Republic of the Philippines
HOUSE OF REPRESENTA’
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL No.

Introduced by Reps. NERI J. COLMENARES, CARLOS ISAGANI T. ZARATE,
LUZVIMINDA C. ILAGAN, EMMI A. DE JESUS, ANTONIO L. TINIO,
FERNANDO HICAP and TERRY RIDON

AN ACT
RENATIONALIZING PETRON CORPORATION

EXPLANATORY NOTE

Petron Corporation (PCOR or Petron) is the largest and only publicly listed oil refining and marketing
company in the Philippines. As of year-end 2011, Petron has remained the market leader, supplying
‘more than one-third (37.7%) of the country's petroleum product requirements. It has 1,900 retail
service stations located nationwide. Petron accounts for the largest share, 180,000 of the 290,000-bazrel
per day of the refining capacity of the country, which it produces in its petroleum refinery complex in
Limay, Bataan — the largest in the Philippines. Petron also operates a fully automated lube oil blending
plant in Pandacan, likewise the biggest and most advanced of its kind in the Philippines. Moreover, the
company controls a 38 percent market share of the highly socially sensitive liquefied petroleum gas
industry (LPG) with its LPG brand Gasul.

Cleatly, Petron Corporation dominates the local downstream petroleum industry. With the
government-owned Philippine National Oil Company (PNOC) controlling 40% of Petron equity,
Petron is also one of the most valuable assets of the government.

But government policy control over Petron is limited as it is equally owned by the Ashmore Group
(through SEA Refinery Holdings BV) which also owns 40% of the corporation’s equity with the
remaining 20% held by close to 190,000 individual stockholders. In this way, instead of Petron
benefiting Filipino consumers, the oil company controls local prices in the same way as the big
‘transnational oil corporations Exxon-Mobil, Royal Dutch Shell, Chevron-Texaco (its marketing arm is
Caltex), British Petroleum (BP), and CFP-Total that almost completely and collusively control oil prices
worldwide.

Even if the largest oil producing countries (Saudi Arabia, Iran, Venezuela, Mexico, and China) control
90 percent of the world’s oil reserves, the five transnational oil companies mentioned 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. Filipino consumers are thus severely dependent on such


corporations, which control the exploration, exploitation, refining, importation, and retailing of crude
and petroleum products from abroad; and even the re-exportation of our country’s indigenous
petroleum and petroleum-based products.

Because 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. Estimates show that 67% of world
trade in oil is done through term contracts, or transactions between subsidiaries of the same companies,
bypassing exchanges over world markets.

Such control over pricing has allowed big oil companies, in the past few months, to shock the globe
with the highest ever world oil prices. The relentless increases have allegedly been caused by rising
demand, particularly by Chinese and Indian markets; the lack of spare supply capacity; political tensions
in the Middle East and North Africa; the financial crisis of now government-sequestered, Russian oil
giant Yukos; stricter environmental regulations, especially in the United States; and scarcer oil. But
these factors explain only to a certain degree the latest surge in world oil prices; they do not explain why
oil prices are high to begin with. These popular claims rule out the control and influence of giant
transnational oil corporations, which are almost invulnerable to the law of supply and demand and to
the vagaries of speculation.

Locally, the Big Three, or Petron and the local subsidiaries of Shell and Caltex, claim that they have not
‘overpriced based on the price increases of Dubai oil exchanged over the spot market and on Peso-
Dollar exchange rate fluctuations. Moreover, they have denied the existence of a local cartel, alleging
that they have merely and coincidentally followed the movements of world oil prices. They claim these
even as they are minimally affected by prices in world maskets and even as they are able to trade in the
same currency between subsidiaries.

‘The privatization, liberalization, and deregulation of the oil industry has allowed oil price increases to
go unchecked. With petroleum as a sensitive commodity, of which price directly affects the cost of
almost all other commodities and services, including food, housing, social services, and transportation,
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.

On June 18, 2013, escalating world oil prices have prompted oil firms operating in the Philippines to
hike prices of gasoline (P1.05), diesel (P1.45) and kerosene (P1.30) per liter, inclusive of the 12-percent
value-added tax.

Indeed, there is a pressing need for government to regulate and intervene in the oil industry to protect
the majority of Filipinos from runaway increases in oil prices. But due to the control of monopolistie,
transnational corporations, regulation can only be effective and truly beneficial if itis 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 can be prevented
from falling prey to further monopoly pricing and manipulation.

This Bill requires, as an imperative for an urgent and long-term response to the looming oil crisis, the
renationalization of Petron Corporation, so that the valuable government asset can truly fulfill the
responsibility of the State to ensure public welfare through fair and regulated prices.



This Bill is part of a range of bills to institute the policy of independence from monopoly pricing by
transnational oil corporations through the regulation and the gradual industralization of the petroleum
industry. The other bills call for: the regulation of the petroleum industry through the creation of an oil
regulatory council; the creation of a buffer fund solely to cushion drastic increases in petroleum prices;
the centralized procurement of all imported crude oil and refined petroleum products; and the revision
of investment, taxation, and other laws.

Approved,
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Rep./NERf J. COLMENARES
ayian Muna Harty list
BoA ZUG WER fs

Rep. CARLOS ie T. ZARATE Rep. FERNANDO HICAP
Bayan Muna Party list Avakpawis Party-list

Rep. LUZVIMINDA C. ILAGAN a= Rep. ANTONTO L. TINIO
Gabriela Women’s Party ACT Teachers Partylist

Hi

Rep. EMMI A. DE JESUS
Gabriela Women’s Party



Republic of the Philippines
HOUSE OF REPRESENTATIVES
Quezon City

SIXTEENTH CONGRESS
First Regular Session

HOUSE BILL No.

Introduced by Reps. NERI J. COLMENARES, CARLOS ISAGANI T. ZARATE,
LUZVIMINDA C. ILAGAN, EMMI A. DE JESUS, ANTONIO L. TINIO,
FERNANDO HICAP and TERRY RIDON

AN ACT
RENATIONALIZING PETRON CORPORATION,

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

SECTION 1. Short Title. - This Act shall be known as the “Petron Renationalization Act of 2013”,
SECTION 2. Declaration of Policy.
L Social Justice

Article II, Section X of the 1987 Constitution states: “Ihe State shall Promote social justice in all phases
of national development.”

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

H. 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 XIL, 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
to industrialization and their supply at reasonable prices being essential to the general welfare, itis
hereby declared to be the policy of the State to renationalize Petron Corporation and align its policies
to fulfill the following objectives and purposes:

(2) __ Toexplore, exploit, and promote the exploration and exploitation of indigenous sources of
petroleum and ensure that locally extracted crude oil, locally refined petroleum, and locally processed
petroleum products primarily and singularly serve the country’s local petroleum requirements;

(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 and the country’s total domestic petroleum requirements, and for this
Purpose to engage in the transportation, storage, importation, exportation, refining, supply, sale and
distribution of crude oil, refined petroleum and petroleuin based products, whether imported or
produced by local refineries;

© _ Toassure the public of reasonable and justified prices for petroleum products;
(@ To gradually increase the local petroleum refining capacity;

(©) To build the local upstream oil industry by upgrading research and development facilities,
‘updating technological expertise, and wholly or jointly finance local petroleum exploration projects;

( _ Tointegrate the local downstream petroleum industry with the developing local upstream oil
industry; and

@ To encourage the participation of local private capital, technology, and labor.

SECTION 3. Definition of Terms.-

(@) “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 ot 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 mean products formed in the course of refining crude petroleum
through distillation, cracking, solvent refining and chemical treatment, coming out as primary stocks
from the refinery like: liquefied petroleum 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 refinery petroleum fractions which have not
undergone any process or treatment as to produce separate chemically defined compounds in a pure or

5



commercially pure state; and to which various substances may have been added to render them suitable
for particular uses, provided that the resultant product contains not less than 50% by weight of such
petroleum products.

(© "Philippine national” shall mean a citizen of the Philippines, or a domestic partnership or
association wholly owned by citizens of the Philippines; or a corporation organized under the laws of
the Philippines of which at least sixty percent (60%) of the capital stock outstanding and the
entitlement to vote is owned and held by citizens of the Philippines, or a corporation organized abroad
and registered as doing business in the Philippines under the Corporation Code of which one hundred
percent (100%) of the capital stock outstanding and the entitlement to vote is wholly owned by
Filipinos or a trustee of funds for pension or other employee retirement or separation benefits, where
the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit
of Philippine nationals: Provided, That where a corporation and its non-Filipino stockholders own stocks
ina Securities and Exchange Commission (SEC) registered enterprise, at least sixty percent (60%) of
the capital stock outstanding and entitled to vote of each of both corporations must be owned and held
by citizens of the Philippines and at least sixty percent (60%) of the members of the Board of Directors
of each of both corporations must be citizens of the Philippines, in order that the corporation shall be
considered a Philippine national.

SECTION 4. Specific Policy Objectives of Petron. ‘The specific policy objectives of Petron
Corporation to fulfil this declaration of policy shall include, but shall not be limited to, the following:

(@) Especially for Petron’s socially and economically sensitive products, such as liquefied petroleum
gas (LPG), naphtha, gasolines, kerosenes, automatic/industrial diesel oils, and industrial /residual fuel
oils, to adopt a pricing policy that shall keep the prices of crude oil and petroleum products, sold in
wholesale or retail to local consumers, as socially and economically viable as possible and as allowed by
the fulfillment of the objectives of this Act;

(®) — To-control cartel and monopoly pricing, and thus check unreasonably high prices;

(©) Toraise and promote the local capacity for exploration, refining and exploitation, processing,
and development of petroleum;

@ __ Before or after the full nationalization of Petron, or once deemed feasible and cost-effective by
the Board of Directors of Petron, to invest, through partnerships, joint-ventures, mergers, or
acquisitions, in entities involved in activities directly related to the policies of Petron provided under
this Act. Such investments shall prioritize local Philippine nationals and government agencies such as
the Philippine National Oil Company (PNOC);

(© Toencourage the participation of local private capital by prioritizing such investments in joint
ventures it shall undertake consistent with the provisions of this Act; and

(® To prioritize Filipino capital, technology, and labor through the investment decisions and

conduct of operations of Petron.

SECTION 5. Transitory Duty of PNOC 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% of its total subscribed stocks singularly from the 20% owned
and/or traded by individuals or from the 40% owned by the Ashmore Group or in a combination of
which sum is at least 11% of the total subscribed stocks of Petron Corporation. PNOC shall initially
buy back the shares at the Philippine Stock Exchange. If the minimum 11% 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 the initial repurchase of Petron stocks. Earnings from
the forty percent (40%) stake of PNOC in Petron Corporation shall hereby be utilized as the secondary
funding source for this stock repurchase.

SECTION 6. Full Nationalization of Petron Corpotation.- The Philippine National Oil Company
(PNOC) shall reacquire 100% ownership of Petron Corporation within a period of four (4) years.
Reacquisition costs shall mainly be funded by the National Government, through annual budget
appropsiations. The secondary source for the full repurchase shall be the expanding eamings 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 merget of the PNOC and Petron Corporation shall hereby be a matter of policy.

SECTION 7. General Repealing Clause.-

(®) _ Any andall articles, sections, and provisions under Republic Act No. 8479, otherwise known as
the “Downstream Oil Industry Deregulation Act of 1998,” contrary or inconsistent with this act are
hereby repealed.

(b) _Allother 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 8. Separability Clause.-If, for any reason, any section ot 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 9. Effectivity. —This Act shall take effect fiftcen days after its complete publication in at
least two (2) national newspapers of general circulation.

Approved,