Case 5: Peninsula

Gasoline Corporation

Reporter: Chiara Mari S. Manalo

Summary
In 1975, Peninsula Gasoline Corporation was
registered in the Philippines for the purpose of
operating gas stations along the South Super
Highway situated between the boundaries of
Muntinlupa City and San Pedro Laguna. By the year
1980, the company was chosen by the Caltron
Philippines as the gas dealer of its oil products. PGC
started with one gas stations and opened 10 more
stations in 1981. Then, it acquired 20 units of tanker
trucks and engaged in the wholesale of petroleum
products in different areas in Cavite and nearby
provinces.
Summary
In the year 1996, the passage of Oil Deregulation
Act opened the gate of expansion for PGC. They were
able to open 30 more outlets in Luzon through the
means of debt financing. During the first ten months
of their operations, the company incurred losses for
about P150,000.00 per day because of its inability to
recover costs amid rising crude oil prices and peso
depreciation. The company’s rate of return in 1997
dropped to negative 7.25% way lower than the
government’s limit of 12%.in the following year,
however, market share figures from the Department
of Energy
Summary
showed that the newcomers have cornered 4% of
the market for the first six months, a big jump from
the measly 0.7% market share in 1997. Recent
developments showed, albeit deregulated, the
industry is still dominated by the few and very large
oil firms where competition is on the basis of price.
This is an industry that requires intensive high
investment and is also highly sensitive to interest
rates and inflation. However, regardless of its size,
profits remain to be attractive.
Summary
Joan Sobrevinas called for a meeting with Josie
Capul, Vic Neri, and Alma Borlongan, VPs for Finance,
Operations, and Human Resources. Joan is concerned
about the payment of maturing bonds to
PGC’s bondholders and its tax liability at 10M as
ordered by the Court of Appeals (CA). Joan would
also need new ideas to improve the service quality of
PGC to determine its competitiveness, particularly
with the influx of new oil players in the industry.
Time Context
•2007
Viewpoint
•JOAN SOBREVINAS
Chairman and President
Peninsula Gas Corporation (PGC)
Statement of the Problem
• The Peninsula Gas Corporation incurred
losses amounting to for about 150,000. 00
pesos per day. How can the company pay for
their liabilities?
Statement of the Objectives
• To pay for the maturing bonds to PGC’s
bondholders and its tax liability at 10M as
ordered by the Court of Appeals (CA)
 Areas of Consideration
Strengths
1. Proximity of location to target markets.
2. Dealer of oil products of Caltron Philippines
3. 20 units of tanker trucks and engaged in the
wholesale of petroleum products in different
areas in Cavite and nearby provinces.
4. 75% of the respondents are very much satisfied
with the service provided by the frontliners
(gasoline boys, cashiers)
 Areas of Consideration
Weaknesses
1. PGC incurred losses amounting to about P150,000 per
day.
2. The company’s rate of return in 1997 dropped to a
negative 7.25%, way below the 12% return limit set by
the government.
3. Customs ordered PGC to pay 10 million in deficiency
taxes.
4. The rising cost of spare parts has tremendous effect
on the pricing strategy.
 Areas of Consideration
Weaknesses
5. The reduction of cost of goods sold by 1% was
brought about by lower duty paid landed cost per liter
of crude into cost.
6. The rising cost of spare parts has tremendous effect
on the pricing strategy.
7. Due to peak season (June to July), the gas patrons
have to wait for about 30 minutes before they could
have attended to.
8. The repair and service boys are sneaking extra fluids
and lube oil to their favorite customers, presumably
to gain bigger tips.
 Areas of Consideration
Weaknesses

10. Ten repair rooms were found to have leaks while the
reception areas needed some repairs and renovation.
Five service machines are already worn-out.
11. Rank-and-file union has been pressing for salary
increase.
 Areas of Consideration
Opportunities
1. World's demand for oil has increased sharply in
recent years.
2. PGC's restructuring by splitting the company into
two entities: Host Peninsula Gasoline Corporation
(HPGC) and Peninsula Philippines Inc. (PPI)
3. 25% commented that service could be improved
if the company will adopt more sophisticated
electronic machines like computerized gasoline
dispenser, change oil, car wash, tune-up,
alignment, and other related car services.
 Areas of Consideration
Threats
1. The timing and execution of the initial public
offering will not be feasible as of the moment
because of the news that the Philippine equities
market officially entered a "bear market" phase.
2. The situation is coupled with the continuing
threat of destabilization of the PGMA
government.
3. PGC was compelled to jack-up prices to P65 per
liter starting August 15, 2008.
 Areas of Consideration
Threats
4. Under the Deregulation Law, oil companies are
mandated to adjust their monthly prices.
5. Tight supplies have been aggravated by political
instability, resource mismanagement and
weather.
6. The possibility of staging a nationwide transport
strike.
Alternative Course of Action
ACA 1: Consolidation
Advantages:
• The partner firm of PGC will help them to
improve the company's financial performance
and provide economies of scale.
Disadvantages:
• There is an imbalance in level of expertise
investment or assets brought into the venture
by the different partners.
• Different cultures and management styles result
in poor integration and cooperation
Alternative Course of Action
ACA 2: Asset Reduction to Maximize Revenue
Advantages:
• They will able to sell their non-performing
assets.
• They will able to maximize the use of their
assets.
• The money earned from the asset reduction and
asset maximization, it will be an additional
amount to pay the maturity bonds and tax
liabilities of PGC.
• The asset maximization will make the company's
asset more efficient and productive.
 Conclusions
2.5
Criteria
ACA #2
2 being the
higher
1.5
Alternative
1 Course of
Action
0.5

0
ACA #1 ACA #2
Availability of Funds Increase Profit Timeliness
 Recommendations
After a critical analyzation, it is highly recommend
the ACA #2 which is the Asset Reduction to Maximize
Revenue is the solution for this case. It can be a big
help for the Peninsula gasoline corporation to pay all
their debts for consecutive years by selling their
assets that can’t be of use for their company and also
by using this strategy, it can help for the company to
be more efficient and effective on their day to day
operation.
 Plan of Action
1. Conduct a meeting to flat form and discuss the
chosen strategy
2. Check, analyze and segregate the non-performing
assets of PGC
3. Look for potential buyers of non-performing
assets
4. Planning on how to maximize assets
5. Evaluation of the outcome of the cost profitability
reduction and asset maximization