Petron hauls PNOC to court over land lease contract

MANILA, Philippines — Petron Corp. has filed a case against Philippine National Oil Co. (PNOC) for breach of a binding and compulsory sale-leaseback contract.

PNOC is asking Petron to waive the contract renewal clauses or else it will terminate the contract which threatens to hurt the oil firm’s operations, its shareholders, as well as its customers, the country’s largest oil refiner said.

Petron has existing lease agreements with PNOC for the sites of its $3-billion refinery in Bataan, 24 bulk plants and 67 gasoline stations. These lease agreements are set to expire on Aug. 31, 2018.

In its complaint before the Mandaluyong Regional Trial Court (RTC), Petron sought a temporary restraining order (TRO) to “stop PNOC from performing acts aimed at ousting Petron of its leased properties.”

Petron said it offered to negotiate the agreement with PNOC as early as 2016 but was constrained to seek help from courts when PNOC president Reuben Lista communicated early this year that it will terminate the lease agreement with Petron, citing provisions in the contract that are allegedly disadvantageous to the government.

“If PNOC will continue to disregard its reciprocal obligations on the conveyance of our land, then they should return the properties to us. Petron has invested billions of dollars on these properties. PNOC’s actions clearly jeopardizes the country’s fuel supply security and government’s thrust to develop key industries,” the oil firm said.

Petron also cited two follow-up letters from Lista dated Aug. 1 and 31, 2017 demanding “to nullify certain provisions of the lease agreements that pose a stumbling block before we can proceed to negotiate the renewal.”

In the letters, Lista told Petron to abandon and start the cleanup of the contested sites on or before expiration of the lease.

Lista was also quoted as saying he had offered the properties to interested new independent oil companies.

However, Energy Secretary Alfonso Cusi – who sits as PNOC board chairman – said the state-run firm is still open to negotiate with Petron.

“I’m sure Petron will look at things squarely. The board made a negotiating team,” Cusi said. “We cannot unilaterally remove.a provision.”

While there is no schedule on the negotiations yet, the energy chief ordered the PNOC board to come out with a report as soon as possible.

However, Petron said the leased properties are originally owned by the oil firm and acquired over several years to be used for its refinery, distribution and sales operations. 

Petron, however, was compelled to give up its land to PNOC in 1993 to comply with the requirements of its privatization, which was then partly owned by Saudi Aramco.

To secure foreign and local investments in Petron and ensure stability of its operations, the transfer of the properties was enabled through a deed of conveyance and lease agreements that guaranteed its long-term and continuous use by Petron.