Eastern to seek DOE-DOJ intervention vs Petron

By Paul Anthony A. Isla, Business Mirror

Posted at Jul 21 2011 07:29 AM | Updated as of Jul 21 2011 03:29 PM

MANILA, Philippines - Eastern Petroleum is all set to launch on July 28 its megastation inside the Subic Bay Freeport Zone. Eastern Petroleum owns 45% of the megastation; various local investors own the remaining 55%.

Fernando Martinez, Eastern Petroleum chairman and chief executive, said it will only be a soft launch because the company is still engaged in a legal tussle with Petron, which is opposing the megastation.

Martinez said Petron petitioned the Regional Trial Court in Olongapo, Zambales, last month for a temporary restraining order (TRO) and an injunction against Eastern Petroleum and the Subic Bay Metropolitan Authority (SBMA) in connection with the megastation.

The court did not grant the TRO, Martinez said, but the preliminary injunction is still to be ruled on. Hearings are being held weekly on it.

To resolve the issue once and for all, Eastern Petroleum will file a case of its own against Petron and its officials.

Martinez said his company will seek help from the Department of Energy-Department of Justice Task Force to stop Petron once and for all from seeking to prevent the launch and operation of its megastation. He said his company will submit its complaint to the task force on Thursday.

Martinez said that under a deregulated environment, as created by the Deregulation Act of 1988, no oil company should oppose another oil company’s expansion program.

Petron and Petron Freeport Corp.—its gas retail station operator in SBFZ—claim to have exclusive rights over an 800-meter radius that prohibits anyone from putting up and operating a similar gas retail station in the area.

Last January, Martinez said Petron signed another lease agreement with the SBMA, which had a provision waiving the prohibition of establishing a gas retail station within its claimed exclusive area.

The provision reads: “In accordance with Board Resolution 09-08-3260 by the SBMA Board on August 20, 2010, the lessee (Petron) shall issue a written waiver in favor of Eastern Petroleum on the prohibition on the establishment of a gas station within the 800-meter radius of Petron’s leased facility, which it shall deemed to have given by its signing of the lease.”

Eastern’s megastation project is located in front of Petron’s retail station.

But Martinez said Petron now claims it made an “honest mistake” in allowing Eastern to build the station, saying that it had no authority to waive the exclusivity right as Petron Freeport is the one that operates the retail station in SBFZ.

Martinez noted that Petron Freeport is wholly owned by Petron and that the waiver was even signed by Emmanuel Erana, Petron senior vice president.

Martinez claims Petron and Petron Freeport committed the “crime of cartelization” and that the directors and senior management of Petron and Petron Freeport “knowingly permitted or failed to prevent the crime.”

Section 11 of the Oil Deregulation Act of 1998 defines “Cartelization as any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including an contractual stipulation which prescribe pricing levels and profit margins.”

Named as respondents to Eastern Petroleum’s complaint are Erana, Petron Chairman Ramon Ang and President Eric Recto, among others.

In a press statement, Erana said there are 14 service stations in and around Subic Bay owned by different oil companies.

“When we invested in Subic in 2003, we took a gamble since the area at that time was underdeveloped. As an incentive for us, there was a provision approved by the SBMA Board stating that no similar business would be established within a limited 800-meter radius of our facility,” he said.

Erana said Petron entered into the business venture and invested a substantial amount for a gasoline station and affiliate businesses in the area without certainty of progress and recovery, which is standard provision for several investment locations such as Subic and Fort Bonifacio.

Erana said Martinez was well aware of this limited exclusivity contained in the 25-year lease agreement, which started in 2003 between Petron and SBMA, and yet he still pursued the construction of the facility.

“Martinez’s complaint is clearly a reaction to Petron’s filing of a case against Eastern Petroleum and SBMA in Olongapo. Petron and Petron Freeport Corporation filed the case to protect their contractual rights that are being violated by Eastern Petroleum and SBMA,” Erana said.

He noted that the complaint of cartelization takes the issue completely out of context.

Erana said: “The issue here is a basic contractual agreement between two parties namely Petron and SBMA for a limited exclusivity of 800 meters. Again, this was an incentive provided for when the area was underdeveloped and Petron invested taking a gamble in Subic.”

“We welcome this action taken by Eastern Petroleum so we can settle this issue once and for all. The contract in question remains valid and should be enforced as agreed upon by both parties. One simply cannot change the rules of the game in mid-stream to suit one’s interests,” he said.