PNOC sees ‘stumbling block’ in renewing deal with Petron

By Lenie Lectura - September 19, 2017

https://businessmirror.com.ph/pnoc-sees-stumbling-block-in-renewing-deal-with-petron/

THE Philippine National Oil Co. (PNOC) wants Petron Corp. to nullify certain provisions of existing lease agreements that will expire next year before they proceed to negotiate for a renewal of these contracts.

The lease agreements cover 32.2 hectares all over the country. Petron has put up 67 service stations and 24 bulk fuel plants within the PNOC property. The properties have an area ranging from 321 square meters to almost 377,000 sq m. The contracts will expire in August next year.

There is a provision for renegotiation in the contract that, in case of failure to come to an agreement, the same terms and conditions shall apply.

Section 2 of the lease agreements for service stations properties, as well as the lease agreement for the bulk plant properties between PNOC and Petron provides that, “in case the parties fail to come to an agreement, the same terms and conditions shall apply except the initial rental rate for the renewal period shall be the rental rate at the time of expiration plus 2 percent thereof and subsequent rental rate shall be escalating by 2 percent per annum.”

Meanwhile, Section 3 provides that “should the lessee decide to reduce the area of the leased premises due to business or operational reasons, the rentals shall be reduced correspondingly on a per sq m per location basis. The reduction of rental for each affected property shall be effective on the succeeding month following the receipt by lessor of a written notice regarding the reduction of the leased properties.

PNOC President Reuben Lista said the following provisions pose a “stumbling block”.

He said a decision to renew or not these contracts would have to be arrived sooner considering the implications. “The said provisions of the contract set to expire next year are onerous, burdensome and disadvantageous to the government. The Office of the Solicitor General [OSG] has said so,” Lista said.

A March 2017 legal opinion from the OSG states that if PNOC will comply with the terms in the present lease contract it will be in violation of provision of Republic Act 3019 (Anti-Graft Corrupt Practices Act) “since the lease price is way too low and is highly disadvantageous to the government”.