NatRes Dept of Energy Code

8/12/2019 NatRes Dept of Energy Code

1/20

I,AW ON NATURAL RESOURCESAND ENVIRONMENTAL LAW DEVELOPMENTSNo exemption shall be allowed on goods imported by theconcessionaire for his personal use or that of any others; nor forsale or for re-export; and if any goods on which exemption has beenallowed be thus used or disposed of, the concessionaire is obliged tomake a report to the DENR Secretary to that effect and to pay suchimport duty as is due.u3

a. Purpose of tax exemptionRA No. 387 was intended to encourage the exploitation, explo-ration and development ofthe petroleum resources ofthe country bygiving it the necessary incentive in the form of tax exemptions. Thisis the roison d etre for the generous grant of tax exemption to thosewho would invest their financial resources towards the achievementof this national economic goal.In Commissioner of Customs v. Caltex (Phil.) Inc.,M respondent

Caltex (Phil.), Inc. was granted by the then Secretary of Agricultureand Natural Resources a petroleum refining concession with the rightto establish and operate a petroleum refinery in the municipalitiesof Bauan and Batangas, province of Batangas. The concession madethe provisions of RA No. 387 as an integral part. In its operation,Caltex (Phil.) Inc. used as basic material crude oil imported fromabroad. Customs duties were imposed on this imported crude oiland so, Caltex sought for refund. The Court ofTax Appeals ordereda refund. On petition for review, the Supreme Court held thatunder Article 103 of the Act, the petroleum products imported byrespondent for its use during the construction of the refinery areexempt from the customs duties and that gasoline and oil furnishedits drivers during the construction job come within the import of thewords "material" or "supplies."

Chapter VlllDEPARTMENT OF ENERGY ACT OF 1992(RePublic Act No. 7638)

A. Preliminnry01. Law creating the Department of Energy-

RA No. 7638, or ttre *Department of Energy Act of 7992," iaan Act creating the Department of Enerry, and aims to rationaliztlthe organization and functions of government agencies related toenerry. Itwas approved on Decembet9,1992.On December9,L992, Congress enacted RA No' 7638 (Depart-ment ofEnerryAct of 1992)which created the Departmentof-Enorgyto prepare, integrate, coordinate, supervise and control all plann'p"o-gtr*., p.oiects, and activities of the government in relationL J"""ry expioration, development, utilization, distribution und

"or*"*iiion. The thrust of the Philippine energy program undorthe law is toward privatization of government agencies related krenergy, deregulation ofthe power and enerry industry and reductionof dependency on oil-fired plants. The law also aims to encouragoffee and active participation and investment by the private,sector irrall enerry activities. Siction 5(e) ofthe law states that "at the end ol'four (4)]ears from the effectivity of this Act, the Department shall,opoo rpitoral ofthe President, institute the programs and timetabl.oi a"r"g,l"tion of appropriate enerry projects and activities of th*energ:y industry.'t02- Declaration of PolicY.

The law declares as the policy of the State the following:(a) to ensure a continuous, adequate, and economic supplyof energy with the end in view of ultimately achieving self-relianco__ of F)nergy, GR No. 124360, Nov. lt, l Xl?,


2/20

296 LAW ON NATURAL RESOURCESAND EI{WRONMENTAL LAW DEVELOPMENTSin the country's enerry requirements through the integrated andintensive exploration, production, management, and d&elopmentof the country's indigenous energy resources, and through thejudicious conservation, renewal, and efEcient utilization of energyto keep pace with the country's growth and economic developmentand taking into consideration the active participation ofthe privatesector in the various areas on enerry resource development; and(b) to rationalize, integrate, and coordinate the various pro-grams of the Government towards self-sufficiency and enhanced pro-ductivity in power energy without sacrificing ecological concerns.,03. Definition of terms.(a) "Energy projecfs" shall mean activities or projects relativeto the exploration, extracfion, production, importation-exportation,processing, transportation, marketing, distribution, utilization, con-servation, stockpiling, or storage of all forms of energy products andresources.(b) *Board'shall mean the Energy Regulatory Board..,

CHAPTER VIII - DEPARTMENT OF ENERGY ACT OF 1992(Republic Act No. 7638)(b) Exercise direct supervision and control overfunctions and activities of the Department, as well as allofficers and personnel;(c) Devise a program of international information onthe geological and contractual conditions obtaining in thePhilippines for oil and gas exploration in order to advance theindustry;(d) Create regional offices and such other service unitsand divisions as may be necessary;(e) Create regional or separate grids as maybe necessaryor beneficial; and(0 Perform such other functions as may be necessary orproper to attain the objectives ofthis Act. '

The Secretary shall be an ex officio member of the Board of theNational Economic and Development Authority (NEDA). He shallalso be a member of the body authorized to formulate, prescribe,or amend the necessary guidelines for the financing, construction,operation, and maintenance of infrastructure projects by the privatcsector, under RA No. 6957, otherwise known as the Build-Operate-Transfer Law.'b. Visitorial powers.The Secretary or his representatives shall have visitorial andexamining authority over non-government entities with contracts

for the exploration, development, or utilization of the naturalresources for energy purposes in order to determine the share ofthegovernment in the revenue or product thereof, and to ascertain allfunds collectible and products due the government, and that all suchfunds collectible and products due the government, have actuallybeen collected or delivered.u05. Powers and functions.

RA No. 9l-36, dated June 8, 200L, or the Electric Power Indus-try Act of 2001, expanded the functions of the Department of Energyby amending RA No. 7638. Under the amendatory law, the Depurt-of the electricity

aIlits

B. Organizational Sh-ucture04. Department of Energy.

To carry out the above-declared policy, the Department ofEnerry, hereinafter referred to as the Department, has blen created.The Department is tasked to prepare, integrate, coordinate, super_vise, and control all plans, programs, projects, and activities of thegovernment relative to energy exploration, development, utilization,distribution, and conservation.a. Funetions of the Department SeeretaryThe Secretary has the following functions:(a) Establish policies and standards for the effective,efficient and economical operation of the Department inaccordance with the programs of the government;


3/20


4/20

I,AW ON NATURAL RESOURCESAND ENYIRONMENTAL I,AW DEVELOPMENTSand efficient use of enerry in all energy-consuming sectors ofthe economy;

(m) Formulate and implement a program forthe acceler-ated development of non-conventional energy systems and thepromotion and commercialization of its applications;(n) Devise ways and means of giving direct benefit to theprovince, city, or municipality, especially the community andpeople affected, and equitable preferential benefit to the regionthat hosts the energy resource and/or the energy-generatingfacility: Prouided, howeuer, That the other provinces, cities,municipalities, or regions shall not be deprived of their energyrequirements;(o) Encourage private enterprises engaged in energyprojects, including corporations, cooperatives, and similarcollective organizations, to broaden the base oftheir ownershipand thereby encourage the widest public ownership of enerry-oriented corporations;(p) Formulate such rules and regulations as may benecessary to implement the objectives of this Act; and(q) Exercise such other powers as may be necessary orincidental to attain the objectives of this Act.ua. Issuance of implementing rules and regulationsThe law empowers the Department of Energy (DOE) to

formulate rules and regulations as may be necessary to implementlaws under its watch.ln Perez v. LPG Refillers Association, the issue is the validityof Circular No. 2000-06-010 issued by the DOE to implement BpBlg. 33 which penalizes illegal trading, hoarding, overpricing,adulteration, underdelivery, and underfilling of petroleum products,as well as possession for trade of adulterated petroleum productsand of underfilled liquefied petroleum gas (LpG) cylinders, and setsthe monetary penalty for violators. In upholding the validity of thecircular, the court laid down the rule that for an administrativeregulation, such as the Circular in question, to have the force of

CIIAPTER VIII _ DEPARTMENT OF ENERGYACT OF 1992(Republic Act No. 7688)penal law: (1) the violation of the administrative regulation must bemade a crime by the delegating statute itself; and (2) the penalty forsuch violation must be provided by the statute itself. The circularsatisfies the first requirement. BP Blg. 38, as amended, criminalizesillegal trading, adulteration, underfiIling, hoarding, and overpricingof petroleum products. The circular merery lists the various modesby which the said criminal acts may be perpetrated. The circularis also in accord with the law since under Bp Blg. BB, as amended,the monetary penalty for any person who commits any of the actsaforestated is limited to a minimum of p20,000 and a maximum ofP50,000. Under the Circular, the maximum pecuniary penalty forretail outlets is P20,000, an amount within the range allowed bylaw. It is BP Blg. 33, as amended, which defines what constitutepunishable acts involving petroleum products and which set theminimum and maximum limits for the corresponding penalties. TheCircular merely implements the said law.The court further noted that the enabling laws on which thecircular is based were specifically intended to provide the DoEwith increased administrative and penal -"uso""s with which toeffectively curtail rampant adulteration and shortselling, as wellas other acts involving petroleum products, which are inimicalto public interest. To nullify the circular in this case would be torender inutile government efforts to protect the general consumingpublic against the nefarious practices of some unscrupulous LpGtraders.

301

C, Bureaus and. Semtiees06. Bureaus and services.Section 12 of RA No. 7688 empowers the Secretary of Energy,subject to the approval of the President, to reorganize, restructureand redefine the functions ofthe bureaus and services, and to createregional offices and such other service units and divisions as may benecessary.After the creation of the Department of Energy, several lawswcre passed expanding the role and functions of the Department,


5/20

30302 LAW ON NATURAL RESOURCESAND ENI\TIRONMENTAL LAW DEVELOPMENTS

optimum employment of the country's resources, there was a needto institutionally strengthen the Department to cope with thesedevelopments.Thus, on August 23,2002, the President issued AdministrativeOrder (AO) No. 38 reorganizing, restructuring and redefining thefunctions of the bureaus and services of the Department as follows:a. Energy Resource Development Bureau (ERDB)The ERDB shall have the following functions and services:1) formulate and implement policies, programs, regu-lations on the exploration, development production of enerryfrom indigenous petroleum, petrochemical, coal and geother-mal energy resources; and2) undertake product and market development of coaland geothermal resources/industries.b. Enerry Utilization Management Bureau (EITMB)The EUMB shall have the following functions and services:1) formulate and implement policies, programs, regu-lations on new energ:y technologies, alternative fuels and theefficient, economical transformation, marketing and distribu-tion ofconventional renewable enerry resources; and2) undertake plans, programs and strategies to ensureefficient and judicious utilization of conventional and renewableenergy resources.c. Energy Policy and Planning Bureau (EPPB)The EPPB, which replaced the Energy Planning and MonitoringBureau (EPMB), shall have the following functions and services:1) develop, prepare and update an integrated nationalenerg"y plan and other support plans for the energy sector;2) formulate enerry policies, programs and strategies;3) undertake comprehensive assessment of the demand

C}IAPTER VIII _ DEPARTMENT OT ENERGY ACT OF 1992(Republic Act No. 7638)d. Electric Power Industry Administration Bureau(EPTAB)The EPIAB shall have the following functions and serwices:

1) supervise the restructuring of the electric powerindustry, with a view to establishing a competitive, market-based environment and encouragrng private sector participa-tion; 2) forrnulate plans and programs that would ensureadequate, efficient and reliable supply of electricity; and3) formulate plans, programs and strategies on ruralelectrification.e. OiI Industry Administration Bureau (OIAB) .The OIAB shall have the following functions and seryices:1) formulate and implement policies, programs, andregulations on the downstream oil industry, including theimportation, exportation, stockpiling, storage, shipping, trans-portation, refining, processing, marketing and distribution ofpetroleum crude oils, products and by-products; and2) monitor developments in the downstream oil indus-try.The Administrative Support Services created under RANo. 7638 was redefined into three distinct services, namely, theAdministrative Services, the Financial Services and the LegalSeryices.The Philippine National Oil Company (PNOC), the NationalPower Corporation (NPC), and the National ElectrificationAdministration (NEA) have been placed under the supervision ofthe Department, but are to continue to perform their respectivefunctions insofar as they are not inconsistent with the provisions ofRA No. 7638.,f. TIle National TYansmission Corporation(TR,ANSCO)Section


6/20

LAW ON NATURAL RESOURCESAND EN''IIRONMENTAL LAW DEVELOPMENTS

mission functions of the National Power Corporation (NPC),and exercise the powers and functions specified in the law. TheTRANSCO shall assume the authority and responsibility of theNPC for the planning, construction and centralized operation andmaintenance of its high voltage transmission facilities, includinggrid inter-connections and ancillary services.'g. The Power Sector Assets and Liabilities Manage'ment Corporation (PSALM)Section 49 of RA No. 9136 created a government-ownedand -controlled corporation known as the Power Sector Assetsand Liabilities Management Corporation (PSAIM) which shalltake ownership of all existing NPC generation assets, liabilities,IPP contracts, real estate and all other disposable assets. Alloutstanding obligations of the NPC arising from loans, issuancesof bonds, securities and other instruments of indebtedness shall be

transferred to and assumed by the PSALM.'.The principal purpose of the PSALM is to manage the orderlysale, disposition, and privatization of NPC generation assets, realestate and other disposable assets, and IPP contracts with theobjective of liquidating all NPC financial obligations and strandedcontract costs in an optimal manner.rlh. NationalElectrifieationAdministration(NEA)NEA shall continue to be under the supervision of the Depart-ment of Enerry and shall exercise its functions under PD No. 269,as amended by PD No. 1645. In addition, NEA shall develop and

implement programs:1) To prepare electric cooperatives in operating andcompeting under the deregulated electricity market within five(5) years from the effectivity of RA No. 9136, specifically in anenvironment of open access and retail wheeling;2) To strengthen the technical capability and financialviability of rural electric cooperatives; andsSec. 8, RA No. 9136.roSr:c. 49, /6irl.

CHAPTER VIII _ DEPARTMENT OF ENERGY ACT OF 1992(Republic Act No. 7638) 305

3) To review and upgrade regulatory policies with aview to enhancing the viability ofrural electric cooperatives aselectric utilities."07. Relationship of the Department with other offices.

The Department and its priority projects shall enjoy preferentialattention from the Department of Environment and NaturalResources relative to the exploration, development, exploitation,and extraction of petroleum, coal, and geothermal resources, and inthe matter of providing technical support necessary for the estab-lishment of power-generating plants.Upon request of the Department or any of its bureaus, allgovernment agencies with functions relative to the approval qf theprojects of the Department or its duly authorized and endorsedentities, whether government or private, shall act upon and resolvethe matter within ten (10) calendar days. Toward this end, theSecretary, with the approval of the President, may establish aninter-agency secretariat for the purpose ofexpediting the approvalofsaid projects.'3

D. Energy Regulatory Board.08. Energy Regulatory Board.

The supply of electricity is a public service that affects nationalsecurity, economic growth and public interest. To achieve coherenttnd effective policy formulation, coordination, implementation andlnonitoring within the energT sector, it became necessary to entrustin one body the regulatory functions covering the energy sector.'l'hus, on May 22, 1987, the President issued EO No. 172 creatingthc Energy Regulatory Board (ERB) to provide the policy guidelinesund regulatory framework for the activities and operations of thelx)wer sector. The ERB was to regulate the business of importing,ox porting, re-exporting, shipping, transporting, processing, refining,rnrrketing and distributing energy resources. It was also given thetx)wcr to determine, fix and prescribe the rates - including penaltyclrrrrgcs - of all energ'y providers, including the National Power

trl{11:. ftl, /6lrl.


7/20

306 I"AW ON NATI.]RAL RESOURCESAND ENYIRONMENTAL I,AW DEVELOPMEI'ITS

corporation (NPC), a government-owned and -controlled corporationexisting by virtue of CA No. 120 and RA No. 6395."Enerry resource means any substance or phenomenon which

by itself or in combination with others, or after processing or refiningor the application to it of technolory, emanates, generates or causesthe emanation or generation of enerry, such as but not limited to,petroleum or petroleum products, coal, marsh gas, methane gas,geothermal and hydroelectric sources of enerry, uranium and othersimilar radioactive minerals, solar enerry, tidal power' as well asnon-conventional existing and potential sources.'6

a. Jurisdiction, trxlwers and functionsThe ERB (now Enerry Regulatory Commission), under itscharter, exercised the following, among other powers and functions:1) Fix and regulate the prices ofpetroleum products;

2) Fix and regulate the rate schedule or prices ofpipedgas to be charged by duly franchised gas companies whichdistribute gas by means of underground pipe system;3) Fix and regulate the rates ofpipeline concessionairesunder the provisions of RA No. 387, as amended, otherwiseknown as the 'Petroleum Act of 1949,'as amended by PD No.1700;4) Regulate the capacities ofnew refineries or additionalcapacities of existing refineries and license refineries that maybe organized under such terms and conditions as are consistentwith the national interest;

5) Whenever the ERB has been determined thatthere is a shortage ofany petroleum product, or when publicinterest so requires, it may take such steps as it may considernecessary, including the temporary a{ustment of the levelsof prices of petroleum products and the pa5rment to the OilPrice Stabilization Fund (OPSF) created under PD No. 1956 bypersons or entities engaged in the petroleum industry ofsuchamounts as may be determined by the ERB, which enable theimporter to recover its cost of importation.'oraNational Power Corporation v. Philippinc Ek:ctric Plant ()wnr:rs Anrlrx:itrl.iort,

GR No. 159457, April 7,2006,486 SORA 677'rr'Scc. N


8/20

308 I,AW ON NATURAL RESOURCESAND ENVIRONMENTAL LAW DEVELOPMENTS

effect fifteen (15) days after notice to the parties, unless otherwiseprovided by the ERB.*11. Appeal from decisions or final orders of the ERB'

Appeals from decisions or final orders of the ERB were to betaken io tt " Courb of Appeals via a petition for review pursuantto Rule 43 of the Rules or court. The appeal shall be taken withinfifteen (15) days from notice ofthe decision or final order, or ofthedenial of petitioner's motion for reconsideration'"E. Eleetric Power Ind'ustry Reform Aet

12. Electric Power lndustry Reform Act of 2001'On June 8, 2001, Congress enacted RA No' 9136' known asthe "Electric Power Ind.ustry Reform Act of 2001 (EPIRA)"' Amongothers,EPIRAdeclaresaspolicyoftheStatethefollowing:(a)Toensureandacceleratethetotalelectrificationofthe country;(b) To ensure the quality, reliability, security andaffordability of the supply of electric power;(c) To ensure transparent and reasonable prices ofelectricity in a regime of free and fair competition and full publicaccountatility 6 achieve greater operational and-economicefficiency and enhance the competitiveness of Philippineproducts in the global market;

(d)Toenhancetheinflowofprivatecapitalandbroadentheownershipbaseofthepowergeneration,transmissionanddistribution sectors;(e) To ensure fair and non-discriminatory treatment ofpublic and private sector entities in the process ofrestructuringthe electric Power industry;(f) To protect the public interest as it is affected by therates and services of electric utilities and other providers ofelectric Power;

CHAPTER VIII _ DEPARTMENT OF ENERGY ACT OF 1992(Republic Act No. 7638)(g) To assure socially and environmentally compatible

energ'y sources and infrastructure;(h) To promote the utilization of indigenous and newand renewable enerry resources in power generation in orderto reduce dependence on imported enerry;(i) To provide for an orderly and transparent privatiza-tion of the assets and liabilities of the National Power Corpora-tion (NPC);0) To establish a strong and purely independent regu-latory body and system to ensure consumer protection andenhance the competitive operation of the electricity market;and .(k) To encourage the efficient use of energy and othermodalities of demand side management.22

13. Overview of the Energy Regulatory Commission.The Energy Regulatory Commission (ERC) is an independent,quasi-judicial regulatory agency created under the EPIRA. It abo-lished the Energy Regulatory Board (ERB) which was created underEO No. 172.,,One of the landmark pieces of legislation enacted by Congressin recent years, the EPIRA established a new policy, legal structureand regulatory framework for the electric power industry.In Freedom from Debt Coalition v. Energy Regulatory Com-mission,2a the Court, through Justice T'inga, stated that the newthrust is to tap private capital for the expansion and improvement

of the industry as the large government debt and the highly capital-intensive character of the industry itself have long been acknowl-edged as the critical constraints to the program. To attract privateinvestment, largely foreign, the jaded structure of the industry hadto be addressed. While the generation and transmission sectors werecentralized and monopolistic, the distribution side was fragmentedwith over 130 utilities, mostly small and uneconomic. The pervasive

22Scr:.2, IIA No. 1)lll(i.2:rSrrr. ilU, /6irl.

-II

I

l


9/20

CHAPIERVIII _ DEPARTMENT OT ENERGYACT OF 1992(Republic Act No. 7638)of the Chairman and members of the Commission on Elections,respectively.*

In his concurring and dissenting opinion, Justice, later ChiefJustice, Puno described the immensity of police power in relationto the delegation of powers to the ERC and its regulatory functionsover electric power as a vital public utility, to wit:

"Over the years, however, the range of police powerwas no longer limited to the preservation of public health,safety and morals, which used to be the primary socialinterests in earlier times. Police power noa.r requires theState to 'assume an affirmative duty to eliminate theexcesses and injustices that are the concomitants of anunrestrained industrial economy.' Police power is now .exerted'to further the public welfare - a concept as vastas the good of society itself.' Hence, 'police power is butanothername forthe governmental authorityto furtherthewelfare of society that is the basic end of all government.'When police power is delegated to administratiue bodicswith regulatory functions, its exercise shnuld be giuena widc latitude. Police power takes on en even broaderdimension in developing countries such as ours, where theState must take a more active role in balancing the manyconflicting interests in society. The Questioned Order wasissued by the ERC, acting as an agent of the State in theexercise of police power. We should have exceptiarnllygood grounds to curtail its exercise. This approach ismore compelling in the field of rate-regulation of electricpower rates. Electric Inwer generation and distribution isa traditional instrument of economic growth that affectsnot only a few but the entire nation. It is an importantfactor in encouraging investment and promoting business.The engirues of progress nx&y come to a screeching halt ifthe d.eliuery of electric power is impaired.'

'14. ERB abolished, powers and functions transferred to ERC.Pursuant to RA No. 9136, dated June 8, 2001, otherwise knownas the "Electric Power Industry Reform Act of 2001' (EPIRA), thefunctions of thc ERB have been transferred to the ERC which has

311310 LAW ON NATURAL RESOURCESAND ENVIRONMENTAL LAW DEVELOPMENTS

flaws have caused a low utilization of existing generation capacity;extremely high and uncompetitive power rates; poor quality of ser-viceto.*ro-"rr;dismaltoforgettableperformanceofthegovern-ment power sector; high system lott""; and an inability to develop aclear strategy for overcoming these shortcomings'Thus,theEPIRAprovidesaframeworkfortherestructuringof the industry, including the privatization of the assets of theNational Power corporation (NPc), the transition to a competitivestructure, and the delineation of the roles of various government"g"rr"i"randtheprivateentities'Thelawordainsthedivisionoftfr" i"a".try into four (4) distinct sectors, namely: generation'transmissiorr, dirtribrtion and supply''zs Corollarily' the Nationalpo*u. Corporation NPC) generating plants have to be privatized"and its transmission business spun off and privatized thereafber'"

Intandemwiththerestructuringoftheindustryistheestab-lishmentof..astrongandpurelyindependentregulatorybody."oThus, the law created the ERC in place of the ERB'"

To achieve its aforestated goal, the law has reconfigured theorganization of the regulatory foay' tt requires the Chajrman andfoir (a) members of t"he ERC to be equipped with "at-least three(3) years of active and distinguished experience" in the fields ofenerg'y, law, economics, finance, commerce or engineering' and atleast one of them with ten (10) years or more of experience in the,.ti""practiceoflawandanotheronewithsimilarexperienceasa certified public accountant''o Their terms of office were increasedto seven (7) years from the four (4) provided in EO No' 172 andtheir security of tenure assured'" The Chairman and members wereSi;"tt th" same salaries, allowances, benefits and retirement payIs the Chief Justice and Associate Justices of the Supreme Court'"'a lot higher than the salary and benefits accorded the Chairmana.rd meirbers of the ERB which were equivalent only to those of af)epartment Undersecretary and the official next in rank' and those

255ec.27, RA No. 9136.26Sec. 47,Ibid.27Secs. 3 and2l, Ihid.zsg"g. 2g(),Ibid."Sec. 38, lbid.,nIhid,.


10/20

3I2 I"AWONNATURALRESOURCESAND ENVIRONMENTAL I,AW DEVELOPMENTSnewandexpandedfunctionsintendedtomeetthespecificneedsofaderegulatei power industry. The ERC retains the ERB's traditionalrate and service regulation functions' However' the ERC now alsohastopromotecompetitiveoperationsintheelectricitymarket.RA No. 9136 expanied the ERC's concerns to encompass bothth" "orr.o*"r, und the utility investors''n EPIRA was enacted byCorrgru* with the goal of resiructuring the electric power industry,"aiti".tizationo?th" assets of the National Power Corporation(NPC).*

The ERC is tasked to promote competition' encourage- marketdevelopment, ensure customer choice and penalize abuse of marketpo*"r in the restructured electricity industry' Towards this end' thebnC i. granted, inter alia, the following functions:(a) Enforce the rules and regulations governing theoperationsoftheelectricityspotmarketandtheactivitiesoftile spot market operator and other participants in the spot-.rklt, for the plrpo," of ensuring a greater supply andrational Pricing of electricitY;(b) Amend or revoke, after due notice and hearing' theauthority to operate of any person or entity which fails to complywith the provisions hereof, the IRR or any order or resolutionof the pnC. fn the event that a divestment is required' theERCshallallowtheaffectedpartysuffrcienttimetoremedythe infraction or for an orderly disposal, but in no case exceedtwelve (12) months from the issuance of the order;(c) Exercise original and exclusive jurisdiction over allcases contesting rates,?ees, fines and penalties imposed by theERC in the exe"rcise of the above-mentioned powers, functionsand responsibilities and over aII cases involving disputesbetweerr and among participants or players in the energ'ysector.36Under Section 36 ofthe EPIRA, the National Power Corporation(NPC) and every distribution facility covered by the law is mandatedtounbundle,segregateoritemizeitsratesaccordingtothevarioussectors of the electiic power industry identified in the law' namely:

CHAPTERVIII_DEPARTMENTOFENERGYACTOF1992 313(Republic Act No. 7638)generation, transmission, distribution and supply. The law furtherdirects the ERC to regulate and facilitate the unbundling of ratesprescribed by Section 36."

The powers and functions of the ERB not inconsistent with theprovisions of the EPIRA were transferred to the ERC. The transferof powers and functions was to include all applicable funds andappropriations, records, equipment, property and personnel as maybe necessary.3s

a. A public utility must submit to government regula-tionsThe business and operations of a public utility are imbued withpublic interest. In a very real sense, a public utility is engaged inpublic service providing basic commodities and services indispens-able to the interest ofthe general public. For this reason, a publicutility submits to the regulation of government authorities and sur-renders certain business prerogatives, including the amount of ratesthat may be charged by it. It is the imperative duty of the State tointerpose its protective power whenever too much profits become thepriority of public utilities.3'gAs Justice Puno succinctly stated in Republic, rep. by EnergyRegulatory Board v. Meralco,4, rate regulation calls for a carefulconsideration of the totality of facts and circumstances material toeach application for an upward rate revision. Rate regulators shouldstrain to strike a balance between the clashing interests of the pub-lic utility and the consuming public and the balance must assure areasonable rate of return to public utilities without being unreason-able to the consuming public. What is reasonable or unreasonabledepends on a calculus of changing circumstances that ebb and flowwith time. Yesterday cannot goyern today, no more than today candetermine tomorrow.In Republic v. Medina,n' it was held that a regulatory commis-sion's field of inquiry, however, is not confined to the computationof the cost of service or capital nor to a mere prognostication of the'r?Rcpublic, rep. by Energy Regulatory Board v. Meralco, GR No. 141314' April9,2003,40 scRA 130.'r'Scc. 44, /6lrl.'"'ll,cprthlic, n'1r. h.y I')rrt'rg.y ltt'gultrtory lloard v' Meralco, supro.a"lltirt..'"(lll. No. l,-;12(X;tt. ()r'1,.'1, l1)71, 4 I S(lltA (i4;i.

r" "g mga Kawani ng ERI] v526 SCRA 1.116Bctoy v. Iltxrrd o(' I)irtrt:t,ors, NAI'O()Oll, saTrtrrRurin, (]R No. I I'r0974, Jtrnc 29, 2007,


11/20

314 I,AW ON NATURAL RESOURCESAND ENVIRONMENTAL LAW DEVELOPIi{ENTSfuture behavior of the money and capital markets. It must also bal-ance investor and consumer expectations in such a way that broadrequirements of public interest may be meaningfully realiz,ed. It*o.rld hence appear in keeping with its public duty if a regulatorybody is allowed wide discretion in the choice of methods rationallyrelated to the achievement of this end.The State, in the exercise of police power, can regulate therates imposed by a public utility. Thus, in surigao del Norte F,lectricCooperaiiue, Inc. v. Energy Regulatory Board,n' the Court held:

"The regulation of rates to be charged by publicutilities is founded upon the police powers of the Stateand statutes prescribing rules for the control andregulation ofpublic utilities are a valid exercise thereof.Wh"r, private property is used for a public purpose and isaffecteh with public interest, it ceases to be juris priuationly and becomes subject to regulation. The regulation isto promote the common good. Submission to regulation*.y b" withdrawn by the owner by discontinuing use; but.. iorrg as use of the property is continued, the same issubject to public regulation."b. ERC has authority to issue provisional rate in'creasesThe EPIRA introduced significant reforms which, althoughprocedural in character, bring about substantial benefits toiorrro*"r". Specifically, the publication requirement ulder Section4(e), Rule g or tne EPIRA Implementing Rules and Regulations(IRR) is aimed to protect the public interest uis-d.-uis the rates and

services ofelectric utilities and other providers ofelectric power; toensure transparent and reasonable prices of electricity in a regimeof free and fair competition and full public accountability; andto balance the interests of the consumers and the public utilitiesproviding electric power through the fair and non-discriminatorytreatment of the two sectors.TheERCisendowedwiththestatutoryauthoritytoapproveprovisional rate adjustments under the aegis of sections 44 and 80

of the EPIRA which read:

CHAPTERVIII_DEPARTMENTOFENERGYACTOF1992 315(Republic Act No. 7638)"SEC. 44. Transfer of Powers and Functions. - Thepowers and functions of the Energy Regulatory Boardnot inconsistent with the prouisions of this Act are herebytransferred to the ERC. The foregoing transfer of pow-ers and functions shall include all applicable funds andappropriations, records, equipment, property and person-nel as may be necessary.""SEC. 80. Applicability and Repealing Clause. -The applicabllity prouisions of Commonwealth Act No.746, as amended, otherwise hnown as the'Public SeruicesAcfi Republic Act 6395, as amended, revising the charterof NPC; Presidential Decree 269, as amended, referredto as the National Electrification Decree; Republic Act7638, otherwise known as the 'Department of EnergyAct of L992'; Executive Order 172, as amended, creatingthe ERB; Republic 7832 otherwise known as the 'Anti-Electricity and Electric Transmission Lines/lVlaterialsPilferage Act of 1994'; shall continue to have full forceand effect except insofar as they are inconsistent withthis Act.The provisions with respect to electric power ofSection 11(c) of Republic Act 7916, as amended, andSection 5(f) of Republic Act 7227 are hereby repealed ormodified accordingly.Presidential Decree 40 and all laws, decrees, rulesand regulations, or portions thereof, inconsistent withthis Act are hereby repealed or modified accordingly."(Emphasis supplied)

The principal powers of the ERB relative to electric publicutilities transferred to the ERC are the following:1. To regulate and fix the power rates to be charged byelectric companies;2. To issue certificates of public convenience for theoperation of electric power utilities;3. To grant or approve provisional electric rates.As explained tn b'nu


12/20

l,AW oN NA'l'l lltAt, R,l,tSot ItOt,)SAND IrN VI R()NMI.IN1'At, t,AW t)trvl lI I )t,M l,lN,t'snot inconsistent with any provision of the EPIRA. The powers of theERB transferred to the ERC under section 44 are in addition to thenew powers conferred upon the ERC under Section 48.

Section 80 of the EPIRA complements Section 44, as it man_dates the continued efficacy of the applicable provisions of the lawsreferred to therein. similarly, section 8 of Eo No. 172, or the ERBcharter, continues to be in full force by virtue of sections 44 and g0of the EPIRA. Said Section 8 of the ERB charter reads:"SEC. 8. Authority to Grant prouisional Relief. _The Board may, upon the filing of an application, petitionor complaint or at any stage thereafter and withoutprior hearing, on the basis of the supporting papersduly verified or authenticated, grant provisional reliefon motion of a party in the case or on its own initiative,without prejudice to a final decision after hearing, shouldthe Board find that the pleadings, together with suchaffidavits, documents and other evidence which may besubmitted in support of the motion, substantially supportof the provisional order; Prouided, That the Board shallimmediately schedule and conduct a hearing thereonwithin thirty (30) days thereafter, upon publication andnotice to all affected parties."

To the Court, the goals of market competition and peopleempowerrnent are not negated by the ERC's exercise of the authorityto approve provisional rate adjustments. The concerns are takencare ofby section 43 of the EPIRA and its IRR. while section 43laysdown the publication requirement as regards the rate application,Section 4(e), Rule 3 of the IRR fleshes out the requiremeniNeither is the notion of provisional rate adjustment incompa-tible with the policy to protect public interest, as enunciated insection 2(f) of the law. The common weal is not reregated to the back-burner simply by upholding the grant to the ERC of the authorityto approve provisional rate adjustments. Again for one, even if thereis a ground to grant the provisional rate increase, the ERC may doso only aft,er the publication requirement is met and the consumersaffected are given the opportunity to present their side. For another,the rate increase is provisional in character and therefore may bemodified or even recalled anytime. still for another, the ERC ismandated to prescribe a rate-setting methodology "in the public

(lllAl"l'l,lrt Vlll l)1,)l'All,'l'Ml,lN'l'Ol,'l,lNI,llt(lY A(l'l'()F l{)l)2(ltogrtrlrlic Acl, No. ?6iltt)interest"oo and "to pr


13/20

l,Aw ( )N NA',l'l lltAl, ll,l,)s( )t llt( :1,)sAN l) I.lN V I lt( )N M l )N'lAl, l,AW I )EVl.ll,( )l rM 1,lN'l'S

The members of the Board of Directors ol'the.luridical com-panies participating in or covered in the generation companies,the distribution utilities, the TRANSCO or its concessionaire orsupplier who violate the provisions of the Act may be fined by anamount not exceeding double the amount of damages caused by theoffender or by imprisonment of one (t) year or two (2) years or bothat the discretion of the court. This rule shall apply to the membersof the Board who knowingly or by neglect allows the commission oromission under the law.

If the offender is a government official or employee, he shall, inaddition, be dismissed from the government service with prejudiceto reinstatement and with perpetual or temporary disqualificationfrom holding any elective or appointive office.If the offender is an alien, he may, in addition to the penaltiesprescribed, be deported without further proceedings after service ofsentence.Any case which involves a question of fact shall be appealableto the Court of Appeals and those which involve a question of law

shall be directly appealable to the Supreme Court.The administrative sanction that may be imposed by theERC shall be without prejudice to the filing of a criminal action, ifwarranted.*F. Downstreant. Oil Ind,ustry DeregulationAct of 7996

15. Downstream Oil lndustry Deregulation Act of 1996.Downstream oil industry refers to the business of importing,exporting, re-exporting, shipping, transporting, processing, refining,

storing, distribution, marketing and./or selling, crude oil, gasoline,diesel, liquefied petroleum gas (LPG), kerosene, and other petroleumand crude oil products.n"On March 28, L996, Congress took the audacious step ofderegulating the downstream oil industry. It enacted RA No. 8180,entitled the "Downstream Oil Industry Deregulation Act of 1996."Under the deregulated environment, "any person or entity mayimport or purchase any quantity of crude oil and petroleum productsa8Sec. 45, RA No. 9136.asSec. 4, RA No. 8180.

(iilAt,t't,rttvill t)t,:l'Alt'l'Ml,:N'l'ol,'1,:Nl,:ll.(lY A()'l'()1,' l1192 :ll l( ltr,grulrlic Acl. No. 7(iilttt

lirrnr u lirrcign or dorntrs[ic source, lcusc or


14/20

321) t,Aw ( )N NA',t't [(At, til,]soutt( )t,lsAN I ) l,lNV I It( )N M l l N',l'A t, t,AW I )t,lV t,t t,( )t'M t,)N',l'S

On November 9, 1973, President Marcos boldly creatcd thePhilippine National Oil Corporation (PNOC) to break the controlby foreigners of our oil industry. PNOC engaged in the business ofrefining, marketing, shipping, transporting, and storing petroleum.It acquired ownership of ESSO Philippines and Filoil to serve as itsmarketing arm. It bought the controlling shares of Bataan RefiningCorporation, the largest refinery in the country. PNOC later put upits own marketing subsidiary - Petrophil. PNOC operated underthe business name PETRON Corporation. For the first time, therewas a Filipino presence in the Philippine oil market.In 1984, President Marcos, through Section 8 of PD No. 1956,created the Oil Price Stabilization Fund (OPSF) to cushion theeffects of frequent changes in the price of oil caused by exchangerate adjustments or increase in the world market prices of crude oiland imported petroleum products. The fund is used (1) to reimbursethe oil companies for cost increases in crude oil and imporbedpetroleum products resulting from exchange rate adjustment and/or increase in world market prices of crude oil, and (2) to reimburseoil companies for cost underrecovery incurred as a result of the

reduction of domestic prices of petroleum products. Under the law,the OPSF may be sourced from:1) any increase in the tax collection from ad ualoremtax or customs duty imposed on petroleum products subject totax under PD No. 1956 arising from exchange rate adjustment,2) any increase in the tax collection as a result of thelifting of tax exemptions of government corporations, as maybe determined by the Minister of Finance in consultation withthe Board of Enerry,3) any additional amount to be imposed on petroleumproducts to augment the resources of the fund through anappropriate order that may be issued by the Board of EnergTrequiring payment of persons or companies engaged in thebusiness of importing, manufacturing and/or marketingpetroleum products, or4) any resulting peso costs differentials in case theactual peso costs paid by oil companies in the imporbation ofcrude oil and petroleum products is less than the peso costscomputed using the reference foreign exchange rate as fixed bythe Board of Energy.

(lllAl'l'1,,.t Vlll l)1':l'Alt'l'Ml')N't'ol" l'lNl'llt(lY A(:'l'()I I1)l)2( ll.r'prlhlit: At:1, No. 7(iiltt t

By 1985, only three (3) oil companies were operating in thecountry - Caltex, Shell and the government-owned PNOC.In May, 1987, President Aquino signed EO No. 172 creatingthe Energy Regulatory Board to regulate the business of importing,exporting, re-exporting, shipping, transporting, processing, refining,marketing and distributing enerry resources "when warranted andonly when public necessity requires." The Board had the followingpowers and functions:1) Fix and regulate the prices ofpetroleum products;2) Fix and regulate the rate schedule or prices ofpipedgas to be charged by duly franchised gas companies whichdistribute gas by means of underground pipe system;3) Fix and regulate the rates ofpipeline concessionariesunder the provisions of RA No. 387, as amended;4) Regulate the capacities of new refineries o'r addi-tional capacities of existing refineries and license refineriesthat may be organized a{ter the issuance of (EO No. 172) under

such terms and conditions as are consistent with the nationalinterest; and5) Whenever the Board has determined that there is ashortage of any petroleum product, or when public interest sorequires, it may take such steps as it may consider necessary,including the temporary adjustment of the levels of pricesof petroleum products and the payment to the Oil PriceStabilization Fund ... by persons or entities engaged in thepetroleum industry of such amounts as may be determined byihe Board, which may enable the importer to recover its cost ofimportation.On December 9,1992, Congress enacted RA No. 7638 whichcreated the Department of Enerry to prepare, integrate, coordinate,supervise and control all plans, programs, projects, and activitiesof the government in relation to energy exploration, development,utilizaiion, distribution and conservation. The thrust of thePhilippine energ"y program under the law was toward privatizationofgovernment agencies related to energy, deregulation ofthe po\Merurrd "n".gy industry and reduction ofdependency on oil-fired plants.The law also aimed to encourage free and active participation andinvestment by the private sector in all energy activities. section 5(e)ofthe law states that "at the end offour (4) years from the effectivity

t:llAl/l'l,ll(Vlll Itl,ll'Alt'l'Ml'iN'l'()||t l')Nl')ll.(iY A(:'l'()1" ll)l)2 :12:l


15/20

322 l,AW ON N^',t'Ult^t,lil,ls0t[l.(:t,]SAND t NVlR()NMliN'l'n l, t,AW I)t,iVt,)t,()t,Ml,lN't'sof this Act, the Department shall, upon approval oI'the Presidcnt,institute the programs and timetable of deregulation of appropriateenergy projects and activities of the energ'y industry."

Pursuant to the policies enunciated in RA No. 7638, thegovernment approved the privatization of Petron Corporation in1993. On December 16, 1993, PNOC sold 407o of its equity in PetronCorporation to the Aramco Overseas Company.In March 1996, Congress took the audacious step of deregulat-ing the downstream oil industry. It enacted RA No. 8180, entitledthe "Downstream Oil Industry Deregulation Act of 1996." Underthe deregulated environment, "any person or entity may import orpurchase any quantity of crude oil and petroleum products from aforeign or domestic source, lease or own and operate refineries andother downstream oil facilities and market such crude oil or use thesame for his own requirement," subject only to monitoring by theDepartment of Energy.The deregulation process has two phases: the transition phaseand the full deregulation phase. During the transition phase,

controls of the non-pricing aspects of the oil industry were to belifted. The following were to be accomplished: (1) liberalizationof oil importation, exportation, manufacturing, marketing anddistribution, (2) implementation of an automatic pricing mechanism,(3) implementation of an automatic formula to set margins ofdealers and rates ofhaulers, water transport operators and pipelineconcessionaires, and (4) restructuring of oil taxes. Upon fullderegulation, controls on the price of oil and the foreign exchangecover were to be lifted and the OPSF was to be abolished.b. ImplementationSection 15 of RA No. 8180 provides that the DOE shall, upon

approval of the President, implement the full deregulation of thedownstream oil industry not later than March, 1997. As far aspracticable, the DOE shall time the full deregulation when theprices of crude oil and petroleum products in the world market aredeclining and when the exchange rate of the peso in relation to theUS dollar is stable. Upon the implementation of the full deregulationas provided herein, the transition phase is deemed terminated.The first phase of deregulation commenced on August 12,1996. On February 8, L997, the President implemented the fullderegulation of the Downstream Oil Industry through EO No. 372.

{ ltr,lrrrlrlic At'1, No.'/(illllt16. RA No. 8180 held unconstitutional.

IIA No. IllU0 did not stay long enough. On November 5, 1997'.lrrsticc Puno, speaking Ibr the Court in Tatad,o' declared RA No.ulll0 unconstitutional, and its implementing regulation, EO No.i|92, void. In assailing Section 15 of RA No. 8180 and EO No. 392,lrctitioners offered, among others, the following submissions: first,EO No. 392 implementing the full deregulation of the downstreamoil industry is arbitrary and unreasonable because it was enacteddue to the alleged depletion of the OPSF fund - a condition notfbund in RA No. 8180; and, second, Section 15 of RA No. 8180 andINO No. 392 allow the formation of a de facto cartel among the threecxisting oil companies - Petron, Caltex and Shell - in violation oflhe constitutional prohibition against monopolies, combinations inrestraint of trade and unfair competition. section 19 of Article XIIof the Constitution allegedly violated mandates: "The State shallregulate or prohibit monopolies when the public interest so requires.No combinations in restraint of trade or unfair competition shall beallowed."

Respondents, on the other hand, claimed that deregulation ofthe downstream oil industry is a policy decision made by Congressand it cannot be reviewed, much less be reversed by the Court.Some provisions of RA No. 8180 which allegedly violate Section19 of Article XII of the 1987 Constitution are:(1) Section 5(b) which states - "Any law to the contrarynotwithstanding and starting with the effectivity of this Act,tariff duty shall be imposed and collected on imported crudeoil at the rate of three percent (37o) and' imported refinedpetroleum products at the rate of seven percent (7Vo) exceptfuel oil and LPG, the rate for which shall be the same as thatfor imported crude oil. Prouided, That beginning on Januaryl, 2OO4 the tariff rate on imported crude oil and refinedpetroleum products shall be the same. Prouided, further,Thatthis provision may be amended only by an Act of Congress."(2) Section 6 which states - "To ensure the securityand continuity of petroleum crude and products supply, theDOE shall require the refiners and importers to maintain aminimum inventory equivalent to ten percent (L07o) of theirrespective annual sales volume or forty (40) days of supply,whichever is lower," and

6rSupra.

l,AW oN NA'l'l lll,Al, ltl,lSol llt( ll,lS (:llAlrl'1,)lt Vlll l)1,)l'Alt'l'Ml,lN'l'()l,' l'lNl'llt(lY A(:'l'()lr ll)1)2


16/20

n N I ) l,lN V I ll,( )N M ],lN'l'Al, l,AW I )l,lv l,)1,( )l'M l,:N'l'S(3) Section 9(b) which states - "To ensure fair competi-tion and prevent cartels and monopolies in the downstream oilindustry, the following acts shall be prohibited:xxx xxx xxx(b) Predatory pricing which means selling or offer-ing to sell any product at a price unreasonably below theindustry average cost so as to attract customers to thedetriment of competitors."

In declaring RA No. 8180 unconstitutional and EO No. 392void, the Court held:"section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition.The desirability of competition is the reason for theprohibition against restraint oftrade, the reason for theinterdiction of unfair competition, and the reason forregulation of unmitigated monopolies. Competition isthus the underlying principle of Section 19, Article XIIof our Constitution which cannot be violated by RA No.8180. x x x

In the cases at bar, it cannot be denied that our downstream oilindustry is operated and controlled by an oligopoly, a foreign oligopolyat that. Petron, Shell and Caltex stand as the only major leagueplayers in the oil market. All other players belong to the Lilliputianleague. As the dominant players, Petron, Shell and Caltex boast ofexisting refineries of various capacities. The tariffdifferential of 4Votherefore works to their immense benefit. Yet, this is only one edgeofthe tariff differential. The other edge cuts and cuts deep in theheart oftheir competitors. It erects a high barrier to the entry ofnewplayers. New players that intend to equalize the market power ofPetron, Shell and Caltex by building refineries of their own will haveto spend billions of pesos. Those who will not build refineries butcompete with them will suffer the huge disadvantage of increasingtheir product cost by 4Vo. They will be competing on an uneven field.The argument that the AVo tariff differential is desirable because itwill induce prospective players to invest in refineries puts the cartbefore the horse. The first need is to attract new players and theycannot be attracted by burdening them with heavy disincentives.Without new players belonging to the league of Petron, Shell andCaltex, competition in our downstream oil industry is an idle dream.xxx

(ltr'prrlrlic Act, No. ?(illtl)

Again, we underline in scarlet that the fundamentalprinciple espoused by Section 19, Article XII of theConstitution is competition for it alone can release thecreative forces of the market. But the competition thatcan unleash these creative forces is competition thatis fighting yet is fair. Ideally, this kind of competitionrequires the presence ofnot one, notjust a few but severalplayers. A market controlled by one player (monopoly) ordominated by a handful of players (oligopoly) is hardlythe market where honest-to-goodness competition willprevail. Monopolistic or oligopolistic markets deserveour careful scrutiny and laws which barricade the entrypoints of new players in the market should be viewedwithsuspicion.xxx

The provisions on tariff differential, inventoryand predatory pricing are among the principal propsof RA No. 8180. Congress could not have deregulatedthe downstream oil industry without these provisions.Unfortunately, contrary to their intent, these provisionson tariff differential, inventory and predatory pricinginhibit fair competition, encourage monopolistic powerand interfere with the free interaction of market forces. xx x The aftermath of RA No. 8180 is a deregulated marketwhere competition can be corrupted and where marketforces can be manipulated by oligopolies."The decision faulted the Executive when it considered thedepletion of the OPSF fund as a factor in fully deregulating thedownstream oil industry. Section 15 of RA No. 8180 enumeratedonly two factors to be considered.,uiz.: (1) the time when the prices ofcrude oil and petroleum products in the world market are declining,and (2) the time when the exchange rate of the peso in relation to

the US dollar is stable. Section 15 did not mention the depletion ofthe OPSF fund as a factor to be given weight by the Executive beforeordering full deregulation. But the Executive co-mingled the factorof depletion of the OPSF fund with the factors of decline of the priceof crude oil in the world market and the stability of the peso to theUS dollar. On the basis of the text of EO No. 392, it is impossibleto determine the weight given by the Executive department to thedepletion of the OPSF fund- In light of this uncertainty, the earlyderegulation under EO No. 392 constitutes a misapplication of RANo.8180.


17/20

326 l^w oN NA',l'l'lt^l,ltl,ls()tllt(:l')sAND FINVIRONM l.iN',l'Al, l,Aw I )l lv l,ll,( )l'M lrNl'sIn short, RA No. 8180 was struck down as invalid because threekey provisions intended to promote free competition were shown toachieve the opposite result. More specifically, the Court ruled thatits provisions on tariff differential, stocking of inventories, andpredatory pricing inhibit fair competition, encourage monopolisticpower, and interfere with the free interaction of the market forces.While RA No. 8180 contained a separability clause, it was

declared unconstitutional in its entirety since the three (3) offendingprovisions so permeated the law that they were so intimately theesse of the law. Thus, the whole statute had to be invalidated.

G. Downstream Oil Ind.ustry DeregulationAct of 199817. Declaration of policy.

Following the thumping of RA No. 8180, Congress, on February10, 1998, enacted a new deregulation law without the offendingprovisions of the earlier law - RA No. 8479, known as the "Down-stream Oil Industry Deregulation Act of 1998."The new law declares it as a policy of the State to liberalizeand deregulate the downstream oil industry in order to ensure atruly competitive market under a regime of fair prices, adequateand continuous supply of environmentally-clean and high-qualitypetroleum products. To this end, the State shall promote andencourage the entry of new participants in the downstream oilindustry, and introduce adequate measures to ensure the attainmentof these goals.u' This applies to all persons or entities engaged in anyand all the activities of the domestic downstream oil industry, aswell as persons or companies directly importing refined petroleumproducts for their own use.53

RA No. 8479, the present deregulation law, was clearly enactedto implement Section 1-9, Article XII of the Constitution whichprovides:"The State shall regulate or prohibit monopolieswhen the public interest so requires. No combinations inrestraint of trade or unfair competition shall be allowed."

52Sec. 2, RA No. 8479.53Sec. 3,16id.

(:llAl'l'l'lltVllll)l'll'Alt'l'Ml')N'l'()l.'l'lNl'lli(lYA(:'l'()1.'191)2:J27(lirtprtblit: At:t, No. 76iltt)This is s0 becuuso thc government believes that deregulationwill eventually prevent monopoly. The simplest form of morropolycxists when there is only one seller or producer of a product orservice for which there are no substitutes. In its more complexform, monopoly is defined as the joint acquisition or maintenanceby members of a conspiracy, formed for that purpose, of the powerto control and dominate trade and commerce in a commodity to

such an extent that they are able, as a group' to exclude actual orpotential competitors from the field, accompanied with the intentionand purpose to exercise such power.where two or three or a few companies act in concert to controlmarket prices and resultant profits, the monopoly is called anoligopoly or cartel. It is a combination in restraint of trade'The perennial shortage of oil supply in the Philippines isexacerbated by the further fact that the importation, refining, andmarketing of ltris precious commodity are in the hands of a'cartel,local but Lade up of foreign-owned corporations. Before the start,f deregulation, SheU, Caltex and Petron controlled the entire oil

industry in the PhiliPPines.The deregulation of the oil industry is a policy determinationof the highesi order. It is unquestionably a priority program ofgorr".rr*"-rrt. The Department of Energy Act of 1992 (RA No' 7638)e*pressly mandates that the development and updating of theexisting philippine energ'y program "shall include a policy directiontowards deregulation of the power and enerry industry'"18. Liberalization of the industry.

Under the law, any person or entity may import or purchaseany quantity of crude oil and petroleum products from a {oreign6r domestic source, lease or own and operate refineries and otherdownstream oil facilities and market such crude oil and petroleumproducts either in a generic name or his or its own trade name, or uselh" ,u*" for his or its own requirement. It is required, however, thatany person or entity who shall engage in any such activity,shall giveprior notice thereof to the DOE for monitoring purposes. Moreover,such person or entity shall, for monitoring purposes, report to thel)OE his or its every impor(ation/exportation.s'A{Sr


18/20

AN I ) t,lNVt tt( )NM t,tN,t'At, t,AW I )t,tvl,)t,( )t,M l,;N,t,S19. Tariff treatment.It is provided that a single and uniform tariff duty shail beimposed and collected- both on imported crude oil and importedrefined petroleum products at the rate of three percent (BZr), butthe President may reduce such tariff rate when in his judgmentsuch reduction is warranted, pursuant to RA No. 1982, as amended,otherwise known as the "Tariff and. customs cod,e." It is furtherprovided that upon implementation of the uniform Tariff programunder the world rrade organization and ASEAN Free Trade Areacommitments, the tariffrate shall be automatically adjusted to theappropriate level.

For as long as the National power Corporation (NpC) enjoysexemptions from taxes and duties on petroleum products used forpower generation, the exemption shall apply to purchases throughthe local refineries and to the importation of fuel oil and diesel.uu20. Promotion of fair trade practaces.

The Department of Trade and Industry (DTI) and DOE aremandated to take all measures to promote fair trade and preventcartelization, monopolies, combinations in restraint of trade, andarry unfair competition in the Industry as defined in Article 1g6 ofthe Revised Penal code, and Articles 16g and 169 of RA No. g298,other,vise known as the "Intellectual property Rights Lq,w." TheDoE shall continue to encourage certain practices in the industrywhich serve the public interest and are intended to achieve efficiencyand cost reduction, ensure continuous supply ofpetroleum products,and enhance environmental protection. These practices may includeborrow-and-loan agreements, rationalized depot and manuiacturingoperations, hospitality agreements, joint tanker and pipelineutilization, and joint actions on oil spill control and fire prevention.

The DoE shall monitor the rerationship between the oilcompanies (refiners and importers) and their dealers, haulers andLPG distributors to help ensure the observance of fair and equitablepractices and to ensure the enforcement of existing contrais. TheDoE is empowered to conciliate and arbitrate any dlspute that mayarise with respect to the contractual rerationship beiween the oilcompanies and the dealers, haulers and LpG distributors involvingthe dealers' mark-up, the freight rate in transporting petroleum

t OllAl'l'l1l(Vlll l)l,ll'AlL'l'Ml,lN'l'()lt l,:Nl,:lt(lY A(:'l'olt 11,1)2 321,1 l11,;yrrlrlic Ar:t, No. 7(iiltt)

products and thc margins ol'LPG distributors for the protection ofthe public and to prevent ruinous competition, without prejudice tothe review of the arbitration award under existing law.un21. Anti-trust safeguards.

To ensure fair competition and prevent cartels and monopoliesin the industry, Section 11 prohibits the following acts:a. Cartelization which means any agreement, combi-nation or concerbed action by refiners, importers and/ordealers, or their representatives, to fix prices, restrict outputsor divide markets, either by products or by areas, or allocatemarkets, either by products or by areas, in restraint oftrade orfree competition, including any contractual stipulation whichprescribes pricing levels and profit margins;b. Predatory pricing which means selling or gfferingto sell any oil product at a price below the seller's or offeror's

average variable cost for the purpose of destroying competition,eliminating a competitor or discouragrng a potential competitorfrom entering the market: Prouided, howeuer, That pricingbelow average variable cost in order to match the lower price ofthe competitor and not for the purpose of destroying competitionshall not be deemed predatory pricing. For purposes of thisprohibition, "variable cost" as distinguished from "fixed cost,"refers to costs such as utilities or raw materials, which vary asthe output increases or decreases and "average variable cost"refers to the sum of all variable costs divided by the number ofunits of outputs.sT

22. Other prohlbited acts.Failure to comply with the following may result in appropriatesanctions: a. submission of reportorial requirements;b. use of clean and safe (environment and worker-benign) technologies;66Sec.7,Ibid.67Sec. ll,Ibid.ssSec. 6,16iJ.

330 t,nw oN NA,t'UttAt,lat,lsot[t(it,]s (:l IAI 'l'1,)lt V lll I llrll'Alt'l'M l':N'l' ( )lt l'iN l'l]i( lY A( l'l' ( )1" ll)l):l :lll I


19/20

AN ll lrN Vl ttONM lrN'l'A l. l,AW Dl,lvt,) t,( )t,M t,:N'l'Sc. any order or instruction of the DOE Secretary issuedin the exercise of his enforcement powers under Section lb ofthis Act; andd. registration of any fuel additive with the DOE priorto its use as an additive.u.

23. Remedies.a. Gouernment action. - Whenever it is determined by theJoint Task Force created under Section 14(d) ofthe Act that thereis a threatened, imminent or actual violation of Section 11 thereof,it shall direct the provincial or city prosecutors havingjurisdictionto institute an action to prevent or restrain such violation with theregional trial court ofthe place where the defendant or any ofthedefendants reside or has his place ofbusiness. Pending hearing ofthe complaint and before final judgment, the court may at any timeissue a temporary restraining order or an order of injunction asshall be deemed just within the premises, under the same conditionsand principles as injunctive relief is granted under the Rules ofCourt. Whenever it is determined that the government or any of

its instrumentalities or agencies, including government-owned or-controlled corporations, shall suffer loss or damage in its businessor property by reason of violation of Section 11, these agencies mayfile an action to recover damages with the proper regional trial court.b. Priuate complaint. - Any person or entity shall reportany violation of Section 11 of the Act to the Joint Task Force whichshall prepare a report of its findings and recommendations. Incase it is determined that there has been a violation of Section 11,the private person or entity shall be entitled to sue for and obtaininjunctive relief, as well as damages, before the proper court.u,24. Validity of FIA No. 8479 upheld.

Shortly after the passage of RA No. 8479, anew challenge to itsvalidity was mounted by petitioner Enrique T. Garcia, a member ofCongress, seeking to declare Section 19 thereof, which sets the timeof full deregulation, unconstitutional. The assailed provision reads:"SEC. 19. Start of Full Deregulation. - Full dere-gulation of the Industry shall start five (5) months

*Sec. 12, Ibid.5eSec. 13,Ibid.

I ltrrltrhlir: At't No. 7(llltl)

{bllowing t,}re cllirctivit,.y ol'this Act: Prouided, howetter,'Ihat when thc public intercst so requires, the Presidentmay accelerate the start of full deregulation upon therecommendation of the DOE and the Department ofFinance (DOF) when the prices of crude oil and petroleumproducts in the world market are declining and the valueof tn" peso in relation to the US dollar is stable, takinginto account relevant trends and prospects; Prouided,further,That the foregoing provision notwithstanding, thefive (5)-month Transition Phase shall continue to apply toLPG, regular gasoline and kerosene as socially-sensitivepetroleum products and said petroleum products shall becovered by the automatic pricing mechanism during thesaid period."Petitioner contends that Section 19, which prescribes theperiod for the removal of price control on gasoline and other finishedproducts and for the full deregulation of the local downslreamoil industry, is patently contrary to public interest and thereforeunconstitutional because within the short span of five (5) months,the market is still dominated and controlled by an oligopoly of the

three (3) private respondents, namely, Shell, Caltex and Petron'Justice Sandoval-Gutierrez, speaking for the Court in Garciq'v. Corona,* declared that there is a dearth of relevant, reliable,and substantial evidence to support petitioner's theory that pricecontrol must continue even as government is trying its best to getout of regulating the oil industry. Petitioner overlooks the factthat congress enacted the deregulation law exactly because ofthemonopoly evils he mentions in his petition. congress instituted thelifting of price controls in the belief that free and fair competitionwas the best remedy against monopoly power."The argument that price control is not the villain

in the intrusion and growth of monopoly appears to bepure theory not validated by experience. There can be nodenying the fact that the evils mentioned in the petitionarose while there was price control. The dominance of theso-called 'Big 3'became entrenched during the regime ofprice control. More importantly, the ascertainment of thecause and the method of dismantling the oligopoly thusmGR No. l3245l,Dec. 17, 1999, 321 SCRA 218.

l,AW ( )N NA'l'l lltAl, ltl,)S( )t,lt( :t,:SAN I )


20/20

h:N V I lt( )NM l,:N'l'Al, l,AW I )l )V l,I r )t,M l,: N,l'Screated are a matter of legislative and executive choice.The judicial process is equipped to handle legality but notwisdom of choice and the efficacy of solutions.

Petitioner engages in another contradiction whenhe puts forward what he calls a self-evident truth. Hestates that a truly competitive market and fair pricescannot be legislated into existence. However, the trulycompetitive market is not being created or fashioned bythe challenged legislation. The market is simply freedfrom legislative controls and allowed to grow and developfree from government interference. RA No. 8479 actuallyallows the free play of supply and demand to dictateprices. Petitioner wants a government official or boardto continue performing this task. Indefinite and open-ended price control as advocated by petitioner wouldbe to continue a regime of legislated regulation wherefree competition cannot possibly flourish. Control is theantithesis of competition. To grant the petition wouldmean that the government is not keen on allowing a freemarket to develop. Petitioner's 'self-evident truth' thussupports the validity ofthe provision oflaw he opposes."The Court further noted that instead of the price controlsadvocated by the petitioner, Congress has enacted anti-trustmeasures which it believes will promote free and fair competition.Upon the other hand, the disciplined, determined, consistent andfaithful execution of the law is the function of the President. Theremedy against unreasonable price increases is not the nullificationof Section 19 of RA No .8479 but the setting into motion of its variousother provisions.

Chapter lXPHILIPPINE FISHERIES CODE OF 1998

(Republic Act No. 8550)A. Preliminany

01. Governing law.RA No. 8550, enacted on Febru ary 7 ,1998, is an Act providingfor the development and conservation of the fisheries and aquaticresources and integrating all laws pertinent thereto. Its short titleis "The Philippine Fisheries Code of 1998."

02. Policy considerations.It is the declared policy ofthe State:a. to achieve food security as the overriding conside-ration in the utilization, management, development, conser-vation and protection offishery resources in order to providethe food needs of the population. A flexible poliry towardsthe attainment of food security shall be adopted in responseto changes in demographic trends for fish, emerging trends inthe trade of fish and other aquatic products in domestic andinternational markets, and the law of supply and demand;b. to limit access to the fishery and aquatic resources ofthe Philippines for the exclusive use and enjoyment of Filipinocitizens;c. to ensure the rational and sustainable development,management and conservation of the fishery and aquaticresources in Philippine waters including the exclusive economiczone (EEZ) and in the adjacent high seas, consistent with theprimordial objective of maintaining a sound ecological balance,protecting and enhancing the quality of the environment;

i

I

i1

1,

Documents

NatRes Dept of Energy Code