Tatad v Secretary of Energy 281 SCRA 330

FACTS:
The petitions at bar assail the constitutionality of various provisions of R.A No. 8180 and E.O.
No. 392.
Congress enacted RA 8180, "Downstream Oil Industry Deregulation Act of 1996."
In G.R. No. 124360, petitioner Francisco S. Tatad seeks the annulment of section 5(b) of R.A.
No. 8180. Section 5(b). The said law provides the imposition of tariff on imported crudes and
deregulation to be timed and implemented by DOE when the prices of crude oil and
petroleum products in the world market are declining and when the exchange rate of the
peso in relation to the US dollar is stable.
Arguments of Tatad:
1. First, that the imposition of different tariff rates on imported crude oil and imported
refined petroleum products violate the equal protection clause. The 3%-7% tariff
differential unduly favors the three existing oil refineries and discriminates against
prospective investors in the downstream oil industry who do not have their own refineries
and will have to source refined petroleum products from abroad.
2. Imposition of different tariff rates does not deregulate the downstream oil industry but it
runs counter to the objective of the law "to foster a truly competitive market."
In G.R. No. 127867, petitioners Edcel C. Lagman, Joker P. Arroyo et al, contest the
constitutionality of section 15 of R.A. No. 8180 and E.O. No. 392. Section 15 which allow the
implementation of full deregulation of downstream oil industry under the supervision of DOE,
repealing EO 392.
Arguments of Lagman et al:
1. Section 15 of R.A. No. 8180 constitutes an undue delegation of legislative power to
the President and the Secretary of Energy because it does not provide a determinate or
determinable standard to guide the Executive Branch in determining when to
implement the full deregulation of the downstream oil industry. The law does not
define when it is practicable for the Secretary of Energy to recommend to the President the
full deregulation of the downstream oil industry or when the President may consider it
practicable to declare full deregulation. Also, the law does not provide any specific
standard to determine when the prices of crude oil in the world market are
considered to be declining nor when the exchange rate of the peso to the US
dollar is considered stable.
Petitioners urge that the phrases "as far as practicable," "decline of crude oil prices in the
world market" and "stability of the peso exchange rate to the US dollar" are ambivalent,
unclear and inconcrete in meaning. They submit that they do not provide the "determinate
or determinable standards" which can guide the President in his decision to fully deregulate
the downstream oil industry.

2. E.O. No. 392 implementing the full deregulation of the downstream oil industry
is arbitrary and unreasonable because it illegally considered the depletion of the
OPSF fund as a factor. a condition not found in R.A. No. 8180. The petitioners
argue that E.O. No. 392 is null and void as it was based on indeterminate standards set by
R.A. 8180. Petitioners further posit the thesis that the Executive misapplied R.A. No. 8180
when it considered the depletion of the OPSF fund as a factor in fully deregulating the
downstream oil industry in February 1997.
3. Third, section 15 of R.A. No. 8180 and E.O. No. 392 allow the formation of a de facto cartel
among the three existing oil companies Petron, Caltex and Shell in violation of the
constitutional prohibition against monopolies, combinations in restraint of trade
and unfair competition.
MAIN ISSUES: WON RA 8180 and EO 392 are unconstitutional.
(a) Whether or not section 15of RA 8180 violates the constitutional prohibition on undue
delegation of power;
(b) Whether or not E.O. No. 392 is arbitrary and unreasonable
(c) Whether or not R.A. No. 8180 is unconstitutional (violates the constitutional prohibition
against monopolies, combinations in restraint of trade and unfair competition.)
HELD: UNCONSTITUTIONAL
1. THERE IS NO UNDUE DELEGATION OF LEGISLATIVE
COMEPLETENESS AND SUFFICIENCY OF STANDARD TESTS

POWER BASED

ON

It will be noted that Congress expressly provided in R.A. No. 8180 that full deregulation will
start at the end of March 1997, and Full deregulation at the end of March 1997 making it
complete. The president is to time it as far as practicable when the prices of crude oil and
petroleum products in the world market are declining and when the exchange rate of the
peso in relation to the US dollar is stable. The dictionary meanings of the words "as far as
practicable," "declining" and "stable" are well settled and cannot confuse men of reasonable
intelligence.
2. EO 392 IS ARBITRARY
A perusal of section 15 of R.A. No. 8180 will readily reveal that it only enumerated two
factors to be considered by the Department of Energy and the Office of the President, viz.:
(1) the time when the prices of crude oil and petroleum products in the world market are
declining, and
(2) the time when the exchange rate of the peso in relation to the US dollar is stable.
Section 15 did not mention the depletion of the OPSF fund as a factor to be given weight by
the Executive before ordering full deregulation. The Executive department failed to
follow faithfully the standards set by R.A. No. 8180 when it considered the
extraneous factor of depletion of the OPSF fund. By considering another factor to
hasten full deregulation, the Executive department rewrote the standards set forth in R.A.

8180. The Executive is bereft of any right to alter either by subtraction or addition
the standards set in R.A. No. 8180 for it has no power to make laws. In the cases at
bar, the Executive co-mingled the factor of depletion of the OPSF fund with the factors of
decline of the price of crude oil in the world market and the stability of the peso to the US
dollar.
3. RA 8180 violates section 19 or Article XII of the 1987 Constitution, which
prohibits monopolies and unfair competition. It cannot stand if the provisions on
tariffs differentials, predatory pricing and inventory are struck down.
a. Dampens competition and entry of new players in the oil industry because of the
imposition of the tariff works to the benefit of the established refineries and bars entries of
new players due to huge disadvantage of either building their own refinery or increasing
their product cost by 4% if they do not build one.
b. Inventory requirement widens the balance of advantage of Petron, Shell and Caltex which
they can easily comply compared to new players.
c. Predatory pricing defined as ". . . selling or offering to sell any product at a price
unreasonably below the industry average cost so as to attract customers to the detriment of
competitors." A scrutiny of the list of the alleged new players will, however, reveal that not
one belongs to the class and category of PETRON, SHELL and CALTEX.
d. Separability clause may not stand because imposition of tariff differential, inventory
pricing and predatory pricing are the principal elements in achieving the goal of deregulation
as mentioned in RA 8180.
Congress could not have deregulated the downstream oil industry without these
provisions. Unfortunately, contrary to their intent, these provisions on tariff differential,
inventory and predatory pricing inhibit fair competition, encourage monopolistic power and
interfere with the free interaction of market forces. Before deregulation, PETRON, SHELL
and CALTEX had no real competitors but did not have a free run of the market because
government controls both the pricing and non-pricing aspects of the oil industry. After
deregulation, PETRON, SHELL and CALTEX remain unthreatened by real competition yet are
no longer subject to control by government with respect to their pricing and non-pricing
decisions. The aftermath of R.A. No. 8180 is a deregulated market where competition can be
corrupted and where market forces can be manipulated by oligopolies.