Case Summary (G.R. No. 124360)
Petitioners and Respondents
G.R. No. 124360: Francisco S. Tatad vs. DOE Secretary & Finance Secretary, attacking Section 5(b) tariff differential.
G.R. No. 127867: Lagman, Arroyo, Garcia, Tanada, Flag, FDC, SANLAKAS vs. Executive Secretary, DOE Secretary, Caltex, Petron, Shell, contesting Section 15 on full deregulation timing, Section 6 inventory mandate, Section 9(b) predatory-pricing ban, and Executive Order No. 392.
Key Dates
• Enactment of R.A. 8180 – March 1996
• Transition phase begins – August 12, 1996
• Full deregulation under EO 392 – February 8, 1997
• Consolidated oral argument – September 30, 1997
• En banc decision – November 5, 1997
Applicable Law
1987 Philippine Constitution (post-1990 decision date basis).
R.A. 7638 (Department of Energy Act of 1992) and R.A. 8180 (Downstream Oil Industry Deregulation Act of 1996).
EO 172 (1987) creating the Energy Regulatory Board; EO 377 (1996) institutional framework; EO 392 (1997) full deregulation order.
Historical Regulation of the Oil Industry
Pre-1971 saw minimal intervention; the Oil Industry Commission Act (R.A. 6173) created the OIC with power to fix prices, licenses and operations. Presidential Decree 334 (1973) established PNOC; P.D. 1956 (1984) created the Oil Price Stabilization Fund. EO 172 (1987) formed the Energy Regulatory Board; R.A. 7638 (1992) created the DOE and mandated deregulation timetables.
Congress Deregulates in 1996
R.A. 8180 ended 26 years of regulation by liberalizing importation, refining, marketing, distribution and pricing of petroleum products. It phased out controls via a two-stage process: a transition (non-pricing controls and formula-based margins) and full deregulation (price controls lifted; OPSF abolished).
Challenge to Section 5(b) (G.R. 124360)
Section 5(b) imposed a 3% tariff on imported crude oil versus 7% on refined products until 2004, allegedly violating equal protection (barrier to new entrants relying on imports), overriding the single-subject rule and undermining deregulation’s goal of competition.
Challenge to Section 15 & EO 392 (G.R. 127867)
Section 15 delegated to the DOE Secretary and President the timing of full deregulation (“as far as practicable” when world crude prices “are declining” and the peso “is stable”). EO 392 advanced full deregulation to February 1997, citing OPSF depletion, stable oil prices and exchange rates. Petitioners argued undue legislative delegation, arbitrariness and creation of a de facto cartel.
Procedural Issues: Justiciability and Standing
The Court held that challenges to constitutionality are judicial, not political, questions. Petitioners possessed standing under the Court’s liberal doctrine given the public significance of oil regulation and their demonstrated legal injury or interest.
One-Subject/One-Title and Equal Protection (Section 5[b])
The 3%–7% tariff differential was deemed germane to deregulation’s objective of encouraging new refineries and thus complied with the Constitution’s one-subject rule. On equal protection, the differential was found a substantial barrier to new entrants and therefore inconsistent with Article XII, Section 19’s competition mandate.
Delegation and Contingent Legislation (Section 15 & EO 392)
Section 15 passed the completeness and sufficient standard tests: it fixed full deregulation by March 1997 with optional advancement when specified economic conditions obtain. EO 392 was declared ultra vires for considering OPSF depletion, a factor not authorized by the statute.
Competition Guarantees: Inventory and Predatory P
...continue readingCase Syllabus (G.R. No. 124360)
Background of the Case
- Two consolidated petitions (G.R. No. 124360 and G.R. No. 127867) filed September 1997 challenge the constitutionality of Republic Act No. 8180 (“Downstream Oil Industry Deregulation Act of 1996”) and Executive Order No. 392 (full deregulation effective February 8, 1997).
- Francisco S. Tatad assails Section 5(b) of RA 8180 (tariff differential).
- Edcel C. Lagman et al. assail Section 15 of RA 8180 (timing of full deregulation) and EO 392, alleging undue delegation, arbitrariness, and anti-trust defects.
Historical Regulatory Framework
- Pre-1971: No specialized oil regulator—four refineries (Shell, Caltex, Bataan, Filoil) and six marketers (Esso, Filoil, Caltex, Getty, Mobil, Shell) operated freely.
- 1971: Oil crisis led to Oil Industry Commission Act (RA 6173), creating the Oil Industry Commission (OIC) with powers to fix prices, regulate refineries and trade practices.
- 1973: Presidential Decree No. 334 establishes the Philippine National Oil Corporation (PNOC) to foster Filipino participation; PNOC acquires ESSO Philippines, Filoil, Bataan Refining, and later operates as Petron.
- 1984: PD 1956 creates Oil Price Stabilization Fund (OPSF) to offset price swings due to exchange-rate adjustments and world-market price changes; funded by taxes and levies.
- 1987: EO 172 forms the Energy Regulatory Board (ERB), empowered to fix prices, regulate capacity, license refineries, and tap the OPSF.
- 1992: RA 7638 creates the Department of Energy (DOE), mandates privatization and deregulation programs within four years.
Enactment of Republic Act No. 8180
- March 1996: Congress enacts RA 8180, ending 26 years of downstream regulation.
- Objectives:
- Liberalize importation, refining, marketing.
- Adopt automatic pricing, margin formulas, tax restructuring.
- Phase out price controls, foreign-exchange cover, and OPSF upon full deregulation.
- First phase began August 12, 1996; full deregulation mandated by March 1997, timed for declining oil prices and stable peso-dollar exchange rate.
Key Provisions of RA 8180
- Section 2: State policy to foster a truly competitive market with fair prices, continuous supply, and environmental quality.
- Section 5(b): Imposes 3% tariff on imported crude and 7% on refined petroleum products (except fuel oil/LPG at 3%); unification of rates by January 1, 2004; amendment only by Act of Congress.
- Section 6: Requires refiners/importers to maintain minimum inventory equal to 10% of annual sales or 40 days’ supply.
- Section 9(b): Prohibits predatory pricing (selling below industry average cost to harm competitors), punishable by imprisonment (3 years) and P500,000–P1,000,000 fine.
- Section 10: Prohibits failure to submit reports, maintain inventory, or adopt clean technologies; penalizes officers with prison (2 years) and P250,000–P500,000 fine.
- Section 15: Directs DOE (with President’s approval) to implement full deregulation not later than March 1997, timed for declining world-market prices and stable exchange rate; transition phase ends upon full deregulation.
- Section 20: Administrative fines (P100,000–P1,000,000) for reportorial and inventory violations.
- Section 23: Separability clause.
- Section 24: Repeals inconsistent laws, PDs, EOs, regulations.
Executive Order No. 392
- Issued January 22, 1997, declaring full deregulation effective Febr