AN ACT DEREGULATING THE DOWNSTREAM OIL INDUSTRY

Case Overview and Summary

Summary of the Downstream Oil Industry Deregulation Act of 1996

Objectives and General Provisions
- Deregulate the downstream oil industry to foster a competitive market with fair prices and adequate supply of high-quality petroleum products. (Section 2)
- Covers all entities engaged in importing, exporting, refining, storing, distributing, marketing, or selling crude oil and petroleum products. (Section 3)
- Defines key terms such as downstream oil industry, petroleum, crude oil, petroleum products, Wholesale Posted Price (WPP), Singapore Import Parity (SIP), and Singapore Posting. (Section 4)

Liberalization and Tariff Treatment
- Allows any person or entity to import, purchase, refine, market, or use crude oil and petroleum products, subject to notice and reporting requirements. (Section 5a)
- Imposes tariffs of 3% on imported crude oil and 7% on imported refined petroleum products, except for fuel oil and LPG which have the same rate as crude oil. Starting January 1, 2004, the tariff rate on crude oil and refined products shall be the same. (Section 5b)
- Exempts the National Power Corporation from taxes and duties on petroleum products used for power generation. (Section 5c)

Supply Security and Fair Trade Practices
- Requires refiners and importers to maintain a minimum inventory equivalent to 10% of their annual sales volume or 40 days of supply, whichever is lower. (Section 6)
- Promotes fair trade practices and prevents cartelization, monopolies, and unfair competition in the downstream oil industry. (Section 7)
- Allows certain practices that serve the public interest, such as borrow-and-loan agreements, rationalized depot operations, and joint actions on oil spill control. (Section 7)

Monitoring and Prohibited Acts
- Requires the DOE to monitor international oil prices, product quality, refining and manufacturing processes, and industry inventory levels. (Section 8)
- Prohibits cartelization and predatory pricing in the downstream oil industry, with penalties of imprisonment and fines ranging from P500,000 to P1,000,000. (Section 9)
- Prohibits failure to comply with reportorial requirements, maintain minimum inventory, and use clean and safe technologies, with penalties of imprisonment and fines ranging from P250,000 to P500,000. (Section 10)

Transition Phase
- Implements deregulation in two phases: Phase I (Transition Phase) and Phase II (Full Deregulation Phase). (Section 11)
- Establishes a P1,000,000,000 buffer fund from the Oil Price Stabilization Fund (OPSF) for claims during the transition phase. (Section 12)
- Amends the OPSF coverage to include payments from importers, manufacturers, and marketers of petroleum products. (Section 13)
- Establishes an automatic oil pricing mechanism based on the Singapore Posting, with the Energy Regulatory Board setting the WPP and adjusting it automatically without public hearings. (Section 14)

Full Deregulation Phase
- Implements full deregulation of the downstream oil industry by March 1997, subject to approval by the President and favorable market conditions. (Section 15)
- Repeals various laws related to oil price regulation upon full deregulation. (Section 15)
- Limits the jurisdiction of the Energy Regulatory Board to fixing rates for piped gas distribution. (Section 16)
- Prohibits foreign exchange forward cover for private importation of crude oil and petroleum products upon full deregulation. (Section 17)
- Settles outstanding OPSF claims from the P1,000,000,000 buffer fund, with the balance transferred to the General Fund. (Section 18)

Final Provisions
- Requires the DOE to issue implementing rules and regulations within 60 days of the law's effectivity. (Section 19)
- Allows the DOE to impose administrative fines of P100,000 to P1,000,000 for violations of reportorial and inventory requirements, and recommend permit suspension or revocation. (Section 20)
- Mandates a public information campaign to educate the public on the deregulation program. (Section 21)
- Provides for budgetary appropriations from the DOE's annual budget and Special Fund. (Section 22)
- Includes separability and repealing clauses. (Sections 23-24)
- Takes effect 15 days after publication in at least two newspapers of general circulation. (Section 25)