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INVOKING
fiscal constraints and a policy that negates reverse
privatization, state-run Philippine National Oil Co. (PNOC)
has waived its right to purchase the 40-percent stake of
Aramco Overseas Co. B.V. (AOC) in local refiner Petron
Corp., giving instead the green light for Aramco to sell
its shares to London-based Ashmore Group’s SEA Refinery
Holdings.
PNOC,
which separately owns 40 percent of Petron—with the
remaining 20 percent of shares publicly traded on the
Philippine Stock Exchange (PSE)—had, in effect, waived
its right to first offer.
PNOC had
until today to make a decision on this transfer notice,
and its decision to call a board meeting only Monday was
criticized by Sen. Mar Roxas II.
The
approval of the sale to Ashmore by AOC triggers a
mandatory tender offer by Ashmore for some of the shares
held by the public, as stipulated in the Securities
Regulation Code.
Rey
David, president of the Development Bank of the
Philippines (DBP), which advised the energy department
on this transaction, said they consider Ashmore as
adding value to Petron.
“And
with that value to Petron, we recommend that the PNOC
should not interpose any objection to the sale. We find
that Ashmore will be an acceptable partner with their
intention to strategically and financially grow Petron’s
business,” said David adding that Ashmore has also
expressed interest in spending more for capital
expenditure.
The DBP
official said the sale of Aramco shares to Ashmore
through the PSE will be consummated some time in July.
David
said they have discussed everything with other parties
that have expressed interest over Petron’s
shares—including JG Summit Holdings Corp.; Morgan
Stanley representing Thai Oil, PTT of Thailand, and the
Gaisanos of Cebu.
David
quickly added that PNOC has yet to decide on whether it
will sell the government’s 40-percent stake through PNOC
in Petron.
Energy
Secretary Angelo T. Reyes, who chairs the PNOC, said the
government carried out a very extensive review of its
options under the 1994 Shareholders’ Agreement and that
process involved consultations with officials from the
Department of Finance, National Economic and Development
authority (Neda), the Departments of Budget and
Management, of Foreign Affairs and of Justice, as well
as financial advisors retained specifically for this
review: the DBP and ING Bank N.V. and the Romulo
Mabanta Law Office.
Under
the 1994 agreement, the options available to PNOC
include the exercise of right of first offer within 60
days from the receipt of the transfer notice; assignment
of the right to any of its wholly-owned affiliates or to
an eligible third party; or acceptance of Ashmore as an
Eligible Third Party.
“After
carefully considering all options, we based our decision
on a number of factors, including the fact that a
purchase of these shares by the government runs contrary
to our policy of privatizing government stakes in
corporations and letting the private sector run
commercial enterprises as effectively and efficiently as
possible,” Reyes said.
The
energy chief said they are also aware that exercising
the right of first offer and the subsequent tender offer
could cost Philippine taxpayers some $825 million.
Reyes
said the amount will cost government when it has many
other priorities, including the further development of
the agriculture sector to support food security and
investment in modern infrastructure to ensure the
competitiveness of the economy.
Assigning its rights to an entity outside the government
could not be done within a 60-day period, explained
Reyes, because of the need for an open bid process that
would require more than 60 days to carry out.
“At the
end of the review process, we felt that, with the
commitment by AOC to maintain the Crude Oil Supply
Agreement [Cosa] that is part of this transaction, the
transfer of shares to an investor that has interests in
the oil and gas sector in other parts of the world” will
be beneficial, Antonio M. Cailao, PNOC president, said.
In 1994,
David recalled that Aramco agreed to supply Petron’s
90-percent monthly crude oil requirements because their
refinery runs efficiently on Saudi crude.
The
crude oil importation amounted to P122.8-billion,
P145.1-billion, and P138-billion in 2005, 2006 and 2007,
respectively.
David
further noted that the existing Cosa is a 20-year
agreement signed in 1994 up to 2014 but automatically
terminates upon sale by Aramco of its stake in Petron.
Though
the Cosa automatically ends with Aramco’s sale instead
of being effective until 2014, David pointed out that
Aramco offered a new agreement called “Far East Cosa” as
part of its proposed exit by way of sale to Ashmore.
David
said the pricing between the existing deal and the Far
East Cosa remains the same. The only difference is that
the Far East Cosa is automatically renewed every year
unless terminated upon a 60-day prior notice.
Cailao,
on the other hand, noted the transaction also shows an
investment commitment to the
Philippines
of more than 13 years and by one that already has
significant shareholdings in the country was for the
country’s best interest.
“We also
believe that Ashmore can make a significant contribution
in terms of capital, market access, and experience to
Petron’s further development as a world-class energy
company,” Cailao said.
Sen. Mar
Roxas, however, was not pleased by PNOC’s decision. He
bemoaned the “missed opportunity” for government to
regain leverage in the local industry as he called on
the PNOC to make public its deliberations in the
exercise of its right of first refusal in the sale of
Aramco’s 40-percent share in Petron to London-based
Ashmore Ltd., a hedge fund investment firm with no stake
in the country’s energy needs.
In a
statement, Roxas also bewailed PNOC’s belated
deliberations on its option to buy back Petron shares
from Saudi Aramco, saying it “betrayed lack of
transparency and short-sightedness on the part of
government.”
“The
government knew that the [Aramco-Ashmore] sale was
forthcoming yet there was no clear design on how to
seize this as an opportunity to advance the national
interest, particularly at this time of sky-high oil
prices,” he said, adding that “it will be unfortunate if
our first-refusal option will just be waived by default.
It would be a missed opportunity to get a new strategic
partner in Petron.”
Roxas
noted that the PNOC board met only on Monday, the
deadline for it to exercise PNOC’s right of first
refusal. “Whatever their decision was, they should
explain this to the public in clear terms vis-à-vis our
national interest.”
The sale
of Aramco’s 400-percent share in Petron is “not just a
simple commercial transaction” as it involved the public
interest at a time when the price of crude oil is going
through the roof.
“This
pertains to a strategically crucial product, oil, and to
a company that owns 40-percent market share in the
domestic trade of oil products,” he said. “The
government has yet to explain what it plans to do with
its right of first refusal.”
Malacañang welcomed Ashmore’s stake in Petron, saying it
will improve the oil firm’s operations.
“The new
buyer is also a recognized player and we believe that
with their wide experience and wide network, they will
provide Petron the added plus for their operations,”
Press Secretary Ignacio Bunye told reporters. (With B.
Fernandez, M. Gonzalez) |
