SC proposes review of oil deregulation law

THE Supreme Court (SC) is pitching to Malacañang, the Senate and the House of Representatives a review of the Oil Deregulation Law since the government no longer has control over escalating prices of petroleum products.

The High Tribunal pointed out that the government cannot be faulted for successive oil price hikes after the passage of the law.

Under question is a provision in Presidential Decree (PD) 454 that authorizes “adjustment of contract prices for government projects under certain conditions.”

“Considering the deregulation of the oil industry and the removal of price control on gasoline and other fuel oils, we believe that the wisdom behind Section 1 of PD 454 may no longer hold true. Government is significantly less responsible today for the price of gasoline and other fuel oils, as well as cement, than it used to be. The dynamics of pricing of these commodities has changed dramatically. This law merits a thorough reevaluation. Congress and the executive department, it is suggested, must look at whether this policy should be maintained,” the Supreme Court stated in its ruling in the case of Philippine Economic Zone Authority (PEZA) vs. Green Asia Construction and Development Corp.

According to the High Tribunal, “It will appear strange, to today’s consumer, that the government would automatically accept — nay, decree under the express terms of PD 454 — that ‘the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the government,’ such that the effects of these price increases in the form of escalation of the prices of contracts with the government would be absorbed by it and, indirectly, by the taxpayer. It would appear that the context in which this policy decision to absorb costs from price increases was made in an era in which the government was strictly monitoring oil, cement and gasoline prices, and was itself controlling the price of oil before the Downstream Oil Deregulation Law was passed.”

It made the suggestion to the executive and legislative departments after it sustained a Court of Appeals decision ordering PEZA to pay the claims of Green Asia Construction for a road network and drainage system in 1992.

In the decision, the High Tribunal’s Second Division held that the appellate court was right when it ruled in favor of Green Asia ordering PEZA to pay the construction firm’s claim, “subject to its verification by PEZA using the parametric formula provided.”

But the price escalation claimed by the company was denied.

“The contract between PEZA and Green Asia did not incorporate provisions prohibiting price escalation or any clause that may be interpreted as a waiver of the price escalation,” the Supreme Court ruling, penned by Associate Justice Maria Lourdes Sereno, said.

“Consequently, payment of price escalation is deemed to have included the provision for the payment of price escalation,” it added.

The July 15, 2009 decision of the appellate court held that PEZA “is liable to pay interest upon the total unpaid claims at the legal interest of 6 percent per annum reckoned from the date Green Asia made the final demand notice on August 6, 2007 up to finality of this decision, and 12 percent interest from its finality up to full payment.”

Records of the case showed that the petitioner PEZA, formerly the Export Processing Zone Authority (EPZA), and respondent Green Asia were parties to a contract for a road network/storm drainage project.

The project was awarded to Green Asia on September 14, 1992 with a contract price of P130.595 million.

The stipulations in the contract included the contract price, the mode of payment, advance payment and progress payment.

These stipulations found in Articles III to VI of the contract comprised all the liabilities pertaining to EPZA.

EPZA was later on effectively succeeded by PEZA.

On 26 March 1996, Green Asia sent a letter to the PEZA Director General through lawyer Eugenio Vigo, Project Director for Construction of the PEZA Development Project.

The letter, invoking PD 1594, notified PEZA of Green Asia’s claim for price escalation in the amount of P9.860 million.

This claim was denied by PEZA through a letter signed by the Acting Corporate Secretary and lawyer Nestor Hun Nadal.

The denial of the claim was anchored on Section 8, PD 1594, requiring proof of the increase or decrease in construction cost due to the direct acts of the government.

Despite the denial, Green Asia insisted on its claim and followed it up with three letters to PEZA from 1997 to 2000.

Through PEZA Director General Lilia de Lima, the agency reiterated the denial of the claim.

Escalating cost

Because of these repeated denials, Green Asia made a “final demand,” which was received by PEZA on November 29, 2006, and included in the demand P2.5 million for the price escalation of another project with legal interest and a collection fee of 1 percent of the total amount due.

The exchanges of correspondence pertaining to Green Asia’s claim continued until 2006.

In August 2007, Green Asia sent to PEZA another notice, labeled “final demand notice,” a copy of which was furnished to the Office of the President (OP).

This notice was for unpaid claims for the price escalation of the road network and drainage system in the amount of P 9.860 million as well as for the sewage treatment plant amounting to P2.5 million.

Green Asia disagreed with PEZA and posited that the fact that the contract stipulated a fixed price did not mean that it was the final receivable amount for the contractor.

After summary proceedings in the OP, the case was decided in favor of Green Asia.

No repeal of PD

The appellate court then sustained the OP decision, finding that the OP’s construction of PD 1594, in connection with PD 454, was proper.

Since PD 454 was not expressly repealed by PD 1594, and since there was no apparent conflict between the two laws, the court deemed it best to harmonize them.

The result was again a favorable decision for Green Asia.

The OP decision, however, was modified by the appellate court as to the amount of the price escalation awarded to Green Asia.

Citing paragraphs 6 and 7, of implementing guidelines of PD 1594, the appellate court ordered the parties to compute the price escalation using the parametric formula provided therein.

It found that petitioner correctly faulted the OP for ordering the payment of respondent’s claim for price escalation in the sum of P12.360 million — with legal interest from respondent’s August 6, 2007 demand — despite the absence of showing of how the amount was computed. –Jomar Canlas, Reporter, Manila Times