GR 112399; (July, 1995) (Digest)
G.R. No. 112399 & G.R. No. 115994 July 14, 1995
REPRESENTATIVE AMADO S. BAGATSING, ET AL., petitioners, vs. COMMITTEE ON PRIVATIZATION, PHILIPPINE NATIONAL OIL COMPANY, ET AL., respondents.
FACTS
These consolidated petitions sought to nullify the bidding and subsequent award of a 40% block of Petron Corporation shares to Aramco Overseas Company B.V., and to stop the sale. Petitioners, members of Congress and a private citizen, argued the sale violated constitutional and statutory provisions limiting foreign ownership in public utilities. Petron, originally a government-acquired subsidiary of PNOC, was the country’s largest oil refiner and marketer. The privatization was pursued under Proclamation No. 50 to generate government revenue and shift economic activity to the private sector.
The core legal challenge was that Petron, as an oil company, constituted a “public utility.” Consequently, under Section 5, Article XIV of the 1973 Constitution, its franchise, certificate, or authority could not be granted except to citizens of the Philippines or corporations at least sixty percent Filipino-owned. Petitioners contended the sale to a foreign entity like Aramco would violate this nationality requirement.
ISSUE
The principal issue was whether Petron Corporation, engaged in oil refining and marketing, is a “public utility” subject to the constitutional foreign ownership restrictions.
RULING
The Supreme Court dismissed the petitions, ruling that Petron is not a public utility. The legal logic proceeded from a strict interpretation of the governing laws. While Section 7 of the Petroleum Act of 1949 declares petroleum operations to be of public utility, the Court, aligning with a prior Justice Secretary opinion, limited this declaration to operations involving indigenous petroleum. Petron primarily refined imported crude oil, placing it outside the Act’s scope.
Furthermore, the Court distinguished a “public utility” under the Public Service Act as an entity that serves the public “for hire or compensation.” Petron did not refine oil for other parties for a fee; it refined its own imported crude for its own marketing and sales. This operational model did not fit the classic definition of a public utility offering its services to the general public by right. Since Petron was not a public utility, the constitutional and statutory caps on foreign ownership for such enterprises did not apply. The privatization to Aramco was therefore legally permissible.