SHELL ON THE CARPET

The Philippine Star
08/11/08

Finally, someone from the legislative body noticed the continued defiance of Pilipinas Shell of a promulgated law of the country. In a strongly worded statement, Catanduanes Rep. Joseph Santiago put to task Shell as it continued to defy the provision in the Downstream Oil Industry Deregulation Law that calls for the Dutch oil firm to sell at least 10 percent of its equity to the investing market by listing in the local bourse.

According to Catanduanes Rep. Joseph Santiago, "Shell has been openly defying the law. The company has refused to conduct an initial public offering of at least 10 percent of its shares. The firm has refused to list its shares in the local (stock) exchange despite the definite mandate of the law."

In fact, Santiago is urging the Department of Justice to take Shell to court for violating Section 22 of Republic Act 8479, or the oil deregulation law, for not having made more decisive steps towards listing in the Philippine Stock Exchange.

For starters, ever since the law took effect, the oil firm has not paid a single centavo as penalty for dodging this provision in the law. At a rate of P50,000 per day, the fine for more than seven and a half years of non-compliance already translates to a hefty P137 million.

The oil deregulation law was passed in 1998 and required that after three years from its passage, or from February 1, 2001, all refiners should have made a public offer. Petron Corp., with a refinery in Limay in Bataan, had gone public years before the law was passed, and is thus in compliance.

Caltex (Philippines) Inc., now Chevron Philippines Inc., decided to shut down its Batangas refinery in 2003, two years after the effectivity of the law and likewise freed itself from that requirement of the law.

Giving Shell kid-glove treatment

It seem that on Oct. 25, 2002, the Department of Energy (DOE) issued Circular 2002-10-006, imposing the P50,000 per day fine on Shell but later suspended enforcement of its own circular and granted Shell a temporary reprieve from complying with Section 22.

Shell sought and received the approval for the deferral of the IPO requirement "in view of the prevailing market conditions, subject to quarterly review depending on the developments in the market and economy," according to the DOE.

Rep. Santiago, however, said the DOE "had no right to allow Shell to delay its IPO, and totally disregard the mandate of the law." In fact, he said the DOE "is supposed to demand rigorous compliance with the law."

"The DOE should stop giving Shell the kid-glove treatment," Santiago said.

He added: "What market and economic conditions are they [Shell and the DOE] waiting for? Since the passage of RA 8479, we've seen oil prices climb from just $11 per barrel in 1999 to almost $150 per barrel."

"When oil prices were low, Shell refused to go public, supposedly due to the unfavorable market conditions. Now that market conditions have improved considerably, with oil prices hovering near or at historic highs, Shell still refuses to go public. Clearly, Shell's existing shareholders simply do not wish to share their profits with other entities or individuals," Santiago said.

As to local stock market conditions, Santiago noted that "shares prices have since soared to historic highs, followed by a modest correction."

Shell shares privately held

At present, Shell shares are not available in the public stock exchange and remain privately held by an exclusive group of shareholders. Securities and Exchange Commission records show that Shell is 67 percent owned and controlled by Royal Dutch Shell plc based in Britain.

The remaining 33 percent of Shell is held by a select group of foreign and Filipino shareholders that include the International Finance Corp., The Insular Life Assurance Co. Ltd., LBC Properties Inc., Rizal Commercial Banking Corp., Pan Malayan Management and Investment Corp., Ayala Life Assurance Inc., BPI/MS Insurance Corp. and Aboitiz & Co. Inc.

Record profits

Shell posted a record quarterly net profit of P3.1 billion from January to March this year. In 2007, Shell reported a record annual net profit of P6.36 billion. This was P2.24 billion or 55 percent higher than the P4.12 billion net profit that the company realized in 2006. Shell's 2007 net profit was also more than five times the P1.19 billion that it posted in 1998, the first year of oil deregulation.

Former Senator Ernesto Herrera, Trade Union Congress of the Philippines general secretary, citing SEC records said that Pilipinas Shell has pumped out of the Philippines a total of P17.8 billion in profits from 1996 to 2007. Aramco, which owned 40 percent of Petron Corp. until last month, drew out of the Philippines a total of P7.3 billion in profits over the same period.

While not begrudging the remittance of profits to foreign owners, Herrera’s point is that some of these enormous profits brought about by the sudden upsurge in oil prices should have been re-invested in the country particularly in the development and production of alternative, renewable energy sources such as wind, solar, hydro or geothermal energy projects.

The perception is that the oil companies were not just passing on to the consumers the increase in crude oil prices but were also padding up their margins, hence the record profits.

And that’s why many Filipinos, not just Congressman Santiago, are wondering why Shell is not willing to share this bonanza with some other Filipino small investors. More so, that it is explicitly mandated by law.

Collegiate Champions League update

Twenty collegiate teams from two major leagues, Cebu Schools Athletic Foundation (CESAFI) and National Athletic Association of Schools, Colleges and Universities (NAASCU), are battling for two seats into the “Sweet 16” Final Challenge and four slots in the qualifying zonals of the 2008 Smart-CCL Philippine Collegiate Championship games.

Four seats in the FilOil Flying V “Sweet 16” Final Challenge are allotted for the top two teams of NCAA and UAAP and one seat each for the champion teams of NAASCU, CESAFI, and CUSA. The other eight finalist will come from the zonal championships where nine regional champions will do battle with other qualifiers from Metro Manila and Cebu.

The CESAFI teams are the University of Visayas Green Lancers, defending champion and runner-up to Ateneo in 2007 Collegiate Championship, University of San Jose Recoletos Jaguars, University of Southern Philippines Panthers, Cebu Institue of Technology Wild Cats, Don Bosco Technology Greywolves, Southwestern University Cobras, University of Cebu Webmasters and University of San Carlos Warriors.

From NAASCU the teams are: STI College Olympians, surprise 3 rd placer in 2007 Collegiate Championship, University of Manila Hawks, AMA Computer University Titans, Centro Escolar U Scorpions, Holy Angel U Flyers, New Era U Hunters, Pamantasan ng Lungsod ng Pasay Eagles, Saint Claire College of Caloocan Saints, San Sebastian College Recoletos de Cavite Baycats, University of Makati Wizards and newcomers Informatics Philippines and Lyceum of Subic Bay.

For more details about the biggest collegiate basketball event for the year sponsored by SMART, visit www.CollegiateChampionsLeague.net

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.