Proposal of Aramco to Sell its Equity Interest in Petron to Ashmore Global

DOJ OPINION NO. 024 , s. 2008 April 21, 2008 Mr. Antonio M. Cailao President & CEO Philippine National Oil Company 5/F PNOC Bldg. VI, Energy Center Merritt Road, Fort Bonifacio Taguig City Sir : This refers to your request for opinion on the queries stated therein relative to the proposal of Aramco Overseas Company, B.V. (AOC) to sell in favor of Ashmore Global Special Situations Fund 4 Limited Partnership (Ashmore) its forty percent (40%) equity interest in Petron Corporation. Specifically, you want to be clarified on the following questions: 1. In the event that PNOC exercise its preemptive right, will there be legal impediments/prohibitions in the light of the current privatization policy as provided in the Department of Energy Charter and PR 50? n 2. If PNOC decides to assign its preemptive right to a third party, is the Company required to go through public bidding? Memorandum Order 266 gives GOCCs the right to form joint ventures. Given this, can PNOC enter into a joint venture agreement with a third party for the purpose of exercising its rights under the Shareholding Agreement without going through public bidding? 3. What approvals are needed for PNOC to (i) acquire the Sale Shares; and (ii) make the tender offer as required under the Securities Regulation Code? CScTDE We take it the above-enumerated queries are raised in the light of the provisions of the Shareholders Agreement executed by and among PNOC, AOC and Petron which, you claim, give PNOC sixty (60) days or until May 12, 2008 to decide (i) whether or not to exercise its preemptive right to purchase the Sale Shares or (ii) assign its right to a wholly-owned subsidiary or a third party. With regret, this Department has to decline to render the opinion requested for the following reasons: First. The Secretary of Justice is, by law and settled precedents, authorized to render opinion or give legal advice only on specific legal questions or issues submitted by national government functionaries, such as department heads or chiefs of bureaus or offices of equivalent rank, and then only specific legal issues/questions arising in connection with the performance of their respective powers and duties. Accordingly, he has, in practice and precedent, consistently declined to render opinion or give legal advice to other government officials and to private individuals and entities (Sec. of Justice Op. No. 53, 35 and 11, s. 2007; No. 76, 75 and 59, s. 2006). By express provision of law, the Office of the Government Corporate Counsel (OGCC) is "the principal law office of all government-owned or controlled corporations" and "to enable it to discharge its functions as such, it shall be the duty of all said corporations to refer to it all important legal questions for opinion, advice and determination, all proposed contracts and all important court cases for his services" ( ibid., No. 9, s. 2007, citing Op. No. 32, s. 2006; also, Sec. 1, R.A. No. 2327, as amended; Sec. 1, P.D. No. 1415; Sec. 10, Chap. 3, Title III, Book IV, Administrative Code of 1987). ECISAD Second. Even if we want to assist you in your problems, we cannot, with propriety, act on your request. Apart from the above-quoted legal mandate, Administrative Order No. 130, dated May 19, 1994, is equally explicit, to wit: Section 1. All legal matters pertaining to government-owned or controlled corporations, their subsidiaries, other corporate offspring and government acquired asset corporations (hereinafter collectively referred to as "GOCCs"), shall be exclusively referred to and handled by the Office of the Government Corporate Counsel (hereinafter referred to as "OGCC"), unless their respective charters expressly name the Office of the Solicitor General (hereinafter referred to a "OSG") as their legal counsel. When authorized by the President, or by the head of the office concerned and approved by the President, the OSG shall also represent GOCCs. (Emphasis added). The Secretary of Justice, pursuant to settled policy and precedents, has refrained from passing upon matters over which another office or agency has primary jurisdiction ( id. , No. 66, 30 and 9, s. 2007; No. 70, 49 and 32, s. 2006; and No. 73, s. 1995). aCHDST Third. Besides, Section 4 of Executive Order No. 423, dated April 30, 2005, the presidential issuance that repealed E.O. No. 109-A, dated September 18, 2003, insofar as material is clear, to wit: SEC. 4. . . . . xxx xxx xxx Where the Head of the Procuring Entity has made a determination that a Government contract, including Government contracts required by law to be acted upon and/or approved by the President, involving an amount of at least Five Hundred Million Pesos (P500 Million) falls under any of the exceptions from public bidding as described in Section 3 hereof, the head of the Procuring Entity shall, before proceeding with the alternative methods of procurement provided by law and applicable rules and regulations, obtain the following requirement: i. An opinion from the Government Procurement Policy Board (GPPB) that said Government contract falls within the exceptions from public bidding ; and ii. Approval from the Director-General of NEDA to proceed with a specific alternative method of procurement under the exceptional cases provided by law and applicable rules and regulations. (stress ours) EacHCD Thus, the approval of government contracts entered into through alternative methods of procurement no longer requires the opinion of the Secretary of Justice that said Government Contract falls within the exceptions from public bidding ( id. , No. 21, current series; No. 42 and 15, s. 2007). Fourth. The resolution of the issues raised would inevitably require a look not only on the agreement entered into by and between AOC and Ashmore but also the contract executed by and among PNOC, AOC and Petron. However, the Secretary of Justice, as a matter of policy and practice, does not render opinion or give legal advice on issues involving the interpretation of contracts because contract review calls for the legal examination of the contract on a general basis, and not the resolution of specific legal issues. As earlier stated, the Secretary of Justice renders opinion only on specific legal questions arising in the performance of the powers and functions of the national government functionary requesting the opinion ( id. , No. 56, s. 2007; No. 78, 64 and 51, s. 2006). Fifth. The questions raised indubitably involves the substantive rights of private parties, i.e. , the parties to the above-mentioned contracts, and since the opinion of the Secretary of Justice is merely advisory in nature, such opinion would not be binding upon the private parties which may be affected thereby and which may, in all probability, take issue therewith and contest it before the courts. As a matter of policy, therefore, the Secretary of Justice has consistently refrained from passing upon issues which, as in this case, are justiciable in nature or can be the subject of litigation before the courts ( id. No. 63, 58 and 54, s. 2007; No. 77, 51 and 21, s. 2006). It is suggested that the issues herein raised should be referred to the OGCC and/or the GPPB. DAHCaI Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary n Note from the Publisher: Written as "E.O. 50" in the original document.