PNOC warns vs PNOC move to amend lease agreement

By Lenie Lectura - September 24, 2017

https://businessmirror.com.ph/pnoc-warns-vs-pnoc-move-to-amend-lease-agreement/

PETRON Corp., the country’s largest oil refiner, warned government that prospective investors may lose interest in the Philippines if contracts entered into with the government are not honored.

“Government should always honor the contracts,” Petron President Ramon S. Ang said. “I could have problems with the refinery expansion…. Who will lend me money? There’s a threat to cancel the lease agreement. That is bad for investors,” Ang said.

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 property of the Philippine National Oil Co. (PNOC).

The properties have an area ranging from 321 sq m to almost 377,000 square meters. The contracts will expire in August next year.

The PNOC wants Petron to nullify certain provisions of existing lease agreements that will expire next year before negotiations for a renewal of these contracts takes place.

In particular, the state firm cited Section 2 of the lease agreements, which 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.”

Moreover, 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 square meter 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.”

Ang said Petron has every right not to nullify the said provisions because the contract calls for an automatic renewal under the same terms and conditions.

“They want us to waive our rights but we refused. We are willing to discuss a fair and reasonable valuation but we cannot waive our rights as these are stipulated in the contracts. They should honor the contracts. Waiving it is a risk to our billions of dollars of investment,” Ang added.

Petron plans to expand and reconfigure its Bataan refinery to be able to produce 260,000 barrels a day from the current 180,000.

However, it needs additional land to carry out its expansion plans. Ang said Petron asked the PNOC about this.

“The land required for this expansion is about 100 hectares, of which some can come from PNOC and most of the other properties are owned by other people. If we can acquire it by lease or acquisition from other people then we will consider to expand the refinery,” Ang said, adding that Petron is awaiting PNOC’s reply on the matter. Ang added he prefer to expand the existing Bataan refinery rather than put up a new one.

“If this can be done then we will just expand it because it is much cheaper and faster,” he said.

Ang said earlier the company was looking at putting up a new refinery at a cost of $15 billion to $20 billion and a capacity of 250,000 barrels per day. He said then that Petron was in talks with foreign partners for the project. “If it’s going to be a new refinery to accommodate, it will cost $15 billion to $20 billion,” Ang said. “If we expand the old refinery, it will cost $5 billion to $10 billion. If this investment is good for the country then why ask us to waive it?”