Petron’s Full Privatization: An Act of Desperation, a Fulfillment of Oil Deregulation

Ten years ago, Petron was partly privatized when the Arabian American Oil Company (ARAMCO) bought 40% of its equity. The private sector got another 20% through an initial public offering (IPO). Now, the government wants to sell its 40% stake in a desperate bid to raise money, as well as strengthen the deregulation of the oil industry.

By DANILO ARAÑA ARAO
Bulatlat.com

The Arroyo administration plans to sell 3.75 million government shares in Petron Corporation worth P6 billion ($112.5 million, based on an exchange rate of P53.34 per US dollar). This means that government will give up its 40% stake in Petron, giving the private sector total control of the oil company.

At a time when the budget deficit is projected to reach P202 billion ($3.8 billion) this year, the government appears to be getting desperate.

No less than Socioeconomic Planning Secretary Romulo Neri admits that while he does not have the details, Petron’s sale is “part of the government's privatization plan.” He adds, “In line with our privatization policies, (Petron is) better left to the private sector.”

Just recently, there were reports that the Presidential Commission on Good Government (PCGG) will also sell “sequestered shares” in 26 companies (i.e., 8 listed, 18 privately held).

Though the PCGG has not yet disclosed the actual worth of all the sequestered shares that will be sold in line with its privatization program, the 8.4 million government shares in Chemfields, Inc. and the 12,445 government shares in Oceanic Wireless Network, Inc. are worth P205 million ($3.8 million) and P80.27 million ($1.5 million), respectively.

The planned total sale of Petron to the private sector is not just an issue of money, though this is the Arroyo administration’s primary concern. In the context of the government’s development policy, Petron’s full privatization is a natural consequence of the deregulation of the downstream oil industry.

What Petron went through

Petron Corporation was established in 1973 as a marketing arm of the Philippine National Oil Company (PNOC).

Initially a government-owned corporation, it aimed to compete with foreign oil firms like Pilipinas Shell and Caltex which started operations in the country in 1914 and 1921, respectively. Other oil companies pulled out of the country in 1973 (Esso and Filoil), 1980 (Getty) and 1983 (Mobil).

In 1993, Petron’s partial privatization started when 40% of its total equity was sold to the Arabian American Oil Company (ARAMCO).

The Standard Oil of California (SOCAL) and Texas Corporation (TEXACO) established ARAMCO in the early 1930s. Other transnational oil firms Exxon at Mobil also invested in ARAMCO. The latter currently operates Ghamar Field in Saudi Arabia, the world’s largest single oil field.

Aside from the deal with ARAMCO, 20% of Petron’s equity was sold to the private sector through an initial public offering (IPO).

The private sector took interest in the company since it continued to reap profits through the years. From 1992 to 2002, Petron’s net income reached P27.3 billion ($511.8 million). Except for the years 1997 and 2000 when the company reported losses, its yearly profits ranged from P1.2 billion ($22.5 million) to P7.5 billion ($140.6 million). (See Table)

Analyzing downstream oil deregulation

The history of Petron is closely related to the oil industry’s restructuring.

The deregulation of the downstream oil industry started in April 1996 through the enactment of Republic Act (RA) No. 8180. However, the Supreme Court (SC) declared this law unconstitutional in November 1997. The SC justices said there were provisions that failed to promote free competition, like the minimum inventory requirement for oil companies and the higher tariff on imported refined petroleum products (7% ad valorem tax) compared to imported crude oil (4%).

In February 1998, the Ramos administration approved RA 8479, the second law on downstream oil deregulation.

According to the government, deregulation is necessary to depoliticize the pricing of petroleum products. Officials argue that the public must be acclimatized to frequent oil price changes based on the foreign exchange rate and world crude prices.

For them, competition among the oil companies will result in lower prices and better services. In the final analysis, the consumer will reportedly benefit due to increased choices.

In relation to the Arroyo administration’s globalization thrust, the continued 40% government ownership in Petron becomes an impediment to free competition in the downstream oil industry.

Since the government wants minimal intervention in the economy, privatization becomes an instrument to allow the private sector, which includes the foreign investors, to have control of different areas of the economy.

Indeed, there is more to the reported sale of Petron’s government shares than just simply raising funds to offset the ballooning deficit. The government’s deregulation policy plays an important role in allowing the private sector to wield more power over the downstream oil industry, no matter how important it is to the people and the country’s energy needs. Bulatlat.com

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