QuestionsQuestions (Republic Act No. 8479)
Its short title is the “Downstream Oil Industry Deregulation Act of 1998.” The State’s policy is to liberalize and deregulate the downstream oil industry to ensure a competitive market under fair prices, adequate and continuous supply of environmentally clean and high-quality petroleum products, encourage new participants, and adopt measures to attain these goals.
RA 8479 applies to all persons/entities engaged in any activity of the domestic downstream oil industry, as well as persons or companies directly importing refined petroleum products for their own use.
It refers to the business of importing, exporting, re-exporting, shipping, transporting, processing, refining, storing, distributing, marketing and/or selling crude oil and petroleum products such as gasoline, diesel, LPG, kerosene, and other petroleum products.
Any person/entity may import or purchase any quantity, lease/own and operate refineries and facilities, and market under a generic or trade name, but must (1) give prior notice to DOE for monitoring; (2) not be exempt from securing required certificates for quality, health and safety, and environmental clearance; (3) report every importation/exportation to DOE for monitoring; and (4) ensure oil importations comply with the Basel Convention.
A single and uniform tariff duty of 3% on both imported crude oil and imported refined petroleum products. The President may reduce it pursuant to the Tariff and Customs Code. Beginning January 1, 2004 (or upon implementation of the WTO/ASEAN Uniform Tariff Program commitments), the rate automatically adjusts. It also provides that NPC’s tax/duty exemptions for power-generation petroleum products apply to local refinery purchases and to imports of fuel oil and diesel while those exemptions exist.
DTI and DOE must promote fair trade and prevent cartelization, monopolies, combinations in restraint of trade, and unfair competition, as defined by relevant provisions of the Revised Penal Code and the Intellectual Property Rights Law. DOE also monitors relationships between oil companies and dealers/haulers/LPG distributors, and conciliate/arbitrate disputes relating to dealers’ markup, freight rates, and LPG distributor margins to protect the public and prevent ruinous competition, with awards subject to judicial review.
DOE (with DFA and DTI) must formulate and establish a program (with an international information campaign via embassies/consulates) starting after 3 months from effectivity. DOE must provide an investment guide including: introduction to the industry and government’s deregulation commitment; entry requirements; incentives and benefits with procedural/substantive requirements for entitlement; and other necessary information.
They may enjoy BOI/Omnibus Investment Code incentives (where applicable) such as income tax holiday, additional labor deduction, minimum tax and duty of 3% and VAT on imported capital equipment, tax credit on domestic capital equipment, exemption from contractor’s tax, unrestricted use of consigned equipment, exemption from real property tax on production equipment/machineries, exemption from taxes/duties on imported spare parts, and other applicable incentives under Article 39 of the Omnibus Investments Code. These incentives may be availed for 5 years from BOI registration.
DOE must promote private sector and cooperatives’ active participation in retailing petroleum products through joint venture/supply agreements with new industry participants for gasoline station establishment/operation. It requires a two-fold program involving management and skills training (including LPG retailing), and offers assistance via medium-to long-term low interest loans administered through a gasoline station training and loan fund funded initially by PAGCOR and administered by DOE.
Cartelization (agreements/combination/concerted action to fix prices, restrict outputs, divide markets, or allocate markets in restraint of trade/free competition, including contractual stipulations on pricing levels and profit margins), and predatory pricing (selling below average variable cost to destroy competition, eliminate a competitor, or discourage entry), with a proviso that matching a lower competitor price not meant to destroy competition is not deemed predatory.
They suffer imprisonment of 3 to 7 years and a fine ranging from PHP 1,000,000 to PHP 2,000,000.
DOE must monitor and publish daily international crude oil prices, follow domestic price movements, monitor petroleum product quality and stop operations that don’t meet national standards aligned with BPS/DENR/DOST protocols, set fuel specifications and allowable additive content through BPS (with DENR/DOE/DOST and other stakeholders), monitor refining/manufacturing/marketing processes for clean and safe (environment and worker-benign) technologies, maintain a periodic schedule of industry inventories, and require monthly submissions by importers/refiners/marketers of actual and projected imports, local purchases, sales/consumption, and inventory on a per crude/product basis.
It is mandated to determine within 30 days the merits of a report of unreasonable rise in petroleum prices and initiate appropriate actions. After effectivity, the Secretaries of Energy and Justice appoint the committee/rules within a month, and the Task Force is organized and its members appointed within one month from effectivity.
Deregulation is done in two phases: Phase I (Transition Phase) and Phase II (Full Deregulation Phase). Full deregulation starts 5 months after the effectivity of the Act, subject to possible acceleration by the President if public interest requires.
An automatic pricing mechanism is established so domestic prices promptly reflect international market movements. The Board sets a market-oriented formula (within 1 month after effectivity) to determine the Wholesale Posted Price (WPP) based solely on changes of Singapore Posting (SP), SIP, or crude landed cost. Thereafter, WPP is automatically adjusted through appropriate orders without further notice and hearing, and published with computation in two national newspapers.
LPG, regular gasoline, and kerosene are treated as socially sensitive and remain covered by the Transition Phase for the stated period (including coverage by the automatic pricing mechanism during the Transition Phase).
Any person/entity engaged in oil refinery business must make a public offering through the stock exchange of at least 10% of its common stock within 3 years from effectivity or commencement of refinery operations. No single person/entity may own more than 5% of the stock offering. Also, a crude oil refining company and its stockholders may not acquire shares offered by any other crude oil refining company under this Section.