8/10/2019 Tatad vs Sec of Energy

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Tatad vs Sec of Energy

Considering that oil is not endemic to this country, history shows that the government has alwaysbeen finding ways to alleviate the oil industry. The government created laws accommodate theseinnovations in the oil industry. One such law is the Downstream Oil Deregulation Act of 1996 or RA

8180. This law allows that any person or entity may import or purchase any quantity of crude oil andpetroleum products from a foreign or domestic source, lease or own and operate refineries and otherdownstream oil facilities and market such crude oil or use the same for his own requirement, subjectonly to monitoring by the Department of Energy. Tatad assails the constitutionality of the law. Heclaims, among others, that the imposition of different tariff rates on imported crude oil and importedrefined petroleum products violates the equal protection clause. Tatad contends that the 3%-7%tariff differential unduly favors the three existing oil refineries and discriminates against prospectiveinvestors in the downstream oil industry who do not have their own refineries and will have to sourcerefined petroleum products from abroad.3% is to be taxed on unrefined crude products and 7% onrefined crude products.ISSUE: Whether or not RA 8180 is constitutional.HELD: The SC declared the unconstitutionality of RA 8180 because it violated Sec 19 of Art 12 ofthe Constitution. It violated that provision because it only strengthens oligopoly which is contrary tofree competition. It cannot be denied that our downstream oil industry is operated and controlled byan oligopoly, a foreign oligopoly at that. Petron, Shell and Caltex stand as the only major leagueplayers in the oil market. All other players belong to the lilliputian league. As the dominant players,Petron, Shell and Caltex boast of existing refineries of various capacities. The tariff differential of 4%therefore works to their immense benefit. Yet, this is only one edge of the tariff differential. The otheredge cuts and cuts deep in the heart of their competitors. It erects a high barrier to the entry of newplayers. New players that intend to equalize the market power of Petron, Shell and Caltex bybuilding refineries of their own will have to spend billions of pesos. Those who will not build refineriesbut compete with them will suffer the huge disadvantage of increasing their product cost by 4%.They will be competing on an uneven field. The argument that the 4% tariff differential is desirable

because it will induce prospective players to invest in refineries puts the cart before the horse. Thefirst need is to attract new players and they cannot be attracted by burdening them with heavydisincentives. Without new players belonging to the league of Petron, Shell and Caltex, competitionin our downstream oil industry is an idle dream.RA 8180 is unconstitutional on the ground inter alia that it discriminated against the new playersinsofar as it placed them at a competitive disadvantage vis--vis the established oil companies byrequiring them to meet certain conditions already being observed by the latter.