tatad vs energy 124360.docx

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Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

G.R. No. 124360 November 5, 1997

FRANCISCO S. TATAD, petitioner,vs.

THE SECRETARY OF THE DEPARTMENT OF ENERGY

AND THE SECRETARY OF THE DEPARTMENT OF

FINANCE, respondents.

G.R. No. 127867 November 5, 1997

EDCEL C. LAGMAN, JOKER P. ARROYO, ENRIQUE

GARCIA, WIGBERTO TANADA, FLAG HUMAN RIGHTS

FOUNDATION, INC., FREEDOM FROM DEBT COALITION

(FDC), SANLAKAS, petitioners,vs.

HON. RUBEN TORRES in his capacity as the Executive

Secretary, HON. FRANCISCO VIRAY, in his capacity as

the Secretary of Energy, CALTEX Philippines, Inc.,

PETRON Corporation and PILIPINAS SHELL

Corporation, respondents.

PUNO,J.:

The petitions at bar challenge the constitutionality ofRepublic Act No. 8180 entitled "An Act Deregulating theDownstream Oil Industry and For Other Purposes". 1 R.A.No. 8180 ends twenty six (26) years of government

regulation of the downstream oil industry. Few cases carrya surpassing importance on the life of every Filipino asthese petitions for the upswing and downswing of oureconomy materially depend on the oscillation of oil.

First, the facts without the fat. Prior to 1971, there was nogovernment agency regulating the oil industry other thanthose dealing with ordinary commodities. Oil companieswere free to enter and exit the market without anygovernment interference. There were four (4) refiningcompanies (Shell, Caltex, Bataan Refining Company andFiloil Refining) and six (6) petroleum marketingcompanies (Esso, Filoil, Caltex, Getty, Mobil and Shell),

then operating in the country. 2

In 1971, the country was driven to its knees by a cripplingoil crisis. The government, realizing that petroleum and itsproducts are vital to national security and that theircontinued supply at reasonable prices is essential to thegeneral welfare, enacted the Oil Industry CommissionAct. 3 It created the Oil Industry Commission (OIC)toregulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining,storing, distributing, marketing and selling crude oil,gasoline, kerosene, gas and other refined petroleum

products. The OIC was vested with the power to fixthemarketprices of petroleum products, to regulate thecapacities of refineries, to license new refineries and toregulate the operations and trade practices of theindustry. 4

In addition to the creation of the OIC, the government sawthe imperious need for a more active role of Filipinos inthe oil industry. Until the early seventies, the downstream

oil industry was controlled by multinational companies . Althe oil refineries and marketing companies were ownedbyforeigners whose economic interests did not alwayscoincide with the interest of the Filipino. Crude oil wastransported to the country by foreign-controlled tankersCrude processing was done locally by foreign-ownedrefineries and petroleum products were marketed throughforeign-owned retail outlets. On November 9, 1973President Ferdinand E. Marcos boldly created thePhilippine National Oil Corporation (PNOC) to break thecontrol by foreigners of our oil industry. 5PNOC engaged inthe business of refining, marketing, shipping, transportingand storing petroleum. It acquired ownership of ESSO

Philippines and Filoil to serve as its marketing arm. Itbought the controlling shares of Bataan RefiningCorporation, the largest refinery in the country. 6PNOClater put up its own marketing subsidiary PetrophilPNOC operated under the business name PETRONCorporation. For the first time, there was a Filipinopresence in the Philippine oil market.

In 1984, President Marcos through Section 8 ofPresidential Decree No. 1956, created the Oil PriceStabilization Fund(OPSF) to cushion the effects of frequentchanges in the price of oil caused by exchange rateadjustments or increase in the world market prices of

crude oil and imported petroleum products. The fund isused (1) to reimburse the oil companies for cost increasesin crude oil and imported petroleum products resultingfrom exchange rate adjustment and/or increase in worldmarket prices of crude oil, and (2) to reimburse oicompanies for cost underrecovery incurred as a result ofthe reduction of domestic prices of petroleum productsUnder the law, the OPSF may be sourced from:

1. any increase in the tax collection from advalorem tax or customs duty imposed onpetroleum products subject to tax under P.D. No1956 arising from exchange rate adjustment,

2. any increase in the tax collection as a result ofthe lifting of tax exemptions of governmentcorporations, as may be determined by theMinister of Finance in consultation with the Boardof Energy,

3. any additional amount to be imposed onpetroleum products to augment the resources othe fund through an appropriate order that maybe issued by the Board of Energy requiringpayment of persons or companies engaged in the


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business of importing, manufacturing and/ormarketing petroleum products, or

4. any resulting peso costs differentials in case theactual peso costs paid by oil companies in theimportation of crude oil and petroleum productsis less than the peso costs computed using thereference foreign exchange rate as fixed by theBoard of Energy. 7

By 1985, only three (3) oil companies were operating inthe country Caltex, Shell and the government-ownedPNOC.

In May, 1987, President Corazon C. Aquino signedExecutive Order No. 172 creating the Energy RegulatoryBoardto regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining,marketing and distributing energy resources "whenwarranted and only when public necessity requires." TheBoard had the following powers and functions:

1. Fix and regulate the prices of petroleumproducts;

2. Fix and regulate the rate schedule or prices ofpiped gas to be charged by duly franchised gascompanies which distribute gas by means ofunderground pipe system;

3. Fix and regulate the rates of pipelineconcessionaries under the provisions of R.A. No.387, as amended . . . ;

4. Regulate the capacities of new refineries oradditional capacities of existing refineries andlicense refineries that may be organized after theissuance of (E.O. No. 172) under such terms andconditions as are consistent with the nationalinterest; and

5. Whenever the Board has determined that thereis a shortage of any petroleum product, or whenpublic interest so requires, it may take such stepsas it may consider necessary, including thetemporary adjustment of the levels of prices ofpetroleum products and the payment to the Oil

Price Stabilization Fund . . . by persons or entitiesengaged in the petroleum industry of suchamounts as may be determined by the Board,which may enable the importer to recover its costof importation. 8

On December 9, 1992, Congress enacted R.A. No. 7638which created the Department of Energyto prepare,integrate, coordinate, supervise and control all plans,programs, projects, and activities of the government inrelation to energy exploration, development, utilization,distribution and conservation. 9 The thrust of the

Philippine energy program under the law wastoward privatization of government agencies related toenergy, deregulation of the power and energy industry andreduction of dependency on oil-fired plants. 10 The law alsoaimed to encourage free and active participation andinvestment by the private sector in all energy activitiesSection 5(e) of the law states that "at the end of four (4)years from the effectivity of this Act, the Department shallupon approval of the President, institute the programs

and timetable of deregulation of appropriate energyprojects and activities of the energy industry."

Pursuant to the policies enunciated in R.A. No. 7638, thegovernment approved the privatization of PetronCorporation in 1993. On December 16, 1993, PNOC sold40% of its equity in Petron Corporation to the AramcoOverseas Company.

In March 1996, Congress took the audacious stepofderegulating the downstream oil industry. Ienacted R.A. No.8180, entitled the "Downstream OiIndustry Deregulation Act of 1996." Under the deregulated

environment, "any person or entity may import orpurchase any quantity of crude oil and petroleum productsfrom a foreign or domestic source, lease or own andoperate refineries and other downstream oil facilities andmarket such crude oil or use the same for his ownrequirement," subject only to monitoring by theDepartment of Energy. 11

The deregulation process has two phases : the transitionphase and the full deregulation phase. During the transitionphase, controls of the non-pricing aspects of the oil industrywere to be lifted. The following were to be accomplished(1) liberalization of oil importation, exportation

manufacturing, marketing and distribution, (2)implementation of an automatic pricing mechanism, (3)implementation of an automatic formula to set margins odealers and rates of haulers, water transport operatorsand pipeline concessionaires, and (4) restructuring of oitaxes. Upon full deregulation, controls on the price ofoiland the foreign exchange cover were to be lifted and theOPSF was to be abolished.

The first phase of deregulation commenced on August 121996.

On February 8, 1997, the President implemented the ful

deregulation of the Downstream Oil Industry through

E.O. No. 372.

The petitions at bar assail the constitutionality of variousprovisions of R.A No. 8180 and E.O. No. 372.

In G.R. No. 124360, petitioner Francisco S. Tatad seeks theannulment of section 5(b) of R.A. No. 8180. Section 5(b)provides:


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b) Any law to the contrary notwithstanding andstarting with the effectivity of this Act, tariff dutyshall be imposed and collected on imported crudeoil at the rate of three percent (3%) and importedrefined petroleum products at the rate of sevenpercent (7%), except fuel oil and LPG, the rate forwhich shall be the same as that for imported crudeoil: Provided, That beginning on January 1, 2004the tariff rate on imported crude oil and refined

petroleum products shall be the same: Provided,further, That this provision may be amended onlyby an Act of Congress.

The petition is anchored on three arguments:

First, that the imposition of different tariff rates onimported crude oil and imported refined petroleumproducts violates the equal protection clause. Petitionercontends that the 3%-7% tariff differential unduly favorsthe three existing oil refineries and discriminates againstprospective investors in the downstream oil industry whodo not have their own refineries and will have to source

refined petroleum products from abroad.

Second, that the imposition of different tariff rates doesnot deregulate the downstream oil industry but insteadcontrols the oil industry, contrary to the avowed policy ofthe law. Petitioner avers that the tariff differential betweenimported crude oil and imported refined petroleumproducts bars the entry of other players in the oil industrybecause it effectively protects the interest of oil companieswith existing refineries. Thus, it runs counter to theobjective of the law "to foster a truly competitive market."

Third, that the inclusion of the tariff provision in section

5(b) of R.A. No. 8180 violates Section 26(1) Article VI ofthe Constitution requiring every law to have only onesubject which shall be expressed in its title. Petitionercontends that the imposition of tariff rates in section 5(b)of R.A. No. 8180 is foreign to the subject of the law which isthe deregulation of the downstream oil industry.

In G.R. No. 127867, petitioners Edcel C. Lagman, Joker P.Arroyo, Enrique Garcia, Wigberto Tanada, Flag HumanRights Foundation, Inc., Freedom from Debt Coalition(FDC) and Sanlakas contest the constitutionality of section15 of R.A. No. 8180 and E.O. No. 392. Section 15 provides:

Sec. 15. Implementation of Full Deregulation. Pursuant to Section 5(e) of Republic Act No. 7638,the DOE shall, upon approval of the President,implement the full deregulation of thedownstream oil industry not later than March1997. As far as practicable, the DOE shall time thefull deregulation when the prices of crude oil andpetroleum products in the world market aredeclining and when the exchange rate of the pesoin relation to the US dollar is stable. Upon theimplementation of the full deregulation asprovided herein, the transition phase is deemed

terminated and the following laws are deemedrepealed:

xxx xxx xxx

E.O. No. 372 states in full, viz.:

WHEREAS, Republic Act No. 7638, otherwiseknown as the "Department of Energy Act of 1992,"

provides that, at the end of four years from itseffectivity last December 1992, "the Department(of Energy) shall, upon approval of the Presidentinstitute the programs and time table oderegulation of appropriate energy projects andactivities of the energy sector;"

WHEREAS, Section 15 of Republic Act No. 8180otherwise known as the "Downstream OiIndustry Deregulation Act of 1996," provides that"the DOE shall, upon approval of the Presidentimplement full deregulation of the downstream oiindustry not later than March, 1997. As far as

practicable, the DOE shall time the fulderegulation when the prices of crude oil andpetroleum products in the world market aredeclining and when the exchange rate of the pesoin relation to the US dollar is stable;"

WHEREAS, pursuant to the recommendation ofthe Department of Energy, there is an imperativeneed to implement the full deregulation of thedownstream oil industry because of the followingrecent developments: (i) depletion of the bufferfund on or about 7 February 1997 pursuant to theEnergy Regulatory Board's Order dated 16January 1997; (ii) the prices of crude oil had beenstable at $21-$23 per barrel since October 1996while prices of petroleum products in the worldmarket had been stable since mid-December olast year. Moreover, crude oil prices are beginningto soften for the last few days while prices of somepetroleum products had already declined; and (iii)the exchange rate of the peso in relation to the USdollar has been stable for the past twelve (12)months, averaging at around P26.20 to one USdollar;

WHEREAS, Executive Order No. 377 dated 31October 1996 provides for an institutionaframework for the administration of thederegulated industry by defining the functionsand responsibilities of various governmentagencies;

WHEREAS, pursuant to Republic Act No. 8180, thederegulation of the industry will foster a trulycompetitive market which can better achieve thesocial policy objectives of fair prices and adequatecontinuous supply of environmentally-clean andhigh quality petroleum products;


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NOW, THEREFORE, I, FIDEL V. RAMOS, Presidentof the Republic of the Philippines, by the powersvested in me by law, do hereby declare the fullderegulation of the downstream oil industry.

In assailing section 15 of R.A. No. 8180 and E.O. No. 392,petitioners offer the following submissions:

First, section 15 of R.A. No. 8180 constitutes an undue

delegation of legislative power to the President and theSecretary of Energy because it does not provide adeterminate or determinable standard to guide theExecutive Branch in determining when to implement thefull deregulation of the downstream oil industry.Petitioners contend that the law does not define when it ispracticable for the Secretary of Energy to recommend tothe President the full deregulation of the downstream oilindustry or when the President may consider it practicableto declare full deregulation. Also, the law does not provideany specific standard to determine when the prices ofcrude oil in the world market are considered to bedeclining nor when the exchange rate of the peso to the US

dollar is considered stable.

Second, petitioners aver that E.O. No. 392 implementingthe full deregulation of the downstream oil industry isarbitrary and unreasonable because it was enacted due tothe alleged depletion of the OPSF fund a condition notfound in R.A. No. 8180.

Third, section 15 of R.A. No. 8180 and E.O. No. 392 allowthe formation of a de facto cartel among the three existingoil companies Petron, Caltex and Shell in violation ofthe constitutional prohibition against monopolies,combinations in restraint of trade and unfair competition.

Respondents, on the other hand, fervently defend theconstitutionality of R.A. No. 8180 and E.O. No. 392. Inaddition, respondents contend that the issues raised by thepetitions are not justiciable as they pertain to the wisdomof the law. Respondents further aver that petitioners haveno locus standi as they did not sustain nor will they sustaindirect injury as a result of the implementation of R.A. No.8180.

The petitions were heard by the Court on September 30,1997. On October 7, 1997, the Court ordered the private

respondents oil companies "to maintain the status quo andto cease and desist from increasing the prices of gasolineand other petroleum fuel products for a period of thirty(30) days . . . subject to further orders as conditions maywarrant."

We shall now resolve the petitions on the merit. Thepetitions raise procedural and substantive issues bearingon the constitutionality of R.A. No. 8180 and E.O. No. 392.The procedural issues are: (1) whether or not the petitionsraise a justiciable controversy, and (2) whether or not thepetitioners have the standing to assail the validity of thesubject law and executive order. The substantive issues are:

(1) whether or not section 5 (b) violates the one title one subject requirement of the Constitution; (2) whetheror not the same section violates the equal protectionclause of the Constitution; (3) whether or not section 15violates the constitutional prohibition on undue delegationof power; (4) whether or not E.O. No. 392 is arbitrary andunreasonable; and (5) whether or not R.A. No. 8180violates the constitutional prohibition against monopoliescombinations in restraint of trade and unfair competition.

We shall first tackle the procedural issues. Respondentsclaim that the avalanche of arguments of the petitionersassail the wisdom of R.A. No. 8180. They aver thatderegulation of the downstream oil industry is a policydecision made by Congress and it cannot be reviewedmuch less be reversed by this Court. In constitutionalparlance, respondents contend that the petitions failed toraise a justiciable controversy.

Respondents' joint stance is unnoteworthy. Judicial powerincludes not only the duty of the courts to settle actuacontroversies involving rights which are legally

demandable and enforceable, but also the duty todetermine whether or not there has been grave abuse ofdiscretion amounting to lack or excess of jurisdiction onthe part of any branch or instrumentality of thegovernment. 12 The courts, as guardians of theConstitution, have the inherent authority to determinewhether a statute enacted by the legislature transcendsthe limit imposed by the fundamental law. Where a statuteviolates the Constitution, it is not only the right but theduty of the judiciary to declare such act as unconstitutionaland void. 13 We held in the recent case ofTanadav. Angara: 14

xxx xxx xxx

In seeking to nullify an act of the Philippine Senateon the ground that it contravenes the Constitutionthe petition no doubt raises a justiciablecontroversy. Where an action of the legislativebranch is seriously alleged to have infringed theConstitution, it becomes not only the right but infact the duty of the judiciary to settle the disputeThe question thus posed is judicial rather thanpolitical. The duty to adjudicate remains to assurethat the supremacy of the Constitution is upheldOnce a controversy as to the application or

interpretation of a constitutional provision israised before this Court, it becomes a legal issuewhich the Court is bound by constitutionamandate to decide.

Even a sideglance at the petitions will reveal thatpetitioners have raised constitutional issues whichdeserve the resolution of this Court in view of theirseriousness and their value as precedents. Our statementof facts and definition of issues clearly show thatpetitioners are assailing R.A. No. 8180 because itsprovisions infringe the Constitution and not because the


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law lacks wisdom. The principle of separation of powermandates that challenges on the constitutionality of a lawshould be resolved in our courts of justice while doubts onthe wisdom of a law should be debated in the halls ofCongress. Every now and then, a law may be denounced incourt both as bereft of wisdom and constitutionallyinfirmed. Such denunciation will not deny this Court of itsjurisdiction to resolve the constitutionality of the said lawwhile prudentially refusing to pass on its wisdom.

The effort of respondents to question the locus standi ofpetitioners must also fall on barren ground. In languagetoo lucid to be misunderstood, this Court has brightlinedits liberal stance on a petitioner's locus standi where thepetitioner is able to craft an issue of transcendentalsignificance to the people. 15 In Kapatiran ng mgaNaglilingkod sa Pamahalaan ng Pilipinas, Inc . v. Tan, 16westressed:

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Objections to taxpayers' suit for lack of sufficient

personality, standing or interest are, however, inthe main procedural matters. Considering theimportance to the public of the cases at bar, and inkeeping with the Court's duty, under the 1987Constitution, to determine whether or not theother branches of government have keptthemselves within the limits of the Constitutionand the laws and that they have not abused thediscretion given to them, the Court has brushedaside technicalities of procedure and has takencognizance of these petitions.

There is not a dot of disagreement between the petitioners

and the respondents on the far reaching importance of thevalidity of RA No. 8180 deregulating our downstream oilindustry. Thus, there is no good sense in beinghypertechnical on the standing of petitioners for they poseissues which are significant to our people and whichdeserve our forthright resolution.

We shall now track down the substantive issues. In G.R. No.124360 where petitioner is Senator Tatad, it is contendedthat section 5(b) of R.A. No. 8180 on tariff differentialviolates the provision 17 of the Constitution requiring everylaw to have only one subject which should be expressed inits title. We do not concur with this contention. As a policy,this Court has adopted a liberal construction of the onetitle one subject rule. We have consistently ruled 18 thatthe title need not mirror, fully index or catalogue allcontents and minute details of a law. A law having a singlegeneral subject indicated in the title may contain anynumber of provisions, no matter how diverse they may be,so long as they are not inconsistent with or foreign to thegeneral subject, and may be considered in furtherance ofsuch subject by providing for the method and means ofcarrying out the general subject. 19 We hold that section5(b) providing for tariff differential is germane to thesubject of R.A. No. 8180 which is the deregulation of the

downstream oil industry. The section is supposed to swayprospective investors to put up refineries in our countryand make them rely less on imported petroleum. 20 Weshall, however, return to the validity of this provisionwhen we examine its blocking effect on new entrants tothe oil market.

We shall now slide to the substantive issues in G.R. No127867. Petitioners assail section 15 of R.A. No. 8180

which fixes the time frame for the full deregulation of thedownstream oil industry. We restate its pertinent portionfor emphasis, viz.:

Sec. 15. Implementation of Full Deregulation Pursuant to section 5(e) of Republic Act No. 7638the DOE shall, upon approval of the Presidentimplement the full deregulation of thedownstream oil industry not later than March1997.As far as practicable, the DOE shall time thefull deregulation when the prices of crude oil andpetroleum products in the world marketare declining and when the exchange rate of the

peso in relation to the US dollar is stable . . .

Petitioners urge that the phrases "as far as practicable,""decline of crude oil prices in the world market" and"stability of the peso exchange rate to the US dollar" areambivalent, unclear and inconcrete in meaning. Theysubmit that they do not provide the "determinate ordeterminable standards" which can guide the President inhis decision to fully deregulate the downstream oiindustry. In addition, they contend that E.O. No. 392 whichadvanced the date of full deregulation is void for it illegallyconsidered the depletion of the OPSF fund as a factor.

The power of Congress to delegate the execution of lawshas long been settled by this Court. As early as 1916inCompania General de Tabacos de Filipinas vs. The Boardof Public Utility Commissioners, 21 this Court thru, MrJustice Moreland, held that "the true distinction is betweenthe delegation of power to make the law, which necessarilyinvolves a discretion as to what it shall be, and conferringauthority or discretion as to its execution, to be exercisedunder and in pursuance of the law. The first cannot bedone; to the latter no valid objection can be made." Overthe years, as the legal engineering of men's relationshipbecame more difficult, Congress has to rely more on thepractice of delegating the execution of laws to the

executive and other administrative agencies. Two testshave been developed to determine whether the delegationof the power to execute laws does not involve theabdication of the power to make law itself. We delineatedthe metes and bounds of these tests in Eastern ShippingLines, Inc. VS. POEA, 22 thus:

There are two accepted tests to determinewhether or not there is a valid delegation oflegislative power, viz: the completeness test andthe sufficient standard test. Under the first testthe law must be complete in all its terms and


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conditions when it leaves the legislative such thatwhen it reaches the delegate the only thing he willhave to do is to enforce it. Under the sufficientstandard test, there must be adequate guidelinesor limitations in the law to map out theboundaries of the delegate's authority and preventthe delegation from running riot. Both tests areintended to prevent a total transference oflegislative authority to the delegate, who is not

allowed to step into the shoes of the legislatureand exercise a power essentially legislative.

The validity of delegating legislative power is now a quietarea in our constitutional landscape. As sagely observed,delegation of legislative power has become an inevitabilityin light of the increasing complexity of the task ofgovernment. Thus, courts bend as far back as possible tosustain the constitutionality of laws which are assailed asunduly delegating legislative powers. Citing Hirabayashiv. United States 23 as authority, Mr. Justice Isagani A. Cruzstates "that even if the law does not expressly pinpoint thestandard, the courts will bend over backward to locate the

same elsewhere in order to spare the statute, if it can, fromconstitutional infirmity." 24

Given the groove of the Court's rulings, the attempt ofpetitioners to strike down section 15 on the ground ofundue delegation of legislative power cannot prosper.Section 15 can hurdle both the completeness test and thesufficient standard test. It will be noted that Congressexpressly provided in R.A. No. 8180 that full deregulationwill start at the end of March 1997, regardless of theoccurrence of any event. Full deregulation at the end ofMarch 1997 is mandatory and the Executive has nodiscretion to postpone it for any purported reason. Thus,

the law is complete on the question of the final date of fullderegulation. The discretion given to the President is toadvance the date of full deregulation before the end ofMarch 1997. Section 15 lays down the standard to guidethe judgment of the President he is to time it as far aspracticable when the prices of crude oil and petroleumproducts in the world market are declining and when theexchange rate of the peso in relation to the US dollarisstable.

Petitioners contend that the words "as far as practicable,""declining" and "stable" should have been defined in R.A.No. 8180 as they do not set determinate or determinable

standards. The stubborn submission deserves scantconsideration. The dictionary meanings of these words arewell settled and cannot confuse men of reasonableintelligence. Webster defines "practicable" as meaningpossible to practice or perform, "decline" as meaning totake a downward direction, and "stable" as meaning firmlyestablished. 25 The fear of petitioners that these words willresult in the exercise of executive discretion that will runriot is thus groundless. To be sure, the Court has sustainedthe validity of similar, if not more general standards inother cases. 26

It ought to follow that the argument that E.O. No. 392 isnull and void as it was based on indeterminate standardsset by R.A. 8180 must likewise fail. If that were all to theattack against the validity of E.O. No. 392, the issue neednot further detain our discourse. But petitioners furtherposit the thesis that the Executive misapplied R.A. No8180 when it considered the depletion of the OPSF fund asa factor in fully deregulating the downstream oil industryin February 1997. A perusal of section 15 of R.A. No. 8180

will readily reveal that it only enumerated two factors tobe considered by the Department of Energy and the Officeof the President, viz.: (1) the time when the prices of crudeoil and petroleum products in the world market aredeclining, and (2) the time when the exchange rate of thepeso in relation to the US dollar is stable. Section 15 didnot mention the depletion of the OPSF fund as a factor tobe given weight by the Executive before ordering fulderegulation. On the contrary, the debates in Congress willshow that some of our legislators wanted to impose as apre-condition to deregulation a showing that the OPSFfund must not be in deficit. 27 We therefore hold that theExecutive department failed to follow faithfully thestandards set by R.A. No. 8180 when it considered theextraneous factor of depletion of the OPSF fund. Themisappreciation of this extra factor cannot be justified onthe ground that the Executive department consideredanyway the stability of the prices of crude oil in the worldmarket and the stability of the exchange rate of the peso tothe dollar. By considering another factor to hasten fulderegulation, the Executive department rewrote thestandards set forth in R.A. 8180. The Executive is bereft oany right to alter either by subtraction or addition thestandards set in R.A. No. 8180 for it has no power to makelaws. To cede to the Executive the power to make law is toinvite tyranny, indeed, to transgress the principle ofseparation of powers. The exercise of delegated power isgiven a strict scrutiny by courts for the delegate is a mereagent whose action cannot infringe the terms of agency. Inthe cases at bar, the Executive co-mingled the factor odepletion of the OPSF fund with the factors of decline ofthe price of crude oil in the world market and the stabilityof the peso to the US dollar. On the basis of the text of E.ONo. 392, it is impossible to determine the weight given bythe Executive department to the depletion of the OPSFfund. It could well be the principal consideration for theearly deregulation. It could have been accorded an equasignificance. Or its importance could be nil. In light of thisuncertainty, we rule that the early deregulation under E.ONo. 392 constitutes a misapplication of R.A. No. 8180.

We now come to grips with the contention that someprovisions of R.A. No. 8180 violate section 19 of Article XIIof the 1987 Constitution. These provisions are:

(1) Section 5 (b) which states "Any law to thecontrary notwithstanding and starting with theeffectivity of this Act, tariff duty shall be imposedand collected on imported crude oil at the rate othree percent (3%) and imported refinedpetroleum products at the rate of seven percent(7%) except fuel oil and LPG, the rate for which


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shall be the same as that for imported crude oil.Provided, that beginning on January 1, 2004 thetariff rate on imported crude oil and refinedpetroleum products shall be the same. Provided,further, that this provision may be amended onlyby an Act of Congress."

(2) Section 6 which states "To ensure thesecurity and continuity of petroleum crude and

products supply, the DOE shall require therefiners and importers to maintain a minimuminventory equivalent to ten percent (10%) of theirrespective annual sales volume or forty (40) daysof supply, whichever is lower," and

(3) Section 9 (b) which states "To ensure faircompetition and prevent cartels and monopoliesin the downstream oil industry, the following actsshall be prohibited:

xxx xxx xxx

(b) Predatory pricing whichmeans selling or offering to sellany product at a priceunreasonably below the industryaverage cost so as to attractcustomers to the detriment ofcompetitors.

On the other hand, section 19 of Article XII of theConstitution allegedly violated by the aforestatedprovisions of R.A. No. 8180 mandates: "The State shallregulate or prohibit monopolies when the public interestso requires. No combinations in restraint of trade or unfaircompetition shall be allowed."

A monopoly is a privilege or peculiar advantage vested inone or more persons or companies, consisting in theexclusive right or power to carry on a particular businessor trade, manufacture a particular article, or control thesale or the whole supply of a particular commodity. It is aform of market structure in which one or only a few firmsdominate the total sales of a product or service. 28 On theother hand, a combination in restraint of trade is anagreement or understanding between two or morepersons, in the form of a contract, trust, pool, holding

company, or other form of association, for the purpose ofunduly restricting competition, monopolizing trade andcommerce in a certain commodity, controlling its,production, distribution and price, or otherwiseinterfering with freedom of trade without statutoryauthority. 29 Combination in restraint of trade refers to themeans while monopoly refers to the end. 30

Article 186 of the Revised Penal Code and Article 28 of theNew Civil Code breathe life to this constitutional policy.Article 186 of the Revised Penal Code penalizesmonopolization and creation of combinations in restraintof

trade, 31while Article 28 of the New Civil Code makes anyperson who shall engage in unfair competition liable fordamages. 32

Respondents aver that sections 5(b), 6 and 9(b) implementthe policies and objectives of R.A. No. 8180. They explainthat the 4% tariff differential is designed to encourage newentrants to invest in refineries. They stress that theinventory requirement is meant to guaranty continuous

domestic supply of petroleum and to discourage fly-bynight operators. They also submit that the prohibitionagainst predatory pricing is intended to protectprospective entrants. Respondents manifested to the Courtthat new players have entered the Philippines afterderegulation and have now captured 3% 5% of the oimarket.

The validity of the assailed provisions of R.A. No. 8180 hasto be decided in light of the letter and spirit of ourConstitution, especially section 19, Article XII. Beyonddoubt, the Constitution committed us to the free enterprisesystem but it is a system impressed with its own

distinctness. Thus, while the Constitution embraced freeenterprise as an economic creed, it did not prohibit per sethe operation of monopolies which can, however, beregulated in the public interest. 33 Thus too, our freeenterprise system is not based on a market of pure andunadulterated competition where the State pursues a stricthands-off policy and follows the let-the-devil devour thehindmost rule. Combinations in restraint of trade andunfair competitions are absolutely proscribed and theproscription is directed both against the State as well asthe private sector. 34 This distinct free enterprise system isdictated by the need to achieve the goals of our nationaeconomy as defined by section 1, Article XII of the

Constitution which are: more equitable distribution oopportunities, income and wealth; a sustained increase inthe amount of goods and services produced by the nationfor the benefit of the people; and an expandingproductivity as the key to raising the quality of life for allespecially the underprivileged. It also calls for the State toprotect Filipino enterprises against unfair competition andtrade practices.

Section 19, Article XII of our Constitution is anti-trust inhistory and in spirit. It espouses competition. Thedesirability of competition is the reason for the prohibitionagainst restraint of trade, the reason for the interdiction of

unfair competition, and the reason for regulation ofunmitigated monopolies. Competition is thus theunderlying principle of section 19, Article XII of ourConstitution which cannot be violated by R.A. No. 8180We subscribe to the observation of Prof. Gellhorn that theobjective of anti-trust law is "to assure a competitiveeconomy, based upon the belief that through competitionproducers will strive to satisfy consumer wants at thelowest price with the sacrifice of the fewest resourcesCompetition among producers allows consumers to bid forgoods and services, and thus matches their desires withsociety's opportunity costs." 35 He adds with


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appropriateness that there is a reliance upon "theoperation of the 'market' system (free enterprise) todecide what shall be produced, how resources shall beallocated in the production process, and to whom thevarious products will be distributed. The market systemrelies on the consumer to decide what and how much shallbe produced, and on competition, among producers todetermine who will manufacture it."

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 that canunleash these creative forces is competition that is fightingyet is fair. Ideally, this kind of competition requires thepresence of not one, not just a few but several players. Amarket controlled by one player (monopoly) or dominatedby a handful of players (oligopoly) is hardly the marketwhere honest-to-goodness competition will prevail.Monopolistic or oligopolistic markets deserve our carefulscrutiny and laws which barricade the entry points of newplayers in the market should be viewed with suspicion.

Prescinding from these baseline propositions, we shallproceed to examine whether the provisions of R.A. No.8180 on tariff differential, inventory reserves, andpredatory prices imposed substantial barriers to the entryand exit of new players in our downstream oil industry. Ifthey do, they have to be struck down for they willnecessarily inhibit the formation of a truly competitivemarket. Contrariwise, if they are insignificantimpediments, they need not be stricken down.

In the cases at bar, it cannot be denied that ourdownstream oil industry is operated and controlled by an

oligopoly, a foreign oligopoly at that. Petron, Shell andCaltex stand as the only major league players in the oilmarket. All other players belong to the lilliputian league.As the dominant players, Petron, Shell and Caltex boast ofexisting refineries of various capacities. The tariffdifferential of 4% therefore works to their immensebenefit. Yet, this is only one edge of the tariff differential.The other edge cuts and cuts deep in the heart of theircompetitors. It erects a high barrier to the entry of newplayers. New players that intend to equalize the marketpower of Petron, Shell and Caltex by building refineries oftheir own will have to spend billions of pesos. Those whowill not build refineries but compete with them will suffer

the huge disadvantage of increasing their product cost by4%. They will be competing on an uneven field. Theargument that the 4% tariff differential is desirablebecause it will induce prospective players to invest inrefineries puts the cart before the horse. The first need isto attract new players and they cannot be attracted byburdening them with heavy disincentives. Without newplayers belonging to the league of Petron, Shell and Caltex,competition in our downstream oil industry is an idledream.

The provision on inventory widens the balance ofadvantage of Petron, Shell and Caltex against prospectivenew players. Petron, Shell and Caltex can easily complywith the inventory requirement of R.A. No. 8180 in view oftheir existing storage facilities. Prospective competitorsagain will find compliance with this requirement difficultas it will entail a prohibitive cost. The construction cost ostorage facilities and the cost of inventory can thus scareprospective players. Their net effect is to further occlude

the entry points of new players, dampen competition andenhance the control of the market by the three (3) existingoil companies.

Finally, we come to the provision on predatory pricingwhich is defined as ". . . selling or offering to sell anyproduct at a price unreasonably below the industryaverage cost so as to attract customers to the detriment ofcompetitors." Respondents contend that this provisionworks against Petron, Shell and Caltex and protects newentrants. The ban on predatory pricing cannot be analyzedin isolation. Its validity is interlocked with the barriersimposed by R.A. No. 8180 on the entry of new players. The

inquiry should be to determine whether predatory pricingon the part of the dominant oil companies is encouragedby the provisions in the law blocking the entry of newplayers. Text-writerHovenkamp, 36 gives the authoritative answer and wequote:

xxx xxx xxx

The rationale for predatory pricing is thesustaining of losses today that will give a firmmonopoly profits in the future. The monopolyprofits will never materialize, however, if the

market is flooded with new entrants as soon asthe successful predator attempts to raise itsprice. Predatory pricing will be profitable only if themarket contains significant barriers to new entry.

As aforediscsussed, the 4% tariff differential and theinventory requirement are significant barriers whichdiscourage new players to enter the market. Consideringthese significant barriers established by R.A. No. 8180 andthe lack of players with the comparable clout of PETRONSHELL and CALTEX, the temptation for a dominant playerto engage in predatory pricing and succeed is a chillingreality. Petitioners' charge that this provision on predatory

pricing is anti-competitive is not without reason.

Respondents belittle these barriers with the allegation thatnew players have entered the market since deregulation. Ascrutiny of the list of the alleged new players willhowever, reveal that not one belongs to the class andcategory of PETRON, SHELL and CALTEX. Indeed, there isno showing that any of these new players intends to installany refinery and effectively compete with these dominantoil companies. In any event, it cannot be gainsaid that thenew players could have been more in number and more


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impressive in might if the illegal entry barriers in R.A. No.8180 were not erected.

We come to the final point. We now resolve the totaleffectof the untimely deregulation, the imposition of 4%tariff differential on imported crude oil and refinedpetroleum products, the requirement of inventory and theprohibition on predatory pricing on the constitutionality ofR.A. No. 8180. The question is whether these offending

provisions can be individually struck down withoutinvalidating the entire R.A. No. 8180. The ruling case law iswell stated by authorAgpalo, 37viz.:

xxx xxx xxx

Thegeneral rule is that where part of a statute isvoid as repugnant to the Constitution, whileanother part is valid, the valid portion, if separablefrom the invalid, may stand and be enforced. Thepresence of a separability clause in a statutecreates the presumption that the legislatureintended separability, rather than complete nullity

of the statute. To justify this result, the validportion must be so far independent of the invalidportion that it is fair to presume that thelegislature would have enacted it by itself if it hadsupposed that it could not constitutionally enactthe other. Enough must remain to make acomplete, intelligible and valid statute, whichcarries out the legislative intent. . . .

The exception to the general rule is that when theparts of a statute are so mutually dependent andconnected, as conditions, considerations,inducements, or compensations for each other, as

to warrant a belief that the legislature intendedthem as a whole, the nullity of one part will vitiatethe rest. In making the parts of the statutedependent, conditional, or connected with oneanother, the legislature intended the statute to becarried out as a whole and would not haveenacted it if one part is void, in which case if someparts are unconstitutional, all the other provisionsthus dependent, conditional, or connected mustfall with them.

R.A. No. 8180 contains a separability clause. Section 23provides that "if for any reason, any section or provision ofthis Act is declared unconstitutional or invalid, such partsnot affected thereby shall remain in full force and effect."This separability clause notwithstanding, we hold that theoffending provisions of R.A. No. 8180 so permeate itsessence that the entire law has to be struck down. Theprovisions on tariff differential, inventory and predatorypricing are among the principal props of R.A. No. 8180.Congress could not have deregulated the downstream oilindustry without these provisions. Unfortunately, contraryto 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. R.A. No. 8180 needsprovisions to vouchsafe free and fair competition. Theneed for these vouchsafing provisions cannot beoverstated. Before deregulation, PETRON, SHELL andCALTEX had no real competitors but did not have a freerun of the market because government controls both thepricing and non-pricing aspects of the oil industry. Afterderegulation, PETRON, SHELL and CALTEX remainunthreatened by real competition yet are no longer subject

to control by government with respect to their pricing andnon-pricing decisions. The aftermath of R.A. No. 8180 is aderegulated market where competition can be corruptedand where market forces can be manipulated byoligopolies.

The fall out effects of the defects of R.A. No. 8180 on ourpeople have not escaped Congress. A lot of our leadinglegislators have come out openly with bills seeking therepeal of these odious and offensive provisions in R.A. No8180. In the Senate, Senator Freddie Webb has filed S.B. No2133 which is the result of the hearings conducted by theSenate Committee on Energy. The hearings revealed that

(1) there was a need to level the playing field for the newentrants in the downstream oil industry, and (2) there wasno law punishing a person for selling petroleum productsat unreasonable prices. Senator Alberto G. Romulo also filedS.B. No. 2209 abolishing the tariff differential beginningJanuary 1, 1998. He declared that the amendment ". . would mean that instead of just three (3) big oil companiesthere will be other major oil companies to provide more

competitive prices for the market and the consuming

public." Senator Heherson T. Alvarez, one of the principaproponents of R.A. No. 8180, also filed S.B. No. 2290increasing the penalty for violation of its section 9. It is hisopinion as expressed in the explanatory note of the bil

thatthe present oil companies are engaged in cartelizationdespite R.A. No. 8180, viz,:

xxx xxx xxx

Since the downstream oil industry was fullyderegulated in February 1997, there have beeneight (8) fuel price adjustments made by the threeoil majors, namely: Caltex Philippines, Inc.; PetronCorporation; and Pilipinas Shell PetroleumCorporation. Very noticeable in the priceadjustments made, however, is the uniformity inthe pump prices of practically all petroleum

products of the three oil companies. This, despitethe fact, that their selling rates should bedetermined by a combination of any of thefollowing factors: the prevailing peso-dollarexchange rate at the time payment is made forcrude purchases, sources of crude, and inventorylevels of both crude and refined petroleumproducts. The abovestated factors should haveresulted in different, rather than identical prices.

The fact that the three (3) oil companies' petroleum

products are uniformly priced suggests collusion


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amounting to cartelization, among CaltexPhilippines, Inc., Petron Corporation and PilipinasShell Petroleum Corporation to fix the prices ofpetroleum products in violation of paragraph (a),Section 9 of R.A. No. 8180.

To deter this pernicious practice and to assurethat present and prospective players in thedownstream oil industry conduct their business

with conscience and propriety, cartel-likeactivities ought to be severely penalized.

Senator Francisco S. Tatadalso filed S.B. No. 2307providing for a uniform tariff rate on imported crude oiland refined petroleum products. In the explanatory note ofthe bill, he declared in no uncertain terms that ". . . thepresent set-up has raised serious public concern over theway the three oil companies have uniformly adjusted theprices of oil in the country, an indication of a possibleexistence of a cartel or a cartel-like situation within the

downstream oil industry. This situation is mostly attributedto the foregoing provision on tariff differential, which has

effectively discouraged the entry of new players in thedownstream oil industry."

In the House of Representatives, the moves to rehabilitateR.A. No. 8180 are equally feverish. Representative LeopoldoE. San Buenaventura has filed H.B. No. 9826 removing thetariff differential for imported crude oil and importedrefined petroleum products. In the explanatory note of thebill, Rep. Buenaventura explained:

xxx xxx xxx

As we now experience, this difference in tariffrates between imported crude oil and importedrefined petroleum products, unwittingly provideda built-in-advantage for the three existing oil

refineries in the country and eliminating

competition which is a must in a free enterprise

economy. Moreover, it created a disincentive forother players to engage even initially in theimportation and distribution of refined petroleumproducts and ultimately in the putting up ofrefineries. This tariff differential virtually created amonopoly of the downstream oil industry by the

existing three oil companies as shown by theiruniform and capricious pricing of their productssince this law took effect, to the greatdisadvantage of the consuming public.

Thus, instead of achieving the desired effects ofderegulation, that of free enterprise and a levelplaying field in the downstream oil industry, R.A.8180 has created an environment conducive tocartelization, unfavorable, increased, unrealisticprices of petroleum products in the country by thethree existing refineries.

Representative Marcial C. Punzalan, Jr., filed H.B. No. 9981to prevent collusion among the present oil companies bystrengthening the oversight function of the governmentparticularly its ability to subject to a review anyadjustment in the prices of gasoline and other petroleumproducts. In the explanatory note of the bill, Rep. PunzalanJr., said:

xxx xxx xxx

To avoid this, the proposed bill seeks tostrengthen the oversight function of governmentparticularly its ability to review the prices set forgasoline and other petroleum products. It grantsthe Energy Regulatory Board (ERB) the authorityto review prices of oil and other petroleumproducts, as may be petitioned by a person, groupor any entity, and to subsequently compel anyentity in the industry to submit any and aldocuments relevant to the imposition of newprices. In cases where the Board determines thatthere exist collusion, economic conspiracy, unfair

trade practice, profiteering and/or overpricing, itmay take any step necessary to protect the publicincluding the readjustment of the prices ofpetroleum products. Further, the Board may alsoimpose the fine and penalty of imprisonment, asprescribed in Section 9 of R.A. 8180, on anyperson or entity from the oil industry who isfound guilty of such prohibited acts.

By doing all of the above, the measure willeffectively provide Filipino consumers with avenue where their grievances can be heard andimmediately acted upon by government.

Thus, this bill stands to benefit the Filipinoconsumer by making the price-setting processmore transparent and making it easier toprosecute those who perpetrate such prohibitedacts as collusion, overpricing, economicconspiracy and unfair trade.

Representative Sergio A.F. Apostolfiled H.B. No. 10039 toremedy an omission in R.A. No. 8180 where there is noagency in government that determines what is"reasonable" increase in the prices of oiproducts. Representative Dente O. Tinga, one othe principal sponsors of R.A. No. 8180, filed H.B. No. 10057to strengthen its anti-trust provisions. He elucidated in itsexplanatory note:

xxx xxx xxx

The definition of predatory pricing, howeverneeds to be tightened up particularly with respectto the definitive benchmark price and the specificanti-competitive intent. The definition in the bill athand which was taken from theAreedaTurnertest in the United States on predatory


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pricing resolves the questions. The definitionreads, "Predatory pricing means selling or offeringto sell any oil product at a price below the averagevariable cost for the purpose of destroyingcompetition, eliminating a competitor ordiscouraging a competitor from entering themarket."

The appropriate actions which may be resorted to

under the Rules of Court in conjunction with theoil deregulation law are adequate. But to stresstheir availability and dynamism, it is a good moveto incorporate all the remedies in the law itself.Thus, the present bill formalizes the concept ofgovernment intervention and private suits toaddress the problem of antitrust violations.Specifically, the government may file an action toprevent or restrain any act of cartelization orpredatory pricing, and if it has suffered any loss ordamage by reason of the antitrust violation it mayrecover damages. Likewise, a private person orentity may sue to prevent or restrain any such

violation which will result in damage to hisbusiness or property, and if he has alreadysuffered damage he shall recover treble damages.A class suit may also be allowed.

To make the DOE Secretary more effective in theenforcement of the law, he shall be givenadditional powers to gather information and torequire reports.

Representative Erasmo B. Damasing filed H.B. No. 7885 andhas a more unforgiving view of R.A. No. 8180. He wants itcompletely repealed. He explained:

xxx xxx xxx

Contrary to the projections at the time the bill onthe Downstream Oil Industry Deregulation wasdiscussed and debated upon in the plenary sessionprior to its approval into law, there aren't any newplayers or investors in the oil industry. Thus,resulting in practically a cartel or monopoly in theoil industry by the three (3) big oil companies,Caltex, Shell and Petron. So much so, that with thederegulation now being partially implemented,the said oil companies have succeeded inincreasing the prices of most of their petroleumproducts with little or no interference at all fromthe government. In the month of August, therewas an increase of Fifty centavos (50) per liter bysubsidizing the same with the OPSF, this is onlytemporary as in March 1997, or a few monthsfrom now, there will be full deregulation (PhaseII) whereby the increase in the prices ofpetroleum products will be fully absorbed by theconsumers since OPSF will already be abolishedby then. Certainly, this would make the lives of our

people, especially the unemployed ones, doublydifficult and unbearable.

The much ballyhooed coming in of new players inthe oil industry is quite remote considering thatthese prospective investors cannot fight theexisting and well established oil companies in thecountry today, namely, Caltex, Shell and PetronEven if these new players will come in, they will

still have no chance to compete with the said three(3) existing big oil companies considering thatthere is an imposition of oil tariff differential o4% between importation of crude oil by the saidoil refineries paying only 3% tariff rate for thesaid importation and 7% tariff rate to be paid bybusinessmen who have no oil refineries in thePhilippines but will import finished petroleum/oiproducts which is being taxed with 7% tariff rates.

So, if only to help the many who are poor from

further suffering as a result of unmitigated increase

in oil products due to deregulation, it is a must that

the Downstream Oil Industry Deregulation Act of1996, or R.A.8180 be repealed completely.

Various resolutions have also been filed in the Senatecalling for an immediate and comprehensive reviewof R.ANo. 8180 to prevent the downpour of its ill effects on thepeople. Thus, S. Res. No. 574 was filed by Senator GloriaM. Macapagalentitled Resolution "Directing theCommittee on Energy to Inquire Into The ProperImplementation of the Deregulation of the Downstream OiIndustry and Oil Tax Restructuring As Mandated UnderR.A. Nos. 8180 and 8184, In Order to Make The NecessaryCorrections In the Apparent Misinterpretation Of The

Intent And Provision Of The Laws And Curb The RisingTide Of Disenchantment Among The Filipino ConsumersAnd Bring About The Real Intentions And Benefits Of TheSaid Law." Senator Blas P. Ople filed S. Res. No. 664 entitledresolution "Directing the Committee on Energy To ConductAn Inquiry In Aid Of Legislation To Review TheGovernment's Oil Deregulation Policy In Light Of TheSuccessive Increases In Transportation, Electricity AndPower Rates, As well As Of Food And Other PrimeCommodities And Recommend Appropriate AmendmentsTo Protect The Consuming Public." Senator Ople observed:

xxx xxx xxx

WHEREAS, since the passage of R.A. No. 8180, theEnergy Regulatory Board (ERB) has imposedsuccessive increases in oil prices which hastriggered increases in electricity and power ratestransportation fares, as well as in prices of foodand other prime commodities to the detriment ofour people, particularly the poor;

WHEREAS, the new players that were expected tocompete with the oil cartel-Shell, Caltex andPetron-have not come in;


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WHEREAS, it is imperative that a review of the oilderegulation policy be made to considerappropriate amendments to the existing law suchas an extension of the transition phase before fullderegulation in order to give the competitivemarket enough time to develop;

WHEREAS, the review can include the advisabilityof providing some incentives in order to attract

the entry of new oil companies to effect a dynamiccompetitive market;

WHEREAS, it may also be necessary to defer thesetting up of the institutional framework for fullderegulation of the oil industry as mandatedunder Executive Order No. 377 issued byPresident Ramos last October 31, 1996 . . .

Senator Alberto G. Romulo filed S. Res. No. 769 entitledresolution "Directing the Committees on Energy and PublicServices In Aid Of Legislation To Assess The ImmediateMedium And Long Term Impact of Oil Deregulation On Oil

Prices And The Economy." Among the reasons for theresolution is the finding that "the requirement of a 40-daystock inventory effectively limits the entry of other oil firms

in the market with the consequence that instead of going

down oil prices will rise."

Parallel resolutions have been filed in the House of

Representatives. Representative Dante O. Tinga filed H. Res.No. 1311 "Directing The Committee on Energy To ConductAn Inquiry, In Aid of Legislation, Into The Pricing PoliciesAnd Decisions Of The Oil Companies Since TheImplementation of Full Deregulation Under the OilDeregulation Act (R.A. No. 8180) For the Purpose of

Determining In the Context Of The Oversight Functions OfCongress Whether The Conduct Of The Oil Companies,Whether Singly Or Collectively, Constitutes CartelizationWhich Is A Prohibited Act Under R.A. No. 8180, And WhatMeasures Should Be Taken To Help Ensure The SuccessfulImplementation Of The Law In Accordance With Its LetterAnd Spirit, Including Recommending Criminal ProsecutionOf the Officers Concerned Of the Oil Companies IfWarranted By The Evidence, And For OtherPurposes." Representatives Marcial C. Punzalan, Jr. DanteO. Tinga and Antonio E. Bengzon IIIfiled H.R. No. 894directing the House Committee on Energy to inquire intothe proper implementation of the deregulation of the

downstream oil industry. House Resolution No. 1013 wasalso filed by Representatives Edcel C. Lagman, EnriqueT. Garcia, Jr. and Joker P. Arroyo urging the President toimmediately suspend the implementation of E.O. No. 392.

In recent memory there is no law enacted by thelegislature afflicted with so much constitutionaldeformities as R.A. No. 8180. Yet, R.A. No. 8180 deals withoil, a commodity whose supply and price affect the ebb andflow of the lifeblood of the nation. Its shortage of supply ora slight, upward spiral in its price shakes our economicfoundation. Studies show that the areas most impacted by

the movement of oil are food manufacture, land transporttrade, electricity and water. 38At a time when our economyis in a dangerous downspin, the perpetuation of

R.A. No.8180 threatens to multiply the number of our peoplewith bent backs and begging bowls . R.A. No. 8180 with itsanti-competition provisions cannot be allowed by this Court

to stand even while Congress is working to remedy its

defects.

The Court, however, takes note of the plea of PETRONSHELL and CALTEX to lift our restraining order to enablethem to adjust upward the price of petroleum andpetroleum products in view of the plummeting value of thepeso. Their plea, however, will now have to be addressedto the Energy Regulatory Board as the effect of thedeclaration of unconstitutionality of R.A. No. 8180 is torevive the former laws it repealed. 39 The length of ourreturn to the regime of regulation depends on Congresswhich can fasttrack the writing of a new law on oideregulation in accord with the Constitution.

With this Decision, some circles will chide the Court for

interfering with an economic decision of Congress. Suchcriticism is charmless for the Court is annulling R.A. No8180 not because it disagrees with deregulation as aneconomic policy but because as cobbled by Congress in itspresent form, the law violates the Constitution. The rightcall therefor should be for Congress to write a new oideregulation law that conforms with the Constitution andnot for this Court to shirk its duty of striking down a lawthat offends the Constitution. Striking down R.A. No. 8180may cost losses in quantifiable terms to the oil oligopolistsBut the loss in tolerating the tampering of our Constitutionis not quantifiable in pesos and centavos. More worthy ofprotection than the supra-normal profits of private

corporations is the sanctity of the fundamental principlesof the Constitution. Indeed when confronted by a lawviolating the Constitution, the Court has no option but tostrike it down dead. Lest it is missed, the Constitution is acovenant that grants and guarantees both the politicaand economic rights of the people. The Constitutionmandates this Court to be the guardian not only of thepeople's political rights but their economic rights as wellThe protection of the economic rights of the poor and thepowerless is of greater importance to them for they areconcerned more with the exoterics of living and less withthe esoterics of liberty. Hence, for as long as theConstitution reigns supreme so long will this Court be

vigilant in upholding the economic rights of our peopleespecially from the onslaught of the powerful. Our defenseof the people's economic rights may appear heartlessbecause it cannot be half-hearted.

IN VIEW WHEREOF, the petitions are granted. R.A. No8180 is declared unconstitutional and E.O. No. 372 void.

SO ORDERED.

Regalado, Davide, Jr., Romero, Bellosillo and Vitug, JJ.

concur.


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Mendoza, J., concurs in the result.

Narvasa, C.J., is on leave.

Separate Opinions

PANGANIBAN,J., concurring:

I concur with the lucid and convincing ponencia ofMr. Justice Reynato S. Puno. I write to stress two

points:

1. The Issue Is Whether Oil Companies MayUnilaterally

Fix Prices, Not Whether This Court May

Interfere in Economic Questions

With the issuance of the status quo order onOctober 7, 1997 requiring the three respondentoil companies Petron, Shell and Caltex "tocease and desist from increasing the prices ofgasoline and other petroleum fuel products for aperiod of thirty (30) days," the Court has beenaccused of interfering in purely economic policymatters 1 or, worse, of arrogating unto itself price-regulatory powers. 2 Let it be emphasized that wehave no desire nay, we have no power tointervene in, to change or to repeal the laws ofeconomics, in the same manner that we cannotand will not nullify or invalidate the laws ofphysics or chemistry.

The issue here is notwhether the Supreme Courtmay fix the retail prices of petroleum products,Rather, the issue is whether RA 8180, the law

allowing the oil companies to unilaterally set,increase or decrease their prices, is valid orconstitutional.

Under the Constitution, 3 this Court has inappropriate cases the DUTY, not just the power,to determine whether a law or a part thereofoffends the Constitution and, if so, to annul and setit aside. 4Because a serious challenge has beenhurled against the validity of one such law, namelyRA 8180 its criticality having beenpreliminarily determined from the petition,comments, reply and, most tellingly, the oral

argument on September 30, 1997

this Court, inthe exercise of its mandated judicial discretion,issued the status quo order to prevent thecontinued enforcement and implementation of alaw that was prima faciefound to beconstitutionally infirm. Indeed, after careful finaldeliberation, said law is now ruled to beconstitutionally defective thereby disablingrespondent oil companies from exercising theirerstwhile power, granted by such defectivestatute, to determine prices by themselves.

Concededly, this Court has no power to pass uponthe wisdom, merits and propriety of the acts of itsco-equal branches in government. However, itdoes have the prerogative to uphold theConstitution and to strike down and annul a lawthat contravenes the Charter. 5 From such dutyand prerogative, it shall never shirk or shy away.

By annulling RA 8180, this Court is not making a

policy statement against deregulation. Quite thecontrary, it is simply invalidatinga pseudo deregulation law which in realityrestrains free trade and perpetuates a cartel, anoligopoly. The Court is merely upholdingconstitutional adherence to a truly competitiveeconomy that releases the creative energy of free

enterprise. It leaves to Congress, as the policy-setting agency of the government, the speedycrafting of a genuine, constitutionally justified oideregulation law.

2. Everyone, Rich or Poor, Must Share in the

Burdens of Economic Dislocation

Much has been said and will be said about thealleged negative effect of this Court's holding onthe oil giants' profit and loss statements. We arenot unaware of the disruptive impact of thedepreciating peso on the retail prices of refinedpetroleum products. But such price-escalatingconsequence adversely affects not merely these oicompanies which occupy hallowed places amongthe most profitable corporate behemoths in ourcountry. In these critical times of widespreadeconomic dislocations, abetted by currency

fluctuations not entirely of domestic origin, alsectors of society agonize and suffer. Thuseveryone, rich or poor, must share in the burdensof such economic aberrations.

I can understand foreign investors who see theseprice adjustments as necessary consequences othe country's adherence to the free market, forthat, in the first place, is the magnet for theirpresence here. Understandably, their concern islimited to bottom lines and market share. But inall these mega companies, there are also Filipinoentrepreneurs and managers. I am sure there are

patriots among them who realize that, in times ofeconomic turmoil, the poor and theunderprivileged proportionately suffer more thanany other sector of society. There is a certainthreshold of pain beyond which the disadvantagedcannot endure. Indeed, it has been wisely said that"if the rich who are few will not help the poor whoare many, there will come a time when the fewwho are filled cannot escape the wrath of themany who are hungry." Kaya't sa mga kababayannating kapitalista at may kapangyarihan

nararapat lamang na makiisa tayo sa mga walang


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palad at mahihirap sa mga araw ng

pangangailangan. Huwag na nating ipagdiinan angkawalan ng tubo, o maging and panandaliang

pagkalugi.At sa mga mangangalakal na ganid atwalang puso: hirap na hirap na po ang ating mgakababayan. Makonsiyensya naman kayo!

KAPUNAN,J., separate opinion:

Lately, the Court has been perceived (albeiterroneously) to be an unwelcome interloper inaffairs and concerns best left to legislators andpolicy-makers. Admittedly, the wisdom of politicaland economic decisions are outside the scrutiny ofthe Court. However, the political question doctrineis not some mantra that will automatically cloakexecutive orders and laws (or provisions thereof)with legitimacy. It is this Court's bounden dutyunder Sec. 4(2), Art. VIII of the 1987 Constitutionto decide all cases involving the constitutionalityof laws and under Sec. 1 of the same article, "todetermine whether or not there has been a grave

abuse of discretion amounting to lack or excess ofjurisdiction on the part of any branch orinstrumentality of the Government."

In the instant case, petitioners assail theconstitutionality of certain provisions found inR.A. No 8180, otherwise known as the"Downstream Oil Industry Deregulation Act of1996" To avoid accusations of undue interferencewith the workings of the two other branches ofgovernment, this discussion is limited to the issueof whether or not the assailed provisions aregermane to the law or serve the purpose for which

it was enacted.

The objective of the deregulation law is quitesimple. As aptly enunciated in Sec. 2 thereof, it isto "foster a truly competitive market which canbetter achieve the social policy objectives of fairprices and adequate, continuous supply ofenvironmentally-clean and high quality petroleumproducts." The key, therefore, is freecompetition which is commonly defined as:

The act or action of seeking to gain whatanother is seeking to gain at the sametime and usually under or as if under fairor equitable rules and circumstances: acommon struggle for the same objectespecially among individuals of relativelyequal standing . . . a market condition inwhich a large number of independentbuyers and sellers compete for identicalcommodity, deal freely with each other,and retain the right of entry and exit fromthe market. (Webster's ThirdInternational Dictionary.)

and in a landscape where our oil industry isdominated by only three major oil firms, thistranslates primarily into the establishment of afree market conducive to the entryofnewand severaland oil companies in thebusiness. Corollarily, it means the removal of anyand all barriers that will hinder the influx oprospective players. It is a truism in economicsthat if there are many players in the market

healthy competition will ensue and in order tosurvive and profit the competitors will try tooutdo each other in terms of quality and price. Theresult: better quality products and competitiveprices. In the end, it will be the public that benefits(which is ultimately the most important goal ofthe law). Thus, it is within this framework that wemust determine the validity of the assailedprovisions.

I

The 4% Tariff Differential

Sec. 5. Liberalization of Downstream OilIndustry and Tariff Treatment.

xxx xxx xxx

b) Any law to the contrarynotwithstanding and starting with theeffectivity of this Act, tariff duty shall beimposed and collected on imported crudeoil at the rate of three percent (3%) andimported refined petroleum products atthe rate of seven percent (7%), exceptfuel oil and LPG, the rate for which shalbe the same as that for imported crudeoil: Provided, That beginning on January1, 2004 the tariff rate on imported crudeoil and refined petroleum products shalbe the same: Provided, further, That thisprovision may be amended only by an Actof Congress;

Respondents are one in asserting that the 4%tariff differential between imported crude oil andimported refined petroleum products is intended

to encourage the new entrants to put up their ownrefineries in the country. The advantages odomestic refining cannot be discounted, but wemust view this intent in the proper perspectiveThe primary purpose of the deregulation law is toopen up the market and establish freecompetition. The priority of the deregulation lawtherefore, is to encourage new oil companies tocome in first. Incentives to encourage the buildingof local refineries should be provided afterthenew oil companies have entered the Philippinemarket and are actively participating therein.


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The threshold question therefore is, is the 4%tariff differential a barrier to the entry of new oilcompanies in the Philippine market?

It is. Since the prospective oil companies do not(as yet) have local refineries, they would have toimport refined petroleum products, on which a7% tariff duty is imposed. On the other hand, theexisting oil companies already have domestic

refineries and, therefore, only import crude oilwhich is taxed at a lower rate of 3%. Tariffs arepart of the costs of production. Hence, this meansthat with the 4% tariff differential (whichbecomes an added cost) the prospective playerswould have higher production costs compared tothe existing oil companies and it is precisely thisfactor which could seriously affect its decision toenter the market.

Viewed in this light, the tariff differential betweenimported crude oil and refined petroleumproducts becomes an obstacle to the entry of new

players in the Philippine oil market. It defeats thepurpose of the law and should thus be struckdown.

Public respondents contend that ". . . a higher tariffrate is not the overriding factor confronting aprospective trader/importer but, rather, hisability to generate the desired internal rate ofreturn (IRR) and net present value (NPV). In otherwords, if said trader/importer, after somecalculation, finds that he can match the price oflocally refined petroleum products and still earnthe desired profit margin, despite a higher tariff

rate, he will be attracted to embark in suchbusiness. A tariff differential does notper se makethe business of importing refined petroleumproduct a losing proposition." 1

The problem with this rationale, however, is thatit is highly speculative. The opposite may wellhold true. The point is to make the prospect ofengaging in the oil business in the Philippinesappealing, so why create a barrier in the firstplace?

There is likewise no merit in the argument thatthe removal of the tariff differential will revive the10% (for crude oil) and 20% (for refinedpetroleum products) tariff rates that prevailedbefore the enactment of R.A. No. 8180. Whatpetitioners are assailing is the tariff differential.Phrased differently, why is the tariff duty imposedon imported petroleum products not the same asthat imposed on imported crude oil? Declaring thetariff differential void is not equivalent todeclaring the tariff itself void. The obviousconsequence thereof would be that importedrefined petroleum products would now be taxed

at the same rate as imported crude oil which R.ANo. 8180 has specifically set at 3%. The old rateshave effectively been repealed by Sec. 24 of thesame law. 2

II

The Minimum Inventory Requirement and the

Prohibition Against Predatory Pricing

Sec. 6. Security of Supply. To ensurethe security and continuity of petroleumcrude and products supply, the DOE shalrequire the refiners and importers tomaintain a minimum inventoryequivalent to ten percent (10%) of theirrespective annual sales volume or forty(40) days of supply, whichever is lower.

xxx xxx xxx

Sec. 9. Prohibited Acts. To ensure faircompetition and prevent cartels andmonopolies in the downstream oiindustry, the following acts are herebyprohibited:

xxx xxx xxx

b) Predatory pricing which means sellingor offering to sell any product at a priceunreasonably below the industry averagecost so as to attract customers to thedetriment of competitors.

The same rationale holds true for the two otherassailed provisions in the Oil Deregulation lawThe primordial purpose of the law, I reiterate, is tocreate a truly free and competitive market. Toachieve this goal, provisions that show thepossibility, or even the merest hint, of deterring orimpeding the ingress of new blood in the marketshould be eliminated outright. I am confident thatour lawmakers can formulate other measures thawould accomplish the same purpose (insuresecurity and continuity of petroleum crudeproducts supply and prevent fly by night

operators, in the case of the minimum inventoryrequirement, for instance) but would not have onthe downside the effect of seriously hindering theentry of prospective traders in the market.

The overriding consideration, which is the publicinterest and public benefit, calls for the levelling othe playing fields for the existing oil companiesand the prospective new entrants. Only whenthere are many players in the market will freecompetition reign and economic developmentbegin.


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Consequently, Section 6 and Section 9(b) of R. A.No. 8180 should similarly be struck down.

III

Conclusion

Respondent oil companies vehemently deny the"cartelization" of the oil industry. Their parallel

business behaviour and uniform pricing are theresult of competition, they say, in order to keeptheir share of the market. This rationale fares wellwhen oil prices are lowered, i.e. when one oilcompany rolls back its prices, the others followsuit so as not to lose its market. But how comewhen one increases its prices the others likewisefollow? Is this competition at work?

Respondent oil companies repeatedly assert thatdue to the devaluation of the peso, they had toincrease the prices of their oil products,otherwise, they would lose, as they have allegedly

been losing specially with the issuance of atemporary restraining order by the Court.However, what we have on record are only theself-serving lamentations of respondent oilcompanies. Not one has presented hard data,independently verified, to attest to these losses.Mere allegations are not sufficient but must beaccompanied by supporting evidence. Whatprobably is nearer the truth is that respondent oilcompanies will not make as much profits as theyhave in the past if they are not allowed to increasethe prices of their products everytime the value ofthe peso slumps. But in the midst of worsening

economic difficulties and hardships suffered bythe people, the very customers who have giventhem tremendous profits throughout the years, isit fair and decent for said companies not to bear abit of the burden by forgoing a little of theirprofits?

PREMISES CONSIDERED, I vote that Section 5(b),Section 6 and Section 9(b) of R.A. No. 8180 bedeclared unconstitutional.

MELO,J., dissenting:

With all due respect to my esteemed colleague,Mr. Justice Puno, who has, as usual, prepared awell-written and comprehensive ponencia, I regretI cannot share the view that Republic Act No. 8180should be struck down as violative of theConstitution.

The law in question, Republic Act No. 8180,otherwise known as the Downstream OilDeregulation Act of 1996, contains, inter alia, the

following provisions which have become thesubject of the present controversy, to wit:

Sec. 5. Liberalization of Downstream OilIndustry and Tariff Treatment.

xxx xxx xxx

(b). Any law to the contrary

notwithstanding and starting with theeffectivity of this act, tariff duty shall beimposed and collected on imported crudeoil at the rate of (3%) and importedrefined petroleum products at the rate ofseven percent (7%), except fuel oil andLPG, the rate for which shall be the sameas that for imported crudeoil: Provided, That beginning on January1, 2004 the tariff rate on imported crudeoil and refined petroleum products shalbe the same: Provided, further, That thisprovision may be amended only by an Act

of Congress. . .

Sec. 6. Security of Supply. To ensurethe security and continuity of petroleumcrude and products supply, the DOE shalrequire the refiners and importers tomaintain a minimum inventoryequivalent to ten percent (10%) of theirrespective annual sales volume or forty(40) days of supply, whichever is lower.

xxx xxx xxx

Sec. 9. Prohibited Acts. To ensure faircompetition and prevent cartels andmonopolies in the downstream oiindustry, the following acts are herebyprohibited:

xxx xxx xxx

b) Predatory pricing which means sellingor offering to sell any product at a priceunreasonably below the industry averagecost so as to attract customers to the

detriment of competitors.

xxx xxx xxx

Sec. 15. Implementation of FulDeregulation. Pursuant to Section 5(e)of Republic Act No. 7638, the DOE[Department of Energy] shall, uponapproval of the President, implement thefull deregulation of the downstream oiindustry not later than March 1997. As faras practicable, the DOE shall time the ful


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deregulation when the prices of crude oiland petroleum products in the worldmarket are declining and when theexchange rate of the peso in relation tothe US Dollar is stable. . .

In G. R. No. 124360, petitioners therein pray thatthe aforequoted Section 5(b) be declared null andvoid. However, despite its pendency, President

Ramos, pursuant to the above-cited Section 15 ofthe assailed law, issued Executive Order No. 392on 22 January 1997 declaring the full deregulationof the downstream oil industry effective February8, 1997. A few days after the implementation ofsaid Executive Order, the second consolidatedpetition was filed (G.R. No. 127867), seeking, interalia, the declaration of the unconstitutionality ofSection 15 of the law on various grounds.

I submit that the instant consolidated petitionsshould be denied. In support of my view, I shalldiscuss the arguments of the parties point by

point.

1. The instant petitions do not raise a justiciablecontroversy as the issues raised therein pertain to

the wisdom and reasonableness of the provisions of

the assailed law. The contentions made bypetitioners, that the "imposition of different tariffrates on imported crude oil and imported refinedpetroleum products will not foster a trulycompetitive market, nor will it level the playingfields" and that said imposition "does notderegulate the downstream oil industry, instead, itcontrols the oil industry, contrary to the avowed

policy of the law," are clearly policy matters whichare within the province of the politicaldepartments of the government. Thesesubmissions require a review of issues that are inthe nature of political questions, hence, clearlybeyond the ambit of judicial inquiry.

A political question refers to a question of policyor to issues which, under the Constitution, are tobe decided by the people in their sovereigncapacity, or in regard to which full discretionaryauthority has been delegated to the legislative orexecutive branch of the government. Generally,

political questions are concerned with issuesdependent upon the wisdom, not the legality, of aparticular measure (Taada vs. Cuenco, 100 Phil101 [1957]).

Notwithstanding the expanded judicial power ofthis Court under Section 1, Article VIII of theConstitution, an inquiry on the above-stated policymatters would delve on matters of wisdom whichare exclusively within the legislative powers ofCongress.

2. The petitioners do not have the necessary locusstandi to file the instant consolidated petitions

Petitioners Lagman, Arroyo, Garcia, Tanada, andTatad assail the constitutionality of the above-stated laws through the instant consolidatedpetitions in their capacity as members oCongress, and as taxpayers and concernedcitizens. However, the existence of a constitutionalissue in a case does notper se confer or clothe a

legislator with locus standi to bring suitIn Phil. Constitution Association (PHILCONSA)v. Enriquez(235 SCRA 506 [1994]), we held thatmembers of Congress may properly challenge thevalidity of an official act of any department of thegovernment only upon showing that the assailedofficial act affects or impairs their rights andprerogatives as legislators. In Kilosbayan, Inc., eal. vs. Morato, et al.(246 SCRA 540 [1995]), thisCourt further clarified that "if the complaint is notgrounded on the impairment of the power ofCongress, legislators do not have standing toquestion the validity of any law or official action."

Republic Act No. 8180 clearly does not violate orimpair prerogatives, powers, and rights oCongress, or the individual members thereofconsidering that the assailed official act is the veryact of Congress itself authorizing the fulderegulation of the downstream oil industry.

Neither can petitioners sue as taxpayers orconcerned citizens. A condition sine qua non forthe institution of a taxpayer's suit is an allegationthat the assailed action is an unconstitutionaexercise of the spending powers of Congress or

that it constitutes an illegal disbursement of publicfunds. The instant consolidated petitions do notallege that the assailed provisions of the lawamount to an illegal disbursement of publicmoney. Hence, petitioners cannot, even astaxpayers or concerned citizens, invoke thisCourt's power of judicial review.

Further, petitioners, including Flag, FDC, andSanlakas, can not be deemed proper parties forlack of a particularized interest or elementasubstantial injury necessary to confer onthem locus standi. The interest of the person

assailing the constitutionality of a statute must bedirect and personal. He must be able to show, notonly that the jaw is invalid, but also that he hassustained or is in immediate danger of sustainingsome direct injury as a result of its enforcementand not merely that he suffers thereby in someindefinite way. It must appear that the personcomplaining has been or is about to be deniedsome right or privilege to which he is lawfullyentitled or that he is about to be subjected to someburdens or penalties by reason of the statute


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complained of Petitioners have not establishedsuch kind of interest.

3. Section 5 (b) of Republic Ac

tatad vs energy 124360.docx

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