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Republic of the Philippines
HOUSE OF REPRESENTATIVES,
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

HOUSE BILL No,_ 3678

Introduced by Reps. CARLOS ISAGANI T, ZARATE, EMMI A. DE JESUS,
ANTONIO L. TINIO, ARLENE D. BROSAS, FRANCE L. CASTRO
ARIEL B. CASILAO, and SARAH JANE I. ELAGO.

AN ACT
INSTITUTING CENTRALIZED PROCUREMENT OF PETROLEUM IN THE
COUNTRY

EXPLANATORY NOTE,

Up to 95 percent of the country’s petroleum requirements are imported, rendering the
Philippines exceedingly vulnerable to the dictates of big transnational oil corporations. The
worst implication of this system is that our severe dependence on such corporations, which
control the importation, refining, and retailing of crude and petroleum products in the world
market; and the exploration, exploitation, refining, retailing, and even re-exportation of our
country’s indigenous petroleum and petroleum-based products, deprives us the opportunity to
become self-sufficient.

‘These corporations, including Exxon-Mobil, Royal Dutch Shell, Chevron-Texaco (its
marketing arm is Caltex), British Petroleum (BP), and CFP-Total, have almost complete
control over the oil prices they collusively set worldwide. Even if the largest oil producing
countries (Saudi Arabia, Iran, Venezuela, Mexico, and China) control 90 percent of the
world’s oil reserves, these five transnational oil companies can dictate world prices because
they control 60 percent of oil production and hold all levels of the market through their vast
global network of exploration and exploitation sites, partnerships with nationalized oil
companies, refineries, pipelines, tankers, and stations.

For the longest time, the Big Three (3), or the local subsidiaries of Shell and Caltex and
Petron, claim and justify that they do not overprice, that they set prices based on the price
increases of Dubai oil exchanged over the spot market and on Peso-Dollar exchange rate
fluctuations. Moreover, they deny the existence of a cartel, alleging that they merely follow
the movements of world oil prices. They claim these even as they are minimally affected by
prices in world markets and even as they are able to trade in the same currency between
subsidiaries.


Even when international oil prices slumped in 2015 the corresponding downward adjustment
of local oil prices was hardly commensurate to the price movement in the international oil
market.

While in 2013, when world oil prices prompted oil firms operating in the Philippines to hike
pump prices of gasoline and diesel for seven straight weeks — from May 3 to June 25, 2013.
Overall, local pump prices were raised 14 times so far this year, bringing unleaded gasoline
prices to between P47.75 to 55 a liter and diesel to between P38.70 to 42.05 a liter. Liquefied
petroleum gas (LPG) is priced between P619.00-743.00 per 11-kilogram tank.

Studies by independent economic research institution IBON on the prices of Dubai crude at
USS5S.4 per barrel, with exploration costs at US$3-4 per barrel, production costs at US$7-8
per barrel, and royalties at USS8 per barrel, show that a staggering US$35-37 per barrel (63-
67%) is taken home as super profits by the transnational oil corporations. This is only for the
initial stage of production; more is expected to be raked-in from hidden transfer-pricing

between company subsidiaries.

Because these subsidiaries under the same corporations are both the buyers (refiners in the
downstream petroleum industry) and the sellers (producers in the upstream petroleum
industry), they can fix and pad prices through hidden transfer pricing every step of the way,
including the mere sale of petroleum and petroleum products from refiners to dealers.
Estimates show that 67 percent of world trade in oil is done through term contracts, or
transactions between subsidiaries of the same companies, bypassing exchanges over world
markets,

Moreover, our dependence on imported petroleum and petroleum products has continually
depleted our foreign currency reserves, which has caused the further devaluation of the Peso
and has made importation more and more expensive. Even without factoring in increases in
the world demand for oil and the artificial effects of speculation, world oil prices are
unreasonably and unjustifiably high because they are under the control of monopolistic
transnational oil corporations.

Republic Act No. 8479, or the “Downstream Oil Industry Deregulation Act of 1998”, aimed
to “ensure a truly competitive market under a regime of fair prices” through the liberalization
and the deregulation of the local downstream oil industry. To begin with, R.A. 8479 has the
wrong premise that the world pricing of petroleum and petroleum products is fair and
justifiable.

Hence, this deregulation law merely advocates fair pricing through the “mediation” between
big oil companies (refiners and importers) and relatively small dealers, haulers, and LPG
distributors; the opening of the market to new industry participants nonetheless dependent on
big transnational oil corporations; and the relatively insignificant financial and operational
support for small-scale gasoline station retailers.

From the very beginning, R.A. 8479 was bound to fail to implement fair prices since it
ignored _monopoly-pricing practices and cartel behavior by the giant transnational oil
corporations. Worse, deregulation has given transnational oil corporations even more room to
manipulate prices through automatic oil price hikes; less transparency in pricing, profits, and
operations; and virtually no accountability to the consuming public.


Petroleum is a sensitive commodity, since its price directly affects the cost of almost all other
commodities and services, including essentials such as food, housing, social services, as well
as transportation. Deregulation has allowed oil price increases to go unchecked. Deregulation
has given transnational oil corporations even more leeway to influence the country’s cost of
living, livelihoods, business and commerce, employment, and the National Budget. The
detrimental effects of an unfair world set-up dominated by giant, monopolistic, transnational
oil corporations are magnified by liberalization and deregulation.

There is a pressing need to interdict the hidden and unchecked transfer pricing between oil
company subsidiaries, including probable price padding in the sale of petroleum and
petroleum products between refiners and local subsidiaries, to protect the majority of
Filipinos from current runaway increases in oil prices.

But such state intervention can only be effective and truly beneficial if it is part of a program
to institutionalize national oil industrialization, so that local oil prices can be brought down
from the unreasonable and unjustifiable levels set by giant transnational oil corporations, and
prevented from falling prey to further monopoly pricing and manipulation.

This Bill therefore requires the institution of a centralized procurement system of all imported
crude oil and refined petroleum products, which includes the creation of buffer supplies to
cushion consumers against drastic increases in petroleum prices, This measure was first and
originally filed during the 16" Congress by the Makabayan bloc led by Bayan Muna Reps.
Neri Colmenares and Carlos Zarate as HB 176.

Immediate passage of this measure is earnestly sought.

Approved, _—

Bayan Muna Party-list

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ANTONIO L. Rep. EMMI A. D)
ACT Teachers Party-fist Gabriela Women’s Party
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D. BROSAS

Gabieta Women's Party
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7) / \
Rep. ARIEL B. CASILAO Rep. SARAH/JANE I. ELAGO
Anakpawis Party-list Kabf Haan Party-list

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Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SEVENTEENTH CONGRESS
First Regular Session

“| 38678

HOUSE BILL No.

Introduced by Reps. CARLOS ISAGANI T. ZARATE, EMMI A. DE JESUS,
ANTONIO L. TINIO, ARLENE D. BROSAS, FRANCE L. CASTRO
ARIEL B, CASILAO, and SARAH JANE I, ELAGO

AN ACT
INSTITUTING CENTRALIZED PROCUREMENT OF PETROLEUM I
COUNTRY

Be it enacted by the Senate and the House of Representatives of the Philippines in Congress
assembled:

SECTION 1. Short Title, - This Act shall be known as the “Centralized Petroleum
Procurement Act of 2016”.

SECTION 2. Declaration of Policy.

2.1 Social Justice

Article II, Section X of the 1987 Constitution states:
all phases of national development.”

‘The State shall promote social justice in

Article Il, Section XIX of the 1987 Constitution states: “The State shall develop a self-reliant
and independent national economy effectively controlled by Filipinos.”

2.2, National Economy and Patrimony

Article XII, Section I of the 1987 Constitution states: “The goals of the national economy are
a more equitable distribution of opportunities, income, and wealth; a sustained increase in the
amount of goods and services produced by the nation for the benefit of the people; and an
expanding productivity as the key to raising the quality of life for all, especially the under-
privileged.”

Article XII, Section XIII of the 1987 Constitution states: “The State shall pursue a trade
policy that serves the general welfare and utilizes all forms and arrangements of exchange on
the basis of equality and reciprocity.”


Article XII, Section XIV of the 1987 Constitution states: “The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed.”

Article XII, Section XVIII of the 1987 Constitution states: “The State may, in the interest of
national welfare or defense, establish and operate vital industries and, upon payment of just
compensation, transfer to public ownership utilities and other private enterprises to be
operated by the Government.”

Consistent with the foregoing, petroleum and petroleum products, being vital to national
security and their supply at reasonable prices being essential to the general welfare, it is
hereby declared to be the policy of the State that the act and business of importing, exporting,
re-exporting, distributing, and selling at wholesale of crude oil, gasoline, kerosene, gas, and
other refined petroleum products, as well as operations and activities of natural and juridical
persons, firms, and entities engaged in the petroleum industry shall be carried out in a manner
consistent with the public interest, so as to attain the following objectives and purposes:

(@) To assure that the indigenous petroleum and petroleum-based resources shall be
primarily for the benefit of the general welfare;

(b) To assure that the country shall have a proper, adequate, and continuous supply of
crude oil and refined petroleum products under the most economic and competitive terms
possible, considering all available sources of supply;

(c) To assure the public of reasonable prices for petroleum products and to prevent
monopoly, combinations in restraint of trade, unfair competition, and economic domination;
and

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

SECTION 3. Coverage. - This Act shall apply to all natural and juridical persons, firms, and
entities engaged in any and all activities of the petroleum industry, as well as persons or
companies directly importing or exporting crude or refined petroleum products for their own
use or for the use of other natural and juridical persons, firms, and entities engaged in any and
all activities of the petroleum industry.

‘These activities include the act and business of importing, exporting, re-exporting, storing,
distributing, and selling both at wholesale and retail of crude oil, gasoline, kerosene, gas, and
other refined petroleum products.

SECTION 4. Definition of Terms.-

(a) “Exchange” shall mean the Philippine National Oil Company-National Petroleum
Exchange Corporation (PNOC-NPEC).


(b) “Logistics Company” shall mean the PSTSC or the PNOC (Philippine National Oil
Company) Shipping, Transport, and Storage Corporation.

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

(@) “Crude oil” or “oil” shall be used interchangeably with “petroleum”.

(©) “Petroleum products” shall only refer to liquefied petroleum gas (LPG), naphtha,
gasolines, kerosenes, automatic/industrial diesel oils, and industrial/residual fuel oils.

() “Plan” shall refer to the Centralized Petroleum Procurement Plan.

SECTION 5. Creation of the National Petroleum Exchange Corporation, - ‘There is
hereby created the National Petroleum Exchange Corporation (NPEC), hereafter referred to
as the Exchange, with the primary objective to enable the country to 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
National Oil Company (PNOC), making Philippine National Oil Company-National
Petroleum Exchange Corporation (PNOC-NPEC) the company’s formal corporate name.

SECTION 6. Board of Directors of the Exchange. - The Board shall be composed of a
Chairperson and six (6) Directors to be appointed by the Board of Directors of the
Exchange’s mother corporation, the Philippine National Oil Company (PNOC). The
Chairperson and the Board Directors shall be natural-born 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 five (5) years of actual and distinguished experience in their respective fields of
expertise or sectors: Provided, That of the six (6) Directors of the Board, at least one (1) shall
have had (10) years experience in the fields of management, economics, or commerce and
industry; 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, or industrial sector.

The term of office of the Chairperson and the Board Directors shall be four (4) 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 two for three (3) years, and the
remaining two Directors shall hold office for two (2) years: Provided further, That for
subsequent appointees, the successor of each Director shall have the same tenure as his
predecessor: Provided further, That appointment 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 three (3) months from the creation of the Exchange, the Chairperson shall submit for
the approval by the PNOC Board of Directors the new organization structure and plantilla

6


positions necessary to carry out the powers and functions of the Exchange.

No person who has worked within four (4) years immediately prior to his appointment or is
working in any firm engaged in the petroleum industry or any other entity whose main
business is directly or indirectly related to any such firm shall be appointed to the Board. The
Chairperson and Directors of the Board shall be prohibited from holding any interest
whatsoever, except for the Chairperson of the NPSTSC, either as investor, stockholder,
officer, or director, in any company or entity engaged in the business of exploring, exploiting,
importing, exporting, re-exporting, shipping, transporting, processing, refining, storing,
marketing, distributing, and selling both at wholesale and retail any petroleum resource and
must, therefore, divest through sale or legal disposition of any and all interest in the
petroleum industry upon assumption of office.

‘The presence of at least four (4) members of the Board shall constitute a quorum and the vote
of three (3) members in a meeting where a quorum is present shall be necessary for the
adoption of any rules, rulings, orders, resolutions, decisions, or other acts of the Board in the
exercise of its functions,

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

The five (5) appointed Board Directors shall devote their full time to the Board and shall not
accept any other employment while sitting in the Board.

SECTION 7. Jurisdiction, Powers, Functions, and Duties of the Exchange. The
Exchange shall centralize and strictly regulate the movement of petroleum and petroleum
products at the stages of importation, exportation, re-exportation, distribution, storage, and
selling both at wholesale and retail of crude oil, gasoline, kerosene, gas, and other refined
petroleum products.

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

(a) _Instituting a centralized procurement system, which shall take over all importation of
crude oil and petroleum products and shall be the sole supplier of crude and petroleum for the
Jocal markets—for all local oil subsidiaries, wholesalers, retailers, as well as to all natural and
juridical persons, firms, and entities engaged in the act and business of importing, marketing,
distributing, and selling both at wholesale and retail crude oil and petroleum products for
their own use or for the use of other natural and juridical persons, firms, and entities engaged
in any and all activities of the petroleum industry;

(6) _ Determining and supplying the country’s total annual requirement for crude oil,
gasoline, diesel, kerosene, fuel oil, liquefied petroleum gas, and other oil products;

(©) Determining and sourcing the most economic, stable, and adequate foreign sources of
crude oil and petroleum products, based on the following criteria:


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

(©) Inclusion of mutually advantageous commodity swaps and/or foreign exchange
arrangements in bilateral petroleum trade agreements,

(Ensuring that locally extracted crude oil, locally refined petroleum, and locally
processed petroleum products primarily and singularly serve the country’s local petroleum
requirements.

SECTION 8. Staff of the Exchange. 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
PNOC-NPEC.

SECTION 9. Centralized Petroleum Procurement Plan, - Complete procurement of 100
percent of the national petroleum needs, as determined by the NPEC, shall be effected over a
period of not less than four (4) years and not more than five (5) years, for which each year
shall cover 20 to 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:

(a) Total national demand forecasts on crude oil and petroleum products, on a weekly,
monthly, quarterly, and yearly basis, to be organized and undertaken by the Exchange, which
shall be based on the requirements of the local petroleum marketing companies, independent
demand projections, and demand forecasts by the Exchange;

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

(c) Actual total 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 companies,
and separate investigations by the Exchange;

(@ Effective control of the Exchange over shipping, transport, and storage facilities of
crude oi and petroleum products, as detailed under Section 12 of this Act;

(€) Levels of the sources of funding, as delineated under Section 17 of this Act;
(0 Efficacy of Commodity Swaps and other bilateral trade negotiations between PNOC-

NPEC and state-owned oil companies from oil-producing countries as delineated under
Sections 10-11 of this Act; and


(g) Forecasts, feasibility studies, and planning sessions by the Board of the Exchange.

For the first year upon the effectivity of this Act, the Exchange shall utilize the shipping,
transport, and storage facilities of Petron Corporation, as renationalized under Section 13-14
of this Act, and of the PNOC Shipping and Transport Corporation (PSTC), and shall
progressively augment such facilities and capabilities, for the succeeding years of the
Centralized Petroleum Procurement Plan, as delineated under the provisions of Section 12 of
this Act.

‘The ability of the exchange to procure a surplus of imported petroleum over the actual total
national requirements, as delineated under Section 15 of this Act as the Buffer Supply, marks
the last period of the Centralized Petroleum Procurement Plan.

At the conclusion of the Plan, the National Petroleum Exchange Corporation shall be the sole
source of the country’s total requirement for petroleum and refined petroleum products. All
petroleum marketing companies, petroleum dealers and traders, and all other importers of
petroleum and refined petroleum products shall thereby be prohibited to procure by
themselves or through other natural and juridical persons, firms, and entities, through
importation or any such transportation, shipment, and freight activity, petroleum and refined
petroleum products. They shall likewise be prohibited from exporting or re-exporting crude
oil and petroleum products within the period 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 10. Bilateral Negotiations between PNOC-NPEC and state-owned oil
companies from oil-producing countries. - 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 (100%) state-owned oil
companies from oil-producing countries, which have the least influence from transnational oil
corporations.

The Exchange shall avoid dealing with state-owned oil companies with strategic linkages
with transnational oil corporations and shall, by policy, include in such contracts trade
agreements involving non-petroleum products. These trade agreements include, but are not
limited to, commodity swaps as delineated under Section 11 of this Act.

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

SECTION 11. Commodity Swaps and other bilateral trade and currency agreements. -
When bidding out supply contracts to prospective importers of crude oil and refined
petroleum products, the Exchange shall, as a matter of policy and especially in trade with
state-owned oil companies from oil-producing countries, 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 to exporting countries.


Such swaps shall include the trade of products without the exchange of foreign currencies to
minimize the impact of fluctuations 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 countries can subsequently use to pay for their
imports from the Philippines. These trade practices shall be subject to actual negotiations.

‘The Exchange, in consultation with the Secretary of the Department of Trade and Industry
(DTI, is tasked to spearhead activities relating to commodity swaps and other bilateral trade
agreements. It shall conduct studies on which petroleum exporting countries would such
arrangements be most feasible before commencing with the bidding and negotiations.

The Exchange, in consultation with the DTI Secretary, shall likewise explore previously
untapped trade partners for crude oil and refined petroleum products for which commodity
swaps and other bilateral trade agreements may be feasible.

SECTION 12. Shipping, Transport and Storage. - For the Exchange to centralize and
strictly regulate the movement of petroleum and petroleum products at shipping, 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
Sections 13-14 of this Act, with the PNOC Shipping and Transport Corporation (PSTC),
another subsidiary company of the Philippine National Oil Company, are hereby tasked to
fulfill, in the first year upon the effectivity of this Act, the shipping and transportation needs
of the Exchange. Any and all deficiencies in the ability of Petron and the PSTC to fulfill the
shipping and transport needs of the Exchange shall be resolved by the Exchange by
acquiring, leasing, or renting private shipping and transport facilities, through supplementary
appropriations.

To respond to the storage needs of the Exchange, the mandate of the PNOC Shipping and
Transport Corporation is hereby extended to include storage, besides shipping and transport.
The PSTC is thus renamed as the PNOC Shipping, Transport, and Storage Corporation
(PSTSC), hereon referred to as the Logistics Company.

To effectively empower the Exchange, together with the use of the oil depots and storage
facilities of Petron Corporation, the newly established PSTSC 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 three (3) to five (5) oil depots in the country. PSTSC
shall acquire more stock in these corporations and shall likewise take control of, lease, or rent
other vital oil storage facilities as the need arises for the Exchange and as is feasible
according to the Centralized Petroleum Procurement Plan under Section 8 of this Act.

The Logistics Company shall initially attempt to buy back the shares at the Philippine Stock
Exchange. If the minimum 51 percent (51%) equity from the involved corporations is not
purchased, the Exchange shall cause the expropriation, subject to just and fair compensation,
of shares from foreign investors or from local investors, or whoever/whichever has
possession/ownership/control/custody thereof.

10


SECTION 13. - Transitory Provision: Renationalization of the Petron Corporation
upon the Effectivity of this Act.

‘The Philippine National Oil Company (PNOC) shall, upon the first year of effectivity of this
Act, reacquire equity in Petron Corporation by at least 11 percent of its total subscribed
stocks singularly from the 20 percent owned and/or traded by individuals or from the 40
percent owned by the Ashmore Group or in a combination of which sum is at least 11 percent
of the total subscribed stocks of Petron Corporation. PNOC shall initially buy back the shares
at the Philippine Stock Exchange. If the minimum 11 percent is not repurchased, the PNOC
shall cause the expropriation, subject to just and fair compensation, of Petron stocks from
Ashmore or whoever/whichever has possession/ownership/control/custody thereof.

For the first year upon the effectivity of this Act, four billion pesos (PhP4,000,000,000) shall
be appropriated by the National Government for this initial repurchase of Petron stocks.
Earnings from the forty percent (40%) stake of PNOC in Petron Corporation shalll be utilized
as the secondary funding source for this stock repurchase.

SECTION 14, Full National n of Petron Corporation, - The Philippine National Oil
Company (PNOC) shall reacquire 100 percent ownership of Petron Corporation over a period
of four (4) years, Reacquisition costs shall mainly be funded by the National Government,
through annual budget appropriations. The secondary source for the full repurchase shall be
the expanding earnings of PNOC from its increasing stake in Petron Corporation over the
period of reacquisition.

To achieve this objective, the PNOC is hereby required to aggressively and consistently
improve the operations and income of Petron Corporation in line with the policies of this Act.
The eventual corporate merger of the PNOC and Petron Corporation shall be a matter of
policy.

SECTION 15. Buffer Supply. - Once the Exchange has reached procurement levels where
100 percent of the previous year’s actual total importation is already 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. Any surplus
inventories from present year’s petroleum procurement shall serve as stock for the Buffer
Supply of the Exchange.

Buffer supplies shall thereon 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 extraordinary levels of supply.

‘These supplies shall be withdrawn during 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 actual domestic demand.

The Exchange shall set minimum Buffer Supply levels at the conclusion of the Centralized
Petroleum Procurement Plan, At this point, the Exchange shall set a program to progressively
increase the minimum Buffer Supply level until a suitable floor level can be maintained
Minimum Buffer Supply levels and subsequent modifications shall be set by the Board of the
Exchange,

u


When Buffer Supply minimum floor levels have been maintained for at least five (5) years,
extraordinary gains from existing inventories due to extremely large increases in global prices
can be plowed back, by recommendation of the Board of the Exchange, into the funding
resources of the Exchange.

SECTION 16. Waiving of Tariff Duties on Imported Oil. - The PNOC-National Petroleum
Exchange Corporation shall hereby be exempted from import tariffs on crude oil and
petroleum products, thus amending Section 106 of Presidential Decree No. 1464, otherwise
known as the “Tariff and Customs Code of 1978”, as follows:

“Sec. 106. Drawbacks. —
XXXX

. On Petroleum Oils and Oils Obtained from 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, crude oils imported by non-electric utilities,
sold directly or indirectly, in the same form or after processing, to electric utilities for the
generation of electric power and for the manufacture of city gas, a refund or tax credit shall
be allowed not exceeding fifty per cent (50%) of the duty imposed by law upon such oils,
which shall be paid or credited under such rules and regulations as may be prescribed by the
Commissioner of Customs with the approval of the Secretary of Finance: PROVIDED, THAT
IMPORT TARIFFS FOR SUCH PETROLEUM PRODUCTS SHALL BE WAIVED FOR
IMPORTS BY THE PHILIPPINE NATIONAL OIL COMPANY-NATIONAL
PETROLEUM EXCHANGE COMPANY (PNOC-NPEC).

XXXX:
XXXX
XXXX.

XXXX.”

SECTION 17. Sources of Funds. - The Exchange shall be funded by the following:

17.1 PNOC-NPEC Buffer Supply
After the conclusion of the Centralized Petroleum Procurement Plan of the NPEC and when
its Buffer Supply minimum floor levels have been maintained for at least five (5) years,
extraordinary gains from existing inventories due to extremely large increases in global prices

can be used for the expenses of the Exchange.

17.2 Excise Taxes on Petroleum-based Manufactured Oils and Other Fuels


The PNOC-National Petroleum Exchange Corporation shall be allocated twenty-five percent
(25%) of the proceeds from excise taxes on covered petroleum-based manufactured oils and
other fuels.

Section 148 of Republic Act No. 8424, otherwise known as Tax Reform Act of 1997, as
amended by Republic Act No. 9337, is hereby amended to read:

“SEC. 148, Manufactured Oils and Other Fuels, ~ There shall be collected on refined and
manufactured mineral oils and motor fuels, the following excise taxes which shall attach to
the goods hereunder enumerated as soon as they are in existence as such:

“(a) XXXX;
“(b) XXXX;
“(c) XXXX;
“(@) XXXX;

“(© Naphtha, regular gasoline and other similar products of distillation, per liter of volume
capacity, Four pesos and thirty-five (4.35): [Provided, however, That naphtha, when used as
a raw material in the production of petrochemical products or as replacement fuel for natural-
gas-fired-combined cycle power plant, in lieu of locally-extracted natural gas during the non-
availability thereof, subject to the rules and regulations to be promulgated by the Secretary of
Energy, in consultation with the Secretary of Finance, per liter of volume capacity, Zero
(P0.00):] Provided, |further,| That the by-product including fuel oil, diesel fuel, kerosene,
pyrolysis gasoline, liquefied petroleum gases and similar oils having more or less the same
generating power, which are produced in the processing of naphtha into petrochemical
products shall be subject to the applicable excise tax specified in this Section, except when
such by-products are transferred to any of the local oil refineries through sale, barter or
exchange, for the purpose of further processing or blending into finished products which are
subject to excise tax under this Section; : PROVIDED FURTHER, THAT OF TOTAL
EXCISE TAXES COLLECTED ON NAPHTHA, REGULAR GASOLINE, AND OTHER
SIMILAR PRODUCTS OF DISTILLATION, TWENTY-FIVE PERCENT (25%) SHALL
ACCRUE_ DI Y TO THE PNOC-NATIONAL PETROLEUM EXCHANGE
CORPORATION;

“(® Leaded premium gasoline, per liter of volume capacity, Five pesos and thirty-five
centavos (P5.35); unleaded premium gasoline, per liter of volume capacity, Four pesos and
thirty-five centavos (P4.35): PROVIDED, THAT OF TOTAL EXCISE TAXES
COLLECTED ON LEADED PREMIUM GASOLINE, TWENTY-FIVE PERCENT (25%)
SHALL ACCRUE DIRECTLY TO THE PNOC-NATIONAL PETROLEUM EXCHANGE
CORPROATION;

“(g) XXXX;
“(h) XXXX;

“() XXXX;


“() XXXX;
“(k) XXXX; and
“() XXXX.”

17.3 Value-Added Taxes on the Sale of Petroleum and Petroleum Products

‘The PNOC-National Petroleum Exchange Corporation shall be allocated twenty-five percent
(25%) of the proceeds of excise taxes on petroleum-based manufactured oils and other fuels.

Section 106 of Republic Act No, 8424, otherwise known as Tax Reform Act of 1997, as
amended by Republic Act No. 9337, is hereby amended to read:

“SEC, 106, Value-Added Tax on Sale of Goods or Properties. ~
“(A) XXXX:

“(i) XXXX; or
“(ii) XXXX.

“(1) XXXX.
“(a) XXXX;
“(b) XXXX;
“(©) XXXX;
“(@) XXXX; and
“(e) XXXX;

“The term “gross selling price” means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on
such goods or properties shall form part of the gross selling price.

PROVIDED, THAT OF THE TOTAL VALUE-ADDED TAXES COLLECTED ON
LIQUEFIED PETROLEUM GAS (LPG), NAPHTHA, GASOLINES, KEROSENES,
AUTOMATIC/INDUSTRIAL DIESEL OILS, AND INDUSTRIAL/RESIDUAL Ft
OILS, TWENTY-FIVE PERCENT (25%) SHALL ACCRUE DIRECTLY TO THE PNOC-
NATIONAL PETROLEUM EXCHANGE CORPROATION;

“(2) XXXX:

“(@) XXXX:
“(1) XXXX;
“Q) XXXX;
“(3) XXXX;
“(4) XXXX; and
(5) XXXX.


“(6) The sale of goods, supplies, AND equipment [and fuel] to persons engaged in
international shipping or international air transport operations: PROVIDED, THAT THE
‘TERM “GOODS” DOES NOT INCLUDE PETROLEUM AND PETROLEUM PRODUCTS
AND BY-PRODUCTS.

PROVIDED, THAT OF THE TOTAL VALUE-ADDED TAXES COLLECTED ON
LIQUEFIED PETROLEUM GAS (LPG), NAPHTHA, GASOLINES, KEROSENES,
AUTOMATIC/INDUSTRIAL DIESEL OILS, AND INDUSTRIAL/RESIDUAL FUEL
OILS, TWENTY-FIVE PERCENT (25%) SHALL ACCRUE DIRECTLY TO THE PNOC-
NATIONAL PETROLEUM EXCHANGE CORPORATION;

“(b) XXXX,
“(¢) XXX,

PROVIDED, THAT OF THE TOTAL VALUE-ADDED TAXES COLLECTED ON
LIQUEFIED PETROLEUM GAS (LPG), NAPHTHA, GASOLINES, KEROS!
AUTOMATIC/INDUSTRIAL DIESEL OILS, AND INDUSTRIAL/RESIDUAL FUE
OILS, TWEN’ IVE PERCENT (25%) SHALL ACCRUE DIRECTLY TO THE PNOC-
NATIONAL PETROLEUM EXCHANGE CORPORATION.

“(B) XXXX:
“(1) XXXX;
(2) XXXX:
“(a) XXXX; or
“(b) XXXX;
“(3) XXXX; and
“(4) XXXX.

“(c) XXXX.”

17.4 Value-Added Taxes on the Sale of Services Directly Involving Petroleum
and Petroleum Products
‘The PNOC-National Petroleum Exchange Corporation shall be allocated twenty-five percent
(25%) of the proceeds of these value-added taxes on the sale of services directly involving
petroleum and petroleum products.
Section 108 of Republic Act No. 8424, otherwise known as Tax Reform Act of 1997, as
amended by Republic Act No. 9337, is hereby amended to read:
“SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -
“(A) XXXX:

“(i) XXXX; or


“Gi) XXXX.

“The phrase “sale or exchange of services” means the performance of all kinds or services in
the Philippines for others for a fee, remuneration or consideration, including those performed
or rendered by construction and service contractors; stock, real estate, commercial, customs
and immigration brokers; lessors of property, whether personal or real; warchousing services;
lessors of distributors of cinematographic films; persons engaged in milling processing,
manufacturing or repacking goods for others; proprietors, operators or keepers of hotels,
motels, resthouses, pension houses, inns, resorts; proprietors or operators of restaurants,
refreshment parlors, cafes and other eating places, including clubs and caterers; dealers in
securities; lending investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire another domestic common carriers
by land, air and water relative to their transport of goods or cargoes; common carriers by air
and sea relative to their transport of passengers, goods or cargoes from one place in the
Philippines to another place in the Philippines; sales of electricity by generation companies,
transmission, and distribution companies; services of franchise grantees of telephone and
telegraph, radio and television broadcasting and all other franchise grantees except those
under Section 119 of this Code; services of banks, non-bank financial intermediaries and
finance companies; and non-life insurance companies (except their crop insurances),
including surety, fidelity, indemnity and bonding companies; and similar services regardless
of whether or not the performance thereof calls for the exercise or use of the physical or
mental faculties: PROVIDED, THAT OF THE TOTAL VALUE-ADDED TAXES
COLLECTED ON LIQUEFIED PETROLEUM GAS (LPG), NAPHTHA, GASOLINES,
KEROSENES, AUTOMATIC/INDUSTRIAL DIESEL OILS, AND
INDUSTRIAL/RESIDUAL FUEL OILS, TWENTY-FIVE PERCENT (25%) SHALL
ACCRUE DIRECTLY TO THE PNOC-NATIONAL PETROLEUM EXCHANGE
CORPORATION;

“The phrase ‘sale or exchange of services’ shall likewise include:
“(1) XXXX;

(2) XXXX;

(3) XXXX;

(4) XXXX;

(5) XXXX.

“(6) XXXX;

“(7) XXXX; and

(8) XXXX,

“XXXX,
“XXXX.

“(B) XXXX;
“(L) XXXX;
“(2) XXXX;
“(3) XXXX;
“(4) XXXX;
(8) XXXX;


“(6) XXXX; and
“(7) XXXX.

“(¢) XXXX.”

SECTION 18. Petroleum Security 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
alternative sources as may be necessary to assure a stable, adequate, and continuous supply of
crude oil and refined petroleum products under the most economic and competitive terms
possible.

SECTION 19. Penalties for Violations.

(a)

(b)

©

(@)

©

Any person who violates any provision of this Act or any order, decision, ruling, or
regulation of the Council shall, upon conviction, be sentenced for a period of not less
than six months and not more than five years and a fine of not less than ten thousand
pesos and not more than fifty thousand pesos. If the offender is a corporation,
partnership, or 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 Act;

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

If the offender is a member of the PNOC-National Petroleum Corporation or any of
its attached agencies and companies, and the commission of the offense is attended by
clear abuse of discretion on his part, or by any corrupt practice defined in Republic
‘Act No. 3019, otherwise known as the “Anti-Graft and Corrupt Practices 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. A similar penalty shall be imposed
upon any private person, whether in the government service or not, who induces, aids,
or abets the offender in the commission of the offense;

It shall be an offense, penalized as provided in paragraph (b) or (c) above, whichever
may be applicable, for any person serving in the PNOC-National Petroleum
Corporation or any of its attached agencies and companies, either as a Chairperson,
Member, or as a member of the staff o directly or indirectly be employed by, or to
receive any compensation from, or to have any direct or indirect financial interest in,
any firm engaged in the business of exploring, exploiting, importing, exporting, re-
exporting, shipping, transporting, processing, refining, storing, marketing,
distributing, and selling both at wholesale and retail any petroleum resource; and

Any alien violating this Act shall, in addition to the penalty herein provided, be
deported after service of sentence and shall not be permitted reentry into the
Philippines.

7


( All monetary penalties shall directly accrue to the PNOC-National Petroleum
Corporation.

SECTION 20. Implementing Rules and Regulations. - The PNOC-National Petroleum
Corporation shall formulate and issue the necessary implementing rules and regulations
within thirty (30) days after the effectivity of this Act.

SECTION 21. General Repealing Clause.

(a) Republic Act No. 8479, also known as the “Downstream Oil Industry Deregulation
Act of 1998”, is hereby repealed,

(b) All other laws, decrees, executive orders, rules and regulations, or parts thereof
inconsistent with any of the provisions of this Act, are hereby repealed or amended
accordingly.

SECTION 22. Separability Clause. - If, for any reason, any section or provision of this Act
is declared unconstitutional or invalid, such other sections or provisions not affected thereby
shall remain in full force and effect.

SECTION 23. Effectivity. - This Act shall take effect fifteen days afer its complete
publication in two (2) national newspapers of general circulation.

Approved,