Presidential Approval on the Privatization of the Government's Remaining 40% Stake in Petron

DOJ OPINION NO. 053, s. 2008 August 11, 2008 Secretary Margarito B. Teves Department of Finance Roxas Boulevard corner Pablo Ocampo Street Manila Sir : This refers to your request for confirmatory opinion that Presidential approval is required by law to privatize the Government's remaining forty percent (40%) stake in Petron Corporation (Petron). It appears that while the forty percent (40%) share of equity in Petron is held by the Philippine National Oil Company (PNOC), you are of the view that Presidential approval is ostensibly required before PNOC can dispose of such remaining shareholdings for the following reasons: 1. There was an earlier approval by former President Fidel V. Ramos to privatize sixty-five percent (65%) of Petron, which was subsequently amended to sixty percent (60%) based on the recommendations of the Committee on Privatization (now Privatization Council or PrC) and the PNOC. Hence, the sale of the Government's remaining forty percent (40%) shareholdings in Petron may need the requisite approval of the President. 2. Section 5 of Proclamation No. 50 requires Presidential approval for disposition of government assets. You state that while it is provided that no approval is necessary where a parent corporation decides on its own to divest of, in whole or in part, or liquidate a subsidiary corporation organized under the Corporation Code, the Privatization Council (PrC) has generally sought approval before proceeding with the privatization of government assets as a matter of prudence and as deference to the highest executive authority. 3. Section 2 of Republic Act No. 7661 also requires Presidential approval for privatization of government assets classified as a strategic industry by the National Economic Development Authority (NEDA). While you stated that Section 10 of R.A. 7042 mandated the NEDA Board to formulate and publish a list of industries strategic to the development of the economy, you also pointed out that Section 8 of R.A. No. 8179 expressly repealed Section 10 of R.A. 7042. Further, you stated that according to NEDA, the classification of strategic industries no longer exists. As such, Petron does not fall under any formal strategic industry classification. HITEaS Subject to our discussion hereunder, we confirm your view that Presidential approval is required by law before PNOC can divest itself of the remaining 40% shareholdings in Petron. Under the principles of statutory construction, if a statute is clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation. This plain meaning rule or verba legis, derived from the maxim index animi sermo est (speech is the index of intention), rests on the valid presumption that the words employed by the legislature in a statute correctly express its intent by the use of such words as are found in the statute. Verba legis non est recedendum, or, from the words of a statute there should be no departure. 1 Proclamation No. 50 is the general law that governs the disposition and privatization of government assets. The clear language of such Proclamation tasked the Committee on Privatization (now the Privatization Council) with the duty of identifying and arranging the sale of government assets. Section 5 (1) of the Proclamation provides: (1) To identify to the President of the Philippines, and arrange for transfer to the National Government and/or to the Trust and the subsequent divestment to the private sector of (a) such non-performing assets as may be identified by the Committee, and approved by the President, for transfer from the government banks for disposal by the Trust or the government banks, and (b) such government corporations, whether parent or subsidiary, and/or such of their assets, as may have been recommended by the Committee for disposition, and Provided, that no such identification, recommendation or approval shall be necessary where a parent corporation decides on its own to divest of, in whole or in part, or liquidate a subsidiary corporation organized under the Corporation Code; Provided further, that any such independent disposition shall be undertaken with the prior approval of the Committee and in accordance with the general disposition guidelines as the Committee may provide; Provided, finally, that in every case the sale or disposition shall be approved by the Committee with respect to the buyer and price only; (emphasis ours) In the consolidated cases of Bagatsing v. Committee on Privatization and Gonzales v. Lazaro, 2 the Supreme Court held that while Proclamation No. 50 mandates that non-performing assets should be promptly sold, it does not prohibit the disposal of other kinds of assets, whether performing, necessary or appropriate. Nowhere in the Proclamation can one infer that it prohibits a partial privatization of vital, appropriate and performing corporations owned by the government. cCTIaS In an earlier opinion, 3 this Department also had the occasion to interpret the above-quoted provision, in relation to other issuances of the Committee on Privatization, where we opined: After a careful review of the above-quoted provisions and as can be gleaned therefrom, it can be safely concluded that the assets of a government agency or entity, including GOCCs, may be covered by the operation of Proclamation No. 50 under the following circumstances: 1. The non-performing assets and activities which have been considered as no longer necessary or appropriate under government ownership or control must have been identified by the Committee on Privatization; and 2. The identified assets must have been approved for privatization by the President. Applied to the instant query, the question now is whether PNOC has already identified the remaining 40% shareholdings in Petron as no longer necessary or appropriate for government ownership or control. For the disposition to be covered by Proclamation No. 50, there must be a determination that PNOC's stake at Petron is found to be "inappropriate or unnecessary" for the government to maintain so that it can be identified by the PrC for privatization which would in turn be subject to approval by the President. The answer to this question is not readily determinable from your letter-request, and the Privatization Council should be in the best position to provide the answer. In any case, if the answer is in the affirmative, there should be no debate that PNOC's disposition of its remaining shareholdings in Petron is covered by Proclamation No. 50 and should be done in accordance therewith. At this juncture, the decision of the Supreme Court in the abovementioned Bagatsing case is instructive, where the Supreme Court held: ng The decision to privatize Petron and the approval of the COP of such privatization, being made in accordance with Proclamation No. 50, cannot be reviewed by this Court. Such acts are the exercises of the executive function as to which the Court will not pass judgment upon or inquire into their wisdom. 4 It bears stress as well that in the case of Petron's privatization in 1993, the President gave his approval not only once but twice. HIACEa It is crystal clear therefore that the government's privatization of Petron should be done in accordance with Proclamation No. 50 for it to be considered as a valid exercise of an executive function and beyond the province of the courts to review. To comply with this requirement, this means that the privatization of the Government's remaining shareholdings in Petron should be identified and recommended by the Privatization Council and approved by the President. We now dispose of the corollary issue of whether PNOC's disposition of Petron would fall within the ambit of the exception under Section 5 of the Proclamation which states "Provided, that no such identification, recommendation or approval shall be necessary where a parent corporation decides on its own to divest of, in whole or in part, or liquidate a subsidiary corporation organized under the Corporation Code". The resolution of this issue would require a determination of the present relationship between PNOC and Petron. Stated otherwise, the answer thereto is dependent on whether there exists "parent-subsidiary relationship" between PNOC and Petron. The term "subsidiary" is defined as "one in which another corporation owns at least a majority of the shares, and thus has the control". 5 A subsidiary corporation is one that is run and owned by another company which is called the "parent". It is said of a company more than 50 percent of whose voting stock is owned by another. 6 In corporation law, it is a corporation which is so related to another that a majority of its directors can be elected either directly or indirectly through another corporation or series of corporation. 7 For it to retain the status of a subsidiary, it is essential that the mother corporation holds the controlling interest in order that the latter may direct effectively the exercise of its (subsidiary corporation) powers and activities with the end in view of effectuating the purposes for which the mother corporation was created. 8 With the 60% privatization of Petron in 1993, it appears that PNOC is no longer the "parent corporation" of Petron and the latter is, in fact, no longer listed as one of its subsidiaries. 9 As of the present, Petron is a publicly-listed company where the Philippine National Oil Company and the Aramco Overseas Company B.V. (now transferred to Ashmore group) each owns a 40% share of equity and the remaining 20% is held by close to 190,000 individual stockholders. 10 Against this factual backdrop, the disposition of the Government's remaining shareholdings in Petron would not fall under the exception provided under Section 5 of Proclamation No. 50. SCDaHc Please be guided accordingly. Very truly yours, (SGD.) RAUL M. GONZALEZ Secretary Footnotes 1. Signey v. SSS, et al. , G.R. No. 173582, January 28, 2008 citing Globe-Mackay Cable and Radio Corporation v. NLRC, G.R. No. 82511, 206 SCRA 701, 711 [1992]; See also Cecilleville Realty and Service Corporation v. Court of Appeals, 344 Phil. 375, 381 (1997); Republic v. Court of Appeals, 359 Phil. 530, 602 (1998); Victoria v. Commission on Elections, G.R. No. 109005, 29 SCRA 269, 273 [1994]; Fianza v. PLEB of the City of Baguio, 312 Phil. 1108, 1123-1124 [1995]. 2. G.R. No. 112399, and G.R. No. 115994, promulgated on July 14, 1995. 3. Secretary of Justice Opinion No. 27, s. 2003. 4. See also, Llamas v. Orbos, 202 SCRA 844 [1991]. 5. See Secretary of Justice Opinion No. 185, s. 1982, citing Words & Phrases, Perm. Ed., Vol. 40, p. 496; See also Unnumbered Opinion dated April 24, 1970 citing Fairbanks, Morse and Co. v. District Court in and for Palo Alto County, 247 NW 203, 207. AcSEHT 6. See Black's Law Dictionary, 6th ed., p. 1428. 7. See Sibal, Philippine Legal Encyclopedia, 1995 ed., p. 1008. 8. Op. No. 276, s. 1941. 9. See http://www.pnoc.com.ph (Last accessed August 11, 2008). 10. See http://www. petron.com/about-leading.asp (Last accessed August 11, 2008).