D E C I S I O N
(En Banc)
PUNO, J.:
I.
THE FACTS
Petitioners assailed §5(b) and §15 of R.A. No. 8180, the Downstream Oil
Industry Deregulation Act of 1996.
§5(b) of the law provided that “tariff duty shall be imposed . . . on
imported crude oil at the rate of three percent (3%) and imported refined
petroleum products at the rate of seven percent (7%) . . .” On the other
hand, §15 provided that “[t]he DOE shall, upon
approval of the President, implement the full deregulation of the downstream
oil industry not later than March 1997. As far as practicable, the DOE shall time the full deregulation
when the prices of crude oil and petroleum products in the world market
are declining and
when the exchange rate of the peso in relation to the US dollar is stable . . .”
Petitioners argued that §5(b) on tariff differential
violates the provision of the Constitution requiring
every law to have only one subject which should be expressed in its title.
They also
contended 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” are ambivalent, unclear and inconcrete since they do not provide determinate
or determinable standards that can guide the President in his decision to fully
deregulate the downstream oil industry.
Petitioners also
assailed the President’s E.O. No. 392, which proclaimed the full deregulation
of the downstream oil industry in February 1997.
They argued that the Executive
misapplied R.A. No. 8180 when it considered the depletion of the OPSF fund as a
factor in the implementation of full deregulation.
Finally, they asserted
that the law violated §19, Article XII of the Constitution prohibiting
monopolies, combinations in restraint of trade and unfair competition
II.
THE ISSUES
1. Did
§5(b) violate the one title-one subject
requirement of the Constitution?
2. Did §15
violate the constitutional prohibition on undue delegation of power?
3. Was E.O. No. 392
arbitrary and unreasonable?
4. Did R.A. No.
8180 violate §19, Article XII of the Constitution prohibiting
monopolies, combinations in restraint of trade and unfair competition?
III.
THE RULING
[The Court GRANTED the petition. It DECLARED
R.A. No. 8180 unconstitutional and
E.O. No. 372 void.]
1. NO,
§5(b) DID NOT violate the one title-one
subject requirement of the Constitution.
As a policy, this Court has
adopted a liberal construction of the one title-one subject rule. [T]he title need not mirror,
fully index or catalogue all contents and minute details of a law. A law having
a single general subject indicated in the title may contain any number of
provisions, no matter how diverse they may be, so long as they are not
inconsistent with or foreign to the general subject, and may be considered in
furtherance of such subject by providing for the method and means of carrying
out the general subject. [S]ection 5(b) providing
for tariff differential is germane to the subject of R.A. No. 8180 which is the
deregulation of the downstream oil industry. The section is supposed to sway
prospective investors to put up refineries in our country and make them rely
less on imported petroleum.
2. NO, §15
DID NOT violate the constitutional prohibition on undue delegation of power.
Two tests have been developed to
determine whether the delegation of the power to execute laws does not involve
the abdication of the power to make law itself. We delineated the metes and
bounds of these tests in Eastern Shipping Lines, Inc. VS. POEA,
thus:
There are two accepted tests to determine whether
or not there is a valid delegation of legislative power, viz: the
completeness test and the sufficient standard test. Under the first test, the law
must be complete in all its terms and conditions when it leaves the legislative
such that when it reaches the delegate the only thing he will have to do is to
enforce it. Under the sufficient standard test, there must be adequate
guidelines or limitations in the law to map out the boundaries of the
delegate's authority and prevent the delegation from running riot. Both tests
are intended to prevent a total transference of legislative authority to the
delegate, who is not allowed to step into the shoes of the legislature and
exercise a power essentially legislative.
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Section 15 can hurdle both the completeness
test and the sufficient standard test.
It will be noted that Congress expressly provided in R.A. No. 8180 that full
deregulation will start at the end of March 1997, regardless of the occurrence
of any event. Full deregulation at the end of March 1997 is mandatory and
the Executive has no discretion to postpone it for any purported reason.
Thus, the law is complete on the question of the final date of full
deregulation. The discretion given to the President is to advance the
date of full deregulation before the end of March 1997. Section 15 lays down
the standard to guide the judgment of the President --- he is to time
it as far as practicable when the prices of crude oil and petroleum
products in the world market are declining and when the exchange rate of
the peso in relation to the US dollar is stable.
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 scant
consideration. The dictionary meanings of these words are well settled
and cannot confuse men of reasonable intelligence. Webster defines “practicable”
as meaning possible to practice or perform, “decline” as meaning to take a
downward direction, and “stable” as meaning firmly established. The fear of
petitioners that these words will result in the exercise of executive
discretion that will run riot is thus groundless. To be sure, the
Court has sustained the validity of similar, if not more general standards
in other cases.
3. YES, E.O. No.
392 was arbitrary and unreasonable.
A
perusal of section 15 of R.A. No. 8180 will readily reveal that it only
enumerated two factors to be considered by the Department of Energy and the
Office of the President, viz.: (1) the time when the prices of
crude oil and petroleum products in the world market are declining, and
(2) the time when the exchange rate of the peso in relation to the US
dollar is stable. Section 15 did not mention the depletion of the OPSF
as a factor to be given weight by the Executive before ordering full
deregulation. On the contrary, the debates in Congress will show
that some of our legislators wanted to impose as a pre-condition to
deregulation a showing that the OPSF fund must not be in deficit. We therefore
hold that the Executive
department failed to follow faithfully the standards set by R.A. No. 8180
when it considered the extraneous factor of depletion of the OPSF fund.
The misappreciation of this extra factor cannot be justified on the ground
that the Executive department considered anyway the stability of the
prices of crude oil in the world market and the stability of the exchange rate
of the peso to the dollar. By considering another factor to hasten
full deregulation, the Executive department rewrote the standards set forth in
R.A. 8180. The Executive is bereft of any right to alter either by
subtraction or addition the standards set in R.A. No. 8180 for it has
no power to make laws. To cede to the Executive the power to make law is
to invite tyranny, indeed, to transgress the principle of separation of
powers. The exercise
of delegated power is given a strict scrutiny by courts for the delegate is a
mere agent whose action cannot infringe the terms of agency.
In the cases at bar, the Executive co-mingled the factor of depletion of the
OPSF fund with the factors of decline of the price of crude oil in the world
market and the stability of the peso to the US dollar. On the basis of the
text of E.O. No. 392, it is impossible to determine the weight given by
the Executive department to the depletion of the OPSF fund. It
could well be the principal consideration for the early deregulation.
It could have been accorded an equal significance. Or its importance
could be nil. In light of this uncertainty, we rule that the early deregulation under
E.O. No. 392 constitutes a misapplication of R.A. No. 8180.
4.
YES, R.A. No. 8180 violated §19,
Article XII of the Constitution prohibiting monopolies, combinations in
restraint of trade and unfair competition.
[I]t cannot be
denied that our downstream oil industry is operated and controlled by an
oligopoly, a foreign oligopoly at that. Petron, Shell and Caltex stand as the
only major league players in the oil market. All other players belong to the
lilliputian league. As the dominant players, Petron, Shell and Caltex boast of
existing refineries of various capacities. The tariff differential of 4% therefore works to their
immense benefit. Yet, this is only one edge of the tariff differential. The
other edge cuts and cuts deep in the heart of their competitors. It erects a
high barrier to the entry of new players. New players that intend to equalize
the market power of Petron, Shell and Caltex by building refineries of their
own will have to spend billions of pesos. Those who will not build refineries
but compete with them will suffer the huge disadvantage of increasing their
product cost by 4%. They will be competing on an uneven field. The
argument that the 4% tariff differential is desirable because it will induce
prospective players to invest in refineries puts the cart before the horse. The
first need is to attract new players and they cannot be attracted by burdening
them with heavy disincentives. Without new players belonging to the league of
Petron, Shell and Caltex, competition in our downstream oil industry is an idle
dream.
The provision on inventory widens the balance of
advantage of Petron, Shell and Caltex against prospective new players. Petron, Shell
and Caltex can easily comply with the inventory requirement of R.A. No. 8180 in
view of their existing storage facilities. Prospective competitors again will
find compliance with this requirement difficult as it will entail a prohibitive
cost. The construction cost of storage facilities and the cost of inventory can
thus scare prospective players. Their net effect is to further occlude the
entry points of new players, dampen competition and enhance the control of the
market by the three (3) existing oil companies.
Finally, we come to the provision
on predatory pricing which is defined as “. . . selling or offering to sell any
product at a price unreasonably below the industry average cost so as to
attract customers to the detriment of competitors.” Respondents contend that
this provision works against Petron, Shell and Caltex and protects new
entrants. The ban on predatory pricing cannot be analyzed in isolation. Its
validity is interlocked with the barriers imposed by R.A. No. 8180 on the entry
of new players. The inquiry should be to determine whether predatory pricing on
the part of the dominant oil companies is encouraged by the provisions in the
law blocking the entry of new players. Text-writer Hovenkamp gives
the authoritative answer and we quote:
xxx xxx xxx
The
rationale for predatory pricing is the sustaining of losses today that will
give a firm monopoly profits in the future. The monopoly profits will never
materialize, however, if the market is flooded with new entrants as soon as the
successful predator attempts to raise its price. Predatory pricing will
be profitable only if the market contains significant barriers to new entry.
As aforediscussed,
the 4% tariff differential
and the inventory requirement are significant barriers which discourage new
players to enter the market. Considering these significant barriers
established by R.A. No. 8180 and the lack of players with the comparable clout
of PETRON, SHELL and CALTEX, the temptation for a dominant player to engage in
predatory pricing and succeed is a chilling reality. Petitioners’ charge that
this provision on predatory pricing is anti-competitive is not without reason.
[R.A. No. 8180 contained a separability clause, but the High Tribunal held
that the offending provisions of the law so permeated its essence that it had
to be struck down entirely. The provisions on tariff differential, inventory
and predatory pricing were among the principal props of R.A. No. 8180. Congress
could not have deregulated the downstream oil industry without these
provisions.]
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