fxxchange, the Chairperson shall submit for the approval
be the PNOC Board of Directors the new organization structure and plantilla positions necessary to camry out
the powers and functions of the Exchange.

SECTION 23. Jusisdiction, Powers, Functions, and Dutics of the Exchange, — The txchange shall
centralize and strictly regulate the movement of petroleum and petroleum products at the stages of
imporation, exportation, re-exportation, distribution, storage, and selling both at wholesale and retail of
cade oil. gasoline, kerosene, zas, and other cefined petroleum products.

For this purpose, the general jurisdiction, powers, Functions. and duties of the Exchange shall include the
following:

(@) __Instituting a centralized procurement system, which shail take over all importation of crude oil and
petroleum products and shall be the sole supplier of crude and petroleuin for the local markets—-for all local
vil subsidiaries, wholesalers, retailers, as well as fo all natural and jucidical persons, firms, and entities engaged
in the act and business of importing, marketing, distributing, and selling both al wholesale and retail crude oil
and petrulewm products for their own use of for the use of other natural and juridical persons, firms, and
catities engaged in any and all activities of the petroleum induster;

@) Determining and supplying the country’s rotal annual requirement for crude oil, yavoline, diesel,
Kerosene, fuel oil, liquefied petroleum gas, and other oil products;

(© __ Determining and sourcing the most economic. stable. and adeyvate foreign sources of crude oil and
petroleum products, based on the following criteria

(Ownership of petroleum suppliers: shares of small private investors, national governments, and
transnational oil corporauons; and the

(© _ Inclusion of manually advantageous commodirr swaps and/oe forcign exchange arrangements in
bilateral petroleum trade agreements.

@——_ Rasuring thar locally extracted crude oil, locally refined petrolcum, and locally processed petroleum
products primarily and singularly serve the country’s local petroleum requizements,

i


SECTION 24. Staff of the Bxchange.— The Chairperson and the Directors of the Exchange board shall
appoint and maintain their adequate officers, staff, and personnel, including technical boards, to be
maintained according to the functions, powers, and duties of the PROC NPEC.

SECTION 25. Centralized Petcoleua Procurement Plan. — (a) Complete procurement of 100° » of the
national petroleum needs, as dletertnined by the NPEC, shall be effected over a period of not less than four
(®) sears and not more than five (5) years, for which cach year shall cover 2) .o 25 percent more than the
Previous year of the national petroleum needs,

‘The pace and the time frame of the Centralized Petroleum Procurement Plan shall be based on the following
criteria:

1} Total national detnand forecasts on crude oil and petroleum products, on a weekly, moathly,
quarterly, and yearly basis, to be organized and undertaken by the Exchange, which shall be based on
the requirements of the local peteoleum marketing companies, independent demand projections. and
demand forecasts by the Exchange;

2} Actual total national requirements on crude oil and petroleum products, for previous months,
quarters, and years, to be organized and undertaken br the Exchange, which shall be based on actual
sales of local peteoleun marketing companies and separate investigations by the Fixchange;

3} Actual toral importations of crude oil and petroleum products, for previous months, quarters, and
years, to be organized and undertaken by the Exchange, which shall be based on the records of the
Bureau of Customs, actual sales of local petroleum marketing companics, and separate investigations
by the Exchange:

4) Effective control of the Exchange over shipping, transport, and storage facilities of crude otf and
petoleum products, a5 detailed under Section 12 of this Act,

3) Levels of the sources of funding, as delincated under Section 17 of this Act;

6) Efficacy of Commodity Swaps and other bilateral trade negotiations between PNOC NPEC and
state-owned oil companies from oil-producing countries 2s delineated under Sections 10 and 11 of
this et; and

7) Forecasts, feasibility smdies, and planning sessions by the Board of the Exchange.

(0) For the first year upon the effectivity of this Act, the Exchange shall utilize the shipping, transport,
and storage facilities uf Petron Corporation, ay renationalized under Sections 19 and 20 of this Act, and of the
PSISC. and shall progressively augment such facilities and capabilities, for the succeeding years of the
Centralized Pettolewm Procurement Plan, as delincated under the provisions of Scction 12 of this Act

(The ability vf the exchange to procure a surplus of imported petroleum over the actual total national
requirements, as delincated under Section 15 of this Act as the Buffer Supply, marks the last petiod of the
Centealzed Petroleam Procurement Plan,

fd) Ar the conclusion of the Plan, che Exchange shall be the sole source of the countey’s total
requirement for petroleum and refined petroleum products. All petolcum marketing companies, petrolcum
dealers and traders, and all other importers of petroleum and refined petzulewm products shall thereby be
probibited to procure by themselves or through other natural and juridical persons, rms, and entities,
through importation or any such transportation, shipment, and freight activily, petroleum and refined

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petroleum products. ‘They shill likewise be prohibited from exporting or re-expotting crude oil and
petroleum products within the petiod of the plan. from which time they will be required to apply for
exporting and re-exporting licenses from the Exchange

(€) Violations of these provisions shall be dealt with by the penalties under Section 19 of this Act

SECTION 26. Supply Contacts with State-Owned Companies. — (a) When bidding out supply contracts
to prospective exporters of crude oil and refined petroleum products, the Exchange shall prioritize, and if
possible, restrict supply contracts to 100 percent (10(F"«} state-owned oi] companies from oil-producing
countries, which have the least influence from transnational oil corporatious: Provided, That the Exchange
shall, br policy, pursue commodity swaps and other trade agreements as delineated under Scetion 27 of this
Act

() The Exchange shall minimize, as much as possible and within the limirs of annual appropriations
under Section 17 of this Act, cash outlays for performing its procurement activities.

SECTION 27. Commodity Swaps and Other Bilateral Agreements. (a) When bidding out supply
contracts 1 prospective importers of crade oil and refined petroleum produets, the lixchange shall, as a
matter of policy and especially in ade with state-owned oil companies from oil-producing countaes, pursue
commodity swaps where the Exchange shall push for special terms in supply contracts of crude oil and
refined petroleum products in exchange for equally favorable concessions w exporting countries. Such swaps
shall include the trade of products without the exchange of furcign currencies to minimize the impact of
Huctuations in the U.S. Dollar-Philippine Peso exchange rate on the price of oil. An alternative practice shall
include the Exchange purchasing petroleum imports using the Philippine Peso, which oil-exporting counties
can subsequently use to pay for their imports from the Philippines. These trade practices shalt be subject to
actual negotiations.

(h) The Exchange, in consultation with dhe Secretary of the Department of Trade and Industry (DTD. is
tasked (o spearhead activities relating to commodity swaps and other bilateral trade agreements. Tt shall
conduct studies oa which petroleum exporting countries would such arrangements be most feasible before
commencing with the bidding and neyotiations. The lixchange shall likewise explore previously untapped
trade partners for crude oi] and refined petroleum peoducts for which commodity swaps and other bilateral
ade agreements may be feasible,

SECTION 28. Shipping, Transport, and Storage. — (2) For the Exchange to centralize and suiedy

regulate the movement of petrofeutn and petroleum products at shippin, transport, and storage, as well as
enable it to get the best shipping, transport, and storage prices for its imported crude oil and petroleum
products, Petron Corporation, as renationalized under Chapter IV of ehis Act, with the PSTSC. another
subsidiary company of the Philippine National Oil Company, are hexcby tasked to fulfill, in the first year
upon the effectivity of this Act, the shipping and transporaation needs of the Exchange. Any and all
deficiencies in the ability of Petron and the PSTSC to fulfill the shipping and transport needs of the Exchange
shall be resolved by the Exchange by accuiting, leasing, or renting private shipping and transport facilities,
through supplementary appropriations

(b) To respond to the storage needs of the Fixchange, the mandate of the PS1'C is hereby extended to
include storage. besides shipping and wansport. The PSTC is thus renamed as the PNOC Shipping,
‘Transpon, and Storage Corporation (PSTSC). hereon referred to as the Logistics Company.

(To effectively empower the Exchange. together with the use of the oi depots and storage facilities of
Petron Corporation, the newly established PSISC shall hereby acquire majority equity control over vital,
national oil storage facilities through the purchase of stock. PSTSC shall initially acquire, through
supplementary appropriations and succeeding general appropriations, majority stake in the top thee (3) ¢0

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five (3) oil depors in the country: Provided That PSISC shall acquire more stock in these corporations and
shall likewise take control of, lease, or rent other vital oil storage facilities as the uved arises for the Exchange
and as is feasible according to the Centralized Petroleum Procurement Plan under Section 25 of this Act;
Provided further, That the Logistics Compang shall initially attempt to buy back the shares at the Philippine
Stock Exchange. If the minimum 51 percent (519) equity from the involved comporations is nor purchased,
the Exchange shall cause the expropriation, subject to just and fair compensation, of shares from foreign
investors or from loca) investors, o¢ whoever/whichever has possession/ownership/control/custodr thereof.

SECTION 29, Buffer Supply. — (a) Once the Exchange has reached procurement levels where 100 percent
of the previous year’s actual total importarion is alreauy being procured for the current year, the Exchange
shall procure greater volume than the present year’s total national demand or importation forecasts, if
warranted by the availability of funds. Aoy surplus inventories from present year's petroleum procurement
shall serve as stock for the Buffer Supply of the Exchange.

(>) _ Buffer supplies shall be maintained and expanded during periods of relatively low world prices of oil,
lower levels of consumption, and during periods where commodity swaps and bilateral trade negotiations
bear extmordinary levels of supply; Pmeided That these supplies shall be withdrawn duting periods of
extremely high global prices of oil and during shortages in order to delay any necessary price increases and
bridge the gap between import levels and actval domestic demand.

(©) The Exchange shall set minimum Huffer Supply levels at the conclosion of the Centralized
Petroleum Procurement Plan. At this pomt, the Exchange shall set a progeam (o progressively incrcase the
minimum Buffer Supply level until a suitable oor level can be maintained. Mininum Buffer Supple levels
and subsequent modifications shall be ser by the Board of the Exchange.

(@ When iaffer Supply minimum floor levels have been maintained for at least Give (5) years,

exuaordinarr gains from existing inventories due to extremely large increases in plobal prices can be plowed
gains a is Prices P

back, by recommendation of the Board of the Exchange, into the funding resoncoes of the Exchange.

SECTION 30. Pesrofeum Secutity Procedures. — The Exchange shall draw up plans to cope with such
contingencies as may arise should prevailing sources of supply become closed or inaccessible, and enter into
such preliminary negotiations or arrangements with possible aleernative sources as may be mecessary to assure
1 stable, adequate, and continuous supply of crude oil and refined petroleum products under the most
economic and competitive terms possible

SECTION 31. Wafving of Tatiff Dutics on Imported Oil. ‘Vhe PNOC-National Petroleum Exchange
Corporation shall hereby be exempted from import tariffs on crude oil and petroleum products, thus
amending Section 196 of Presidential Decree No. 1464, otherwise known as the “Tariff and Customs Code
of 1978" as follows:

“Sec. 106. Drawbacks. —
XXXX

Qn Petroleum Cils and Oils Obtained (com Bituminous Minerals, Crude Eventually
Used for Generation of Electric Power and for the Manufacture of City Gas. On
petroleum oils and oils obtained from bituminous materials, crnde oils imported bs non-
electric uslities, sold directly o indirectly, in the same form or after processing, to electric
lilies for the generation of electric power and for the manofacture of city yas, a refund oF
(x credit shall be allowed got exceeding fifty percent (50%) of the duty itnposed by law
upon such oils, which shall be paid or credited under such roles and regulations as mar be
prescribed by the Commissioner of Customs wnh the approval of the Secretary of Finance:

4


PROVIDED, THAT IMPORT TARIFFS FOR SUCH PETROLEUM PRODUCTS
SHAILJ. BE WAIVED FOR IMPORTS BY THE PHILIPPINE NATIONAL Ol.
COMPANY-NATIONAL PETROLEUM EXCIIANGR COMPANY (PNOC-NPEQ),

CHAPTER VI
PROHIBITED ACTS AND PENALTIES

SECTION 32. Penalties for Violations.

(9) Any person who gives false or misleading data or information or willfully or through gross
negligence, conceals or falsifies a material fact, in any investigation, inquiry, study, or other proceeding held
pursuant fo this Act, shall be punished with imprisonment of not less than ovo but not moze than six
months, and with a finc of not less than one thousand but not tore than ten thousand pesos: Provided. That
if the false of misleading dam or information shall have been given under oath, the maximum penalty for
giving false restimony or perjury shall be imposed:

(©) __ Any person who violates any provision of this Act or any order, decision, culing, oF regulation of the
‘Coundil shall, upon conviction, be sentenced for a period of not less than six months but not more than ve
years and a fine of not less than ten thousand pesos but not more than fifty (uousand pesos. I the offender
bea corporanion, parmership, ot juridical person, the penalty shall be imposed on the officer or officers
responsible for permitting or causing a violation by the corporation, partnership, or juridical person of the
Provisions of this Acy

© __ Ifthe offender is a government official or emplovee, the maximum penalty prescribed in paragraph
(©) shall be imposed and the offender shall sutter the additional penalty of perpetual disqualification from
public office without prejudice to any administrative action against him;

( _ Ifthe offender is a member of the Petroleum Regulatory Council or any of its attached agencies and
companits, and the commission of the offense «s attended by clear abuse of discretion on his part. or br any
corrupt practice defined in Republic :Act No. 3019, otherwise knowa as the “Anti-Graft and Corrupt
Pracnces Act”, or other similar irregularity, the penalty imposed shall be a fine of one hundred thousand
Pesos and imprisonment of not less than ten years. .\ similar penalty shall he anyposcd upot any private
Person, whether in the government service of not, whe induces, aids, or abets the offender in the commission
of the offense:

{© __ It shall be an offense, penalized as provided in paragraph (c) ot (d) above, whichever mar be
applicable, for any person serving in the Petroleum Regulatory Council of any of its attached agencies and
companies, cither as a Chairperson, Member, ot as a member of the staff (o directly or indirecty be employed
by, or to receive any compensation from, or to have ane direct or indirect financial interest in, any firm
cogaged in the business of exploring, exploiting, imporring, exporting, re-exporting, shipping, transporting,
Processing, refining, storing, marketing, distributing, and selling both ar wholesale and retail amy petroleum

resource;

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(® Any alien violating this Act shall, in addition to the penalty hetein provided, be deported after service
of sentence and shall not be permirted reentry into the Philippines; and

( —_Allmonetaty penalties shall directly accrue to the OPBF.

CHAPTER VII
FINAL PROVISIONS

SECTION 33. Jmplementing Rules and Regulations. —‘Uhe Petroleum Regulatory Counc, in
coordination with the Department of Energy, shall formulate and issuc the necessary itnplementing niles and
regulations within thirty (30) days alter the effectivity of this Act.

SECTION 34. Budgetary Appropriations, - Such amount as may he necessary to effectively implement
this Act shall be provided for by Congress in the arn

Senerud Appropriations Act.
SECTION 35. General Repealing Clause,

{@) Republic Act No, 8479, also known ay the Donnitreanr Oil Industry Deregulation Act of 1998 is hereby
repealed.

(}—_ Mlother laws, decrees, executive orders, issuances, rales and regulations, or parts thereof
inconsistent with any of the provisions of this Act, are hereby repealed or amended accordingly.

SECTION 36. Separability Clause. — If, for any reason, any section or provision of this Act is declared
inconsutunonal oF invalid, such other sections o provisions not affected thereby shall remain in full force
and effect.

SECTION 37, £feceivity. - ‘Unis Act shall take etfect Gifteen days after its complete publication in at least

two (2) national newspapers of general circulation,

Approved.

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