Rationalized and Regulated Operation of the Oil Industry

June 21, 1983

LETTER OF INSTRUCTIONS NO. 1335

RATIONALIZING AND REGULATING THE OPERATION OF THE OIL INDUSTRY

TO : The Chairman, Board of Energy

WHEREAS, the Philippines expects to import in 1983 about 65% of its energy requirements, a percentage that is expected to decrease to 55% in 1984 as a result of the energy development program;

WHEREAS, the international oil situation continues to be unstable, with continuing uncertainty both as to crude oil price and supply;

WHEREAS, it is absolutely essential for the country to be protected against unforeseen developments in the international energy situation;

WHEREAS, the price of oil products is maintained at a level lower than that dictated by market forces through a mechanism instituted under LOI No. 842 issued on April 4, 1979, the Consumer Price Equalization Fund (CPEF);

WHEREAS, the CPEF has eroded to the point that it is no longer able to serve its basic purpose of protecting consumers against the uncertainties of the international energy picture; casia

WHEREAS, the leaders of the Kilusan ng Bagong Lipunan (KBL) have called for a comprehensive review of price and wage policies;

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by law, do hereby Order and Instruct;

1. The Consumer Price Equalization Fund mechanism is hereby dismantled and LOI No. 842 revoked;

2. The Board of Energy shall devise and implement an automatic adjustment mechanism in the regulation of oil companies, so as to promptly incorporate in the price of oil products, changes in the world price of crude oil, the foreign exchange rate of the peso, refining and distribution charges, and other market forces that determine the price of oil products. In so doing, the Board shall pay particular attention to the profitability of oil companies, which should not be allowed to exceed a reasonable rate of return on investment, following the accepted principles of public utility regulation.

DONE in the City of Manila, this 21st day of June, Nineteen Hundred and Eighty-Three. aisa dc