Representative Amado S. Bagatsing vs. Committee on Privatization, Philippine National Oil Company, et al.
**Facts:**
PETRON was originally a subsidiary of Esso Eastern, Inc. and Mobil Petroleum Company, Inc. acquired by the Philippine government in 1973. In 1986, President Corazon Aquino initiated the privatization of government assets, including PETRON. In 1992-1993, the government, under Proclamation No. 50, endorsed PETRON’s privatization, notably 65% of its shares. On December 15, 1993, a public bidding was held where ARAMCO won with a bid of US$502 million. Procedural motions, appeals, and arguments regarding the validity and regularity of the bidding ensued in various courts before reaching the Supreme Court.
**Issues:**
1. Whether the privatization of PETRON contravened the policy of selling only non-performing government assets.
2. Whether the bidding process was regular and valid.
3. Whether PETRON should first have offered 10% of its shares to small investors before the 40% block sale to ARAMCO.
4. Whether foreign ownership constraints on public utilities applied to PETRON.
**Court’s Decision:**
1. **Non-Performing Asset Argument:**
– The Court held that Proclamation No. 50 did not restrict privatization to non-performing assets only. Furthermore, PETRON, although a performing asset, was deemed by PNOC as unnecessary for government retention, thus justifying its privatization.
2. **Regularity of the Bidding:**
– The Court found that there was no failed bidding since multiple bids were initially submitted. Even though some bids were disqualified, the existence of multiple offerors initially invalidated claims of a failed auction. The procedure followed by PNOC and COP was in accordance with standard guidelines and thus upheld.
3. **10% Shares to Small Investors:**
– The Court interpreted Section 2(d) of R.A. No. 7181 as not mandating a sequencing of share sales. It held that while small investors should get a right of first refusal regarding 10% of shares, this does not preclude the immediate sale of a larger block to strategic investors such as ARAMCO.
4. **Foreign Ownership Constraint:**
– The refining of imported crude oil by PETRON does not fall under the definition of a “public utility” under Section 11, Article XII of the Constitution and Section 7 of R.A. No. 387 (Petroleum Act of 1949). Hence, ARAMCO’s involvement did not breach foreign ownership regulations.
**Doctrine:**
The Court upheld the principles of market flexibility within the privatization framework and the irrelevance of non-performing status in asset privatization. It also clarified the scope of “public utility” under existing constitutional and legislative provisions regarding ownership and operation.
**Class Notes:**
– **Privatization Law (Proclamation No. 50, R.A. No. 7181):** Understanding of government’s flexibility in privatization; non-restriction to non-performing assets; sequencing not mandatory.
– **Bidding Process:** Legal parameters for competitive bidding and failure conditions as per COA Circular No. 89-296.
– **Public Utility Definition:** Legal differentiation between activities qualifying as “public utility” and those that do not.
**Statutory Provisions:**
– **Proclamation No. 50:** Particularly Sections 1, 4(a), and 5.
– **R.A. No. 7181 (Section 2(c), Section 2(d)):** Strategic industry privatization approval and 10% share offer to small investors.
– **Constitution (Section 11, Article XII):** Foreign ownership and governance constraints in public utilities.
**Historical Background:**
The case arose post-1986 People Power Revolution, marking a transition from state-controlled to privatized economy under President Aquino. This deregulation aimed at lessening government burden in businesses better managed by private entities and bolstering public sector efficiency, matched with the vision of then President Ramos to make significant strides in privatization for economic reform and investment encouragement.
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