09% “oe Vuos 182 ‘gost '9°A0N ‘09E82T ON HD “rou jo wouRsOdeg oY Jo AzHeID9G "A PERE, juopyye pue ‘Temoues ‘uoHeazesuo9 snororpnt om YBnoxys pure ‘soomosax £819u9 snouastpur 6 zjtmo9 ax} Jo quauIdojeAap puE ‘quauraSeuvur ‘uorjonpoxd ‘uoryezojdxo aatsuayur pure payezsoaut ‘ayy ySnonyy syuowarmbox ABsou0 s Azyunoo ox Ur OOUETTAT-319S Suyaaryoe AjoyoutryN Jo f pud oy IA ABz0Ue Jo Apddns ‘owiouose puw ‘oy¥nbape ‘snonuquos B aunsus 1 (2) Burmoros ou a7BIg 4p Jo Aotod a4] SE SazPPOP AL OU, *Koyjod jo ui a ZO Saysnpuy 481009 oe pur sqooford ABzou9 oyvtadordde Jo uorre|nZazep jo uy uaptserg otf Jo [eaordde wodn ‘qteys quounredag ayy “ey sty Jo ‘wloxy sx¥aK anog Jo pue ou 78, 7eyp SayBIs AP] ays Jo (@)g KoNDag “soryATIOR ABz0U0 [TE ‘ur zoyoos ayvatad ays &q quounseaut pue uoredronzed aanoe pue aaxy advmmoaua 0} SUIT spe mY ayy, “syuU[A pary-to uo Aouapuadep Jo uorjonpox pute Axysnput ABzoua pu somod amp Jo uonUnBoxep ‘AS10u9 04 paqvjar sotouede juaUTUs9Ae8 Jo UoRwZUALG pxEMO St ALL OP sopun wreagoud ABsou0 ourddytyd 243 Jo snAK BY, ‘WoRVBAroSUOD pUE \qunsip ‘uoezrtyn juourdolasop ‘UoreI0]dxe prision mayor and a fine ranging from P10,000.00 to P10,000,000.00,, or both, at the discretion of the court. ‘The members of the Board of Directors of the juridical companies participating in or covered in the generation companies, the distribution utilities, the TRANSCO or its concessionaire or supplier who violate the provisions of the Act may be fined by an amount not exceeding double the amount of damages caused by the ‘ffender or by imprisonment of one year or two years or both at the discretion of the court. This rule shall apply to the members of the Board who knowingly or by neglect allows the commission or omission under the law. Ifthe offender is a government official or employee, he shall, in sédition. be dismissed from the government service with prejudice to reinetatement and with perpetual or temporary disqualification from holding any elective or appointive office he offender is an alien, he may, in addition tothe penaltios sentence. cs imotvea question of fs shal be appeal : ‘and those whieh involve a question of law it caproe Co Any ease whit to the Court of Appeals shall be directly appealable ‘The administrative #91 ERC shall be without preiud warranted. sion that may be ve to the filing of a erin “Bee, 45, WA No. 0136ose LAW ON NATURAL RESOURCES AND RULES OF PROCEDURE FOR ENVIRONMENTAL CASE F, Downstream Oil Industry Deregulation Act of 1996 15. Downstream Oil Industry 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 petroleum and crude oil products." On March 28, 1996, Congress took the audacious step of deregulating 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 may import or purchase any quantity of crude oil and petroleum products from a foreign or domestic source, lease or own and operate refineries and other downstream oil facilities and market such crude oil or use the same for his own requirement,” subject only to monitoring by the Department of Energy (DOE). a, Implementation Section 15 of RA No. 8180 provides that the DOE shall, upon approval of the President, implement the full deregulation of the downstream oil industry not Inter than March, 1997. As far as practicable, the DOE shall time the full deregulation when the prices of erude oil and petroleum products in the world market are declining and when the exchange rate of the peso in relation to the US dollar is stable. Upon the implementation of the full deregulation 1s provided herein, the transition phase is deemed terminated. The first phase of deregulation commenced on August 12, 1996, On February 8, 1997, the President implemented the full deregulation of the Downstream Oil Industry through KO No. 172 b. RA No. 8180 held unconstitutional RA No, 6180 did not stay long enough. On November Justice Puno, speaking for the Court in Tatad v. Secretary of the Department of Energy,” declared RA No. 8180 unconstitutional, and ion, EO No. its implementing reg “See. 4, RANo. 8140. OR No, 124690, Nov. 5, 1997HAPTER VI — DEPARTMENT OF EN (epublie Act No 7658), VACTOF 1902 288 In declaring RA No, 8180 unconstitutional and EO No. 392 void, the Court held: “Section 19, Article XI1 of our Constitution is anti- trust in history and in spirit. It espouses competition, The desirability of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is, thus the underlying principle of Section 19, Article XII of our Constitution which cannot be violated by RA No. S180, xxx In the cases at bar, it cannot be denied that our downstream oil industry is operated and controlled by an cligopoly, a foreign oligopoly at that. Petron, Shell and Caltex stand as the only major league players in the oil market. All other players belong to the Lilliputian league, As the dominant players, Petron, Shell and Caltex boast of existing refineries of various capacities. The tariff differential of 4% therefore works to their immense benefit. Yet, this is only one edge of the tariff differential. The other edge cuts and cuts deep in the heart of their competitors. It erects a high bartier to the entry of new players. New players that intend to equalize the market power of Petron, Shell and Caltex by building refineries of their own will have to spend billions of pesos, Those who will not build refineries but compete with them will suffer the huge disadvantage of increasing their product cost by 4%, They will be competing on an uneven field ‘The argument that the 4% tariff differential is desirable because it will induce prospective players to invest in refineries puts the cart before the horse. The first need is wo attract new players and they eannot be attracted Wy burdening them with heavy disincentives, Without new players belonging to the league of Petron, Shell and Caltex, competition in our downstream oi idle dream. xxx arlet that the fundamental Again, we under! arlet ire Principle expoused by Section 19, Article XIL of the Constitution is competition for it alone can release the creative forces of the market. But the competition that vreative forces is competition that can unleash these284 LAW ON NATURAL RESOURCES AND RULES OF PROCEDURE FOR ENVIRONMENTAL Ci is fighting yot is fair. Ideally, this kind of competition requires the presence of not one, not just a few but several players. A market controlled by one player (monopoly) or Gominated by a handful of players (oligopoly) is hardly the market where honest-to-goodness competition will prevail. Monopolistic or oligopolistic markets deserve cour careful scrutiny and laws which barricade the entry points of new players in the market should be viewed with suspicion. xxx The provisions on tariff differential, inventory and predatory pricing are among the principal props of RA No. 8180. Congress could not have deregulated the downstream oil industry without these provisions. Unfortunately, contrary to their intent, these provisions on tariff differential, inventory and predatory pricing inhibit fair competition, encourage monopolistic power and interfere with the free interaction of market forces. x x x The aftermath of RA No. 8180 is a deregulated market where competition can be corrupted and where market forces can be manipulated by oligopolies.” The decision faulted the Executive when it considered the depletion of the OPSF fund as a factor in fully deregulating the downstream oil industry. Section 15 of RA No, 8180 enumerated only two factors to be considered, viz.: (1) the time when the prices! crude oil and petroleum products in the world market are dectininss and (2) the time when the exchange rate of the peso in relat the US dollar is stable. Seetion 15 did not mention the depl the OPSF fund as a factor to be given weight by the Executive ordering full deregulation. But the Executive co-mingled the facto" of depletion of the OPSF fund with the factors of decline of the Pe? of crude oil in the world market and the stability of the peso to th® US dollar. On the basis of the text of EO No. 392, it is impossible to determine the weight given by the Executive department to tht depletion of the OPSF fund. In light of this uncertainty, the eat! deregulation under EO No. 892 constitutes a misapplication of ® No. 8180, In short, RA No, 8180 was struck dow key provisions intended to promote free « achieve the opposite result. More specifically, the Court its provisions on tariff differential, stocking of inventorie before ‘as invalid because three mipetition were show? ruled thatCHAPTER Vit—DePARTan , ENT OF ENERGY ACT 28 (Mepublie Aet No, 38) ACTOF 1982 : redatory pricing inhibit fair competition, encot fer. Interfere with th fe anteater fens While RA No. 8180 contained n separability clause, it was declared unconstitutional in its entirety since the three offending provisions so permeated the law that they were so intimately the esse of the law. Thus, the whole statute had to be invalidated. G. Downstream Oil Industry Deregulation Act of 1998 18. Declaration of policy. Following the thumping of RA No. 8180, Congress, on February 10, 1998, enacted a new deregulation law without the offending provisions of the earlier law — RA No. 8479, known as the “Downstream Oil Industry Deregulation Act of 1998." ‘The new law declares it as a policy of the State to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally-clean and high-quality petroleum products. To this end, the State shall promote and encourage the entry of new participants in the downstream oil industry, and introduce adequate measures to ensure the attainment ofthese goals.** This applies to all persons or entities engaged in any tnd all the activities of the domestic downstream oil industry, as well as persons or companies directly importing refined petroleum Products for their own use." RA No, 6479, the present deregulation law, was cently enacted to implement Section 19, Article XII of the Constitution whic provides: e or prohibit monopolies “The Sat, sll rt Neon when the public interest so reauires, No cor restraint of trade or unfair competiti sieve that deregulation This so bane the Emr mf mene wil rentally prevent snon0p0) Te a se etic or qauts when there is only one tutes, Where two or three “ervice for which there are n° substitt286 LAW ON NATURAL RESOURCES AND RULES OF PROCEDURE FOR ENVIRONMENTAL CASES or a few companies act in concert to control market prices and resultant profits, the monopoly is called an oligopoly or cartel. It is a combination in restraint of trade. ‘The perennial shortage of oil supply in the Philippines is exacerbated by the further fact that the importation, refining, and marketing of this precious commodity are in the hands of a cartel, local but made up of foreign-owned corporations. Before the start of deregulation, Shell, Caltex and Petron controlled the entire oil industry in the Philippines. ‘The deregulation of the oil industry is a policy determination of the highest order. It is unquestionably a priority program of government. The Department of Energy Act of 1992 (RA No. 7638) expressly mandates that the development and updating of the existing Philippine energy program “shalll include a policy direction towards deregulation of the power and energy industry.” 47. Liberalization of the industry. Under the law, any person or entity may import or purchase any quantity of crude oil and petroleum products from a foreign ‘or domestic source, lease or own and operate refineries and other downstream oil facilities and market such crude oil and petroleum products either in a generic name or his or its own trade name, or use the same for his or its own requirement. It is required, however, that any person or entity who shall engage in any such activity shall give prior notice thereof to the DOE for monitoring purposes. Moreover, such person or entity shall, for monitoring purposes, report to the DOE his or its every importation/exportation.” ‘The policy of the government in this regard has been to allow a free interplay of market forces with minimal government supervision. The purpose of governing legislation is to liberalize the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality petroleum products. Indeed, exclusivity of any franchise has not been favored by the Court, which is keon on promoting free competition and the development of a free market consistent with the legislative policy of deregulation as an answer to the problems of the oil industry." ce. 5, RA No. 8179, !Bnergy Regulatory Board v. Court of Appeals, GR No, 119079, April 20, 2001cuarny eR VIL ARTMENT OF & {Republic Act No. 7638) co 48. Tariff treatment, It is provided that a single an ‘uniform: imposed and coleted both on imported rade ail sad norte refined petroleum products at the rate of three percent, but the President may reduce such tariff rate when in his judgment such reduction is warranted, pursuant to RA No. 1937, 8 amended, otherwise known, as the “Tariff and Customs Code.” It. is further provided that upon implementation of the Uniform Tariff Program under the World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shall be automatically adjusted to the appropriate level. For as long as the National Power Corporation (NPC) enjoys exemptions from taxes and duties on petroleum products used for power generation, the exemption shall apply to purchases through the local refineries and to the importation of fuel oil and diesel. 19. Promotion of fair trade practices. ‘The Department of Trade and Industry (DT) and DOE are mandated to take all measures to promote fair trade and prevent cartelization, monopolies, combinations in restraint of trade, and ‘any unfair competition in the Industry as defined in Article 186 of the Revised Penal Code, and Articles 168 and 169 of RA No. 8293, otherwise known as the “Intellectual Property Rights Law.” The DOE shall continue to encourage certain practices in the Industry which serve the public interest and are intended to achieve efficiency ind cost reduction, ensure continuous supply of petroleum products, and enhance environmental protection. These practices may include borrow-and.loan agreements, rationalized depot and manufacturing operations, hospitality agreements, joint tanker and pipeline Utilization, and joint actions on oil spill control and fire prevention, 20. Anti-trust safeguards. ‘To ensure fair competitio in the industry, Section 11 pol a. Cartelization whi bination or concerted action dealers, or their representatives .n and prevent eartels and monopolies jhibits the following acts: ich means any agreement, con wn by refiners, importers and/or to fix prices, restriet outputs See. 6, supra. 0.7, RA No. 8479.LAW ON NATURAL RESOURCES AND RULES OF PROCEDURE FOR ENVIRONMENTAL CASES 288 or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins; b. Predatory pricing which means selling or offering to sell any oil product at a price below the seller's or offeror's average variable cost for the purpose of destroying competition, climinating a competitor or discouraging a potential competitor from entering the market: Provided, however, That pricing below average variable cost in order to match the lower price of the competitor and not for the purpose of destroying competition shall not be deemed predatory pricing. For purposes of this prohibition, “variable cost” as distinguished from “fixed cost,” refers to costs such as utilities or raw materials, which vary as the output increases or decreases and “average variable cost” refers to the sum of all variable costs divided by the number of units of outputs." 21. Other prohibited acts. Failure to comply with the following may result in appropriate sanctions: ‘a, _ submission of reportorial requirements; b. use of clean and safe (environment and worker benign) technologies; ¢. _ anyorder or instruction of the DOE Secretary issued in the exercise of his enforcement powers under Section 16 of this Act; and d. registration of any fuel additive with the DOE prior to its use as an additive." 22. Remedi a, Government action. — Whenever it is determined by the Joint Task Force created under Section 14(d) of RA No. 8479 that there is a threatened, imminent or actual violation of Section 11 thereof, it shall direct the provincial or city prosecutors having Sec. 11, RA No. 8479, "5c. 12, ibidCHAPTER Vil — DEPARTMENT MENT OF ENERGY ACT. DEPARTMENT OF ENERGY ACTOF 1092350 jurisdiction to institute an action to i o institute an action to prevent or restrain such volatos ‘ith the regional tal court of he pace where the doendant or any of the defendants reside or has his place of business. Pendi hearing of the complaint and before finel judgment, the contig at any time issue a temporary restraining order or an order of injunction as shall be deemed just within the promises, under the same conditions and principles as injunctive relief is granted under the Rules of Court. Whenever itis determined thatthe government or any of its instrumentalties or agencies, including government- owned or -contolled corporations, shall suffer loss or damage in its business or property by reason of violation of Section 11, these fagencies may file an action to recover damages with the proper regional trial court. b. Private complaint. — Any person or entity shall report any violation of Seetion 11 of the Act to the Joint Task Force which Shaul prepare a report of ite findings and recommendations. In aaa iis determined that there has been a violation of Section 11, thevprivate person or entity shall be entitled to sue for and obtain injunctive relief, as well as damages, before the proper court * 23. Validity of RA No. 8479 upheld. Shortly afer the passage of RA No, 8479, a new challenge tits validity was mounted by petitioner Enrique T. Garcia, a menber of Congres, seeking to declare Section 19 thereof, which sits the time aaa rslaton, unconstitutional. The assailed provision reads: “geC. 19. Start of Full Deregulation. — Full deregulation of the Industry shall start Gye (6) months following the effectivity of this A Provide, Hower at ‘lie interest so requires, the Presiden ‘That when the puPNart of full deregulation upon the Mf the DOE and the Department of ‘crude oil and petroleum ining and the value nce a the world market are declining ® ere pean in relation to the US dolla is stable, taking of the pewrnt relevant trends and prosper Provide tha the or een aly Ferre month Transition Phase shall on’ iy TPs pepatar gasoline and Kerosene 08 socially-sensitive recommendation Finance (DOF) when # ec, 13, RA No. 8479.200 LAW ON NATURAL RESOURCES AND RULES (OF PROCEDURE FOR ENVIRONMENTAL CASI petroleum products and said petroleum products shall be covered by the automatic pricing mechanism during the said period.” Petitioner contends that Section 19, which prescribes the period for the removal of price control on gasoline and other finished products and for the full deregulation of the local downstream oil industry, is patently contrary to public interest and therefore ‘unconstitutional because within the short span of five months, the market is still dominated and controlled by an oligopoly of the three private respondents, namely, Shell, Caltex, and Petron, Justice Ynares-Santiago, speaking for the Court in Garcia v. Corona," declared that there is a dearth of relevant, reliable, and substantial evidence to support petitioner's theory that price control must continue even as government is trying its best to get out of regulating the oil industry. Petitioner overlooks the fact that Congress enacted the deregulation law exactly because of the monopoly evils he mentions in his petition. Congress instituted the lifting of price controls in the belief that free and fair competition was the best remedy against monopoly power. “The argument that price control is not the villain in the intrusion and growth of monopoly appears to be pure theory not validated by experience. There can be no denying the fact that the evils mentioned in the petition arose while there was price control. The dominance of the so-called ‘Big 3 became entrenched during the regime of price control. More importantly, the ascertainment of the cause and the method of dismantling the oligopoly thus created are a matter of legislative and executive choice. ‘The judicial process is equipped to handle legality but not wisdom of choice and the efficacy of solutions. Petitioner engages in another contradiction when he puts forward what he calls a self-evident truth. He states that a truly competitive market and fair prices cannot be legislated into existence. However, the truly competitive market is not being erented or fashioned by the challenged legislation. ‘The market is simply freed "GR No. 182461, Dee. 17, 1999CHAPTER VII — DEPARTMENT OF ENERGY ACTOF 1992 291 ‘publi Act No. 7038) from legislative controls and allowed to grow and develop free from government interference. RA No, 8179 actually allows the free play of supply and demand to dictate prices. Petitioner wants a government official or board to continue performing this task. Indefinite and open- ended price control as advocated by petitioner would be to continue a regime of legislated regulation where free competition cannot possibly flourish. Control is the antithesis of competition. ‘To grant the petition would mean that the government is not keen on allowing a free market to develop. Petitioner's ‘self-evident truth’ thus supports the validity of the provision of law he opposes.” The Court further noted that instead of the price controls advocated by the petitioner, Congress has enacted anti-trust measures which it believes will promote free and fair competition, Upon the other hand, the disciplined, determined, consistent and faithful execution of the law is the function of the President. The remedy against unreasonable price increases is not the nullification of Section 19 of RA No. 8479 but the setting into motion of its various other provisions. ‘wrote finis to the issue when the Court remarked: A sequel to the proceedings, Garcia v. Executive Secretary, “The immediate implementation of full deregulation ofthelocal downstreamoilindustryisapolicy determination by Congress which this Court cannot overturn without offending the Constitution and the principle of separation of powers. That the law failed in its objectives because its adoption spawned the evils petitioner Garcia alludes to does not warrant its nullificati “GR No, 167684, April 2, 2008.