INTRODUCTION

The Philippine National Oil Company was established in 1973 to ensure an

adequate supply of oil and oil products to sustain the economy’s growth and the
nation’s social well-being. Since then, the Philippine National Oil Company
(PNOC) have been made to its charter to include the country’s exploration,
exploitation, and development of all energy resources.

In September 2014, the Governance Commission for GOCCs (GCG) mandated the
transformation and reorganization of PNOC from a purely holding to an operating
company.

The transformation of PNOC from a holding company into an operating company

was jumpstarted by the abolition of two subsidiaries: the PNOC Alternative Fuels
Corporation (PNOC-AFC) and PNOC Development and Management Corporation
(PNOC-DMC). The GCG recommended PNOC’s assumption of all remaining
assets and liabilities and ongoing projects of the dissolved subsidiaries. However,
PNOC remains performing its role as a holding company to its remaining two
operating subsidiaries: the PNOC Exploration Corporation (PNOC-EC) and the
PNOC Renewables Corporation (PNOC-RC). As the parent company, PNOC
continues to exercise oversight over its subsidiaries programs and projects,
providing financial assistance whenever necessary.

In line with this thrust, PNOC underwent an overhauling of its corporate structure
according to the GCG-approved reorganization plan under Memorandum Order
No. 2018-05 to attain optimum efficiency in the allocation of resources and
services by minimizing organizational levels, combining common functions and
changing its structure and staffing patterns. PNOC undertook the development of
future energy programs and projects according to its mandate.

The GCG-approved PNOC Charter Statement and Strategy Map, one of the
company’s projects, initiatives and activities are all geared towards the company’s
vision is the provision of vital energy resource development resource
development and energy infrastructure conducive to a clean environment and
a balanced and sustainable growth for the country.
 Currently, PNOC’s programs and projects include the management of its real
estate assets, the banked gas, and the efficient operation of Energy Businesses: the
management and operation of the Energy Supply Base (ESB) in Batangas and the
PNOC Industrial Park in Bataan.

PNOC is also involved in research for the development of various energy-related

infrastructure projects aimed toward achieving energy security and stability.

PNOC is planning to construct a crude oil refinery with a production capacity of

150,000 barrels per day (bpd) and it will located within the Limay and Mariveles
municipality of Bataan province, it will processes crude oil to produce a full range
of petroleum products, including gasoline, jet fuel, industrial fuel oil, diesel,
kerosene and liquefied petroleum gas (LPG).

This Crude Oil Refinery study aims to analyze dynamics within the Philippine
downstream industry, specifically gasoline, diesel, kerosene markets and issues
impacting competition. It describes the industry’s demand and supply structures,
including pricing, costs, market preferences, using the Structure-Conduct-
Performance paradigm to identify actual and potential competition issues. Through
the efforts and initiative of world class professionals, PNOC is committed to:
Develop and implement projects and programs in a financially prudent and
responsible manner aimed at increasing the country’s self-sufficiency level in oil,
gas and other energy sources; Foster sustainable and environment-friendly sources
of energy and promote energy efficiency and conservation; and Maintain the
highest standards of service and corporate governance.

The Philippine National Oil Company (PNOC) requested the Alset Power Company to render technical
assistance in continuing feasibility studies on a Crude Oil Refinery Plant construction plan in the country.
Prior to this request, “Alster Power Company’s Attorney and each Partners engaged in a meeting with
PNOC President for the Industrial Development in Limay and Mariveles, Bataan and it was carried out
last year by Alset Power Company as the first undertaker of the Philippine National Oil Company. This
study proposes a number of industries as strategic sectors of Industrial Development which mentioned the
Phase 2 Refinery can be built in Phividec Industrial Authority industrial complex in Cagayan de Oro
beside the Mindanao Power Plant and Phase 3 Refinery can be built in the Visayas.
The aforementioned request by the PNOC was already understood that the Bataan Local Municipality of
placed the first priority on the petroleum refining among those industries proposed.
In response to this request, Alset Power Company organized a study team for the purposes of examining
the feasibility studies of refining construction in Bataan and of studying various problems concerning the
refinery construction. The purpose of this study is to gain a deeper understanding and assessment of the
structure, technical and operational practices and consumer preferences of the industry, the team
conducted interviews and questionnaires to the key along the industry supply chain (refiners, importers,
haulers/shippers or dealers and demand (consumer and transport groups), as well as to regulators (DOE).

Economic Framework
The Structure-Conduct-Performance framework is used to organize the
information and data gathered from the stakeholders to help understand the
industry. These kind of gathering data needs to establish the structure of various
sub-sectors of their supply chain, describe the behavior of buyers and sellers, and
assess the industry’s performance. A standard model of the competition in
economics is a “perfect competition market.” In such a made-model, there is a
multitude of firms selling a homogenous product. The implication is that firms
will be price-takers, since consumers can easily purchase similar products from
many competitors, an individual firm cannot set its price for too far from others.
The fuel being sold by various firms in the Philippine downstream oil industry is
sufficiently similar that the perfect competition model is deemed applicable. This
can result in price-taking behavior by industry players, especially if consumers
have information on alternatives and prices. This theoretical market model
concludes that firms set price equal to marginal cost in pursuit of profit
maximization. The long-run equilibrium further concludes that firms are forced to
set prices towards the point of lowest average cost and earn zero economic profit
or regular rates of profit commensurate to that earned on average in other sectors
of the economy.

The Petron Bataan refinery expansion, named Refinery master plan phase 2
(RMP-2), was initiated in April 2011 and began commercial operations in January
2016. The project was developed with an investment $2bn.

RMP-2 enabled the refinery to produce petroleum coke, which is used as feedstock
for the 140MW refinery solid fuel-fired boiler (RSFFB) to produce steam and
power for the refinery. The new power plant will help in generating energy
savings worth approximately P1bn ($20m) a year by improving the steam supply
to the refinery. The project employed 16,000 workers during the peak construction
phase.

Petron initiated the RMP-2 project to meet the growing energy needs of the
Philippines in 2011. It included increasing the capacity to process a wider range of
crudes at the refinery for the manufacture of new products, which are marketed
both domestic and foreign markets. The RMP-2 project enhanced the Philippines’
supply security and enabled the company to meet the growing demand for LPG,
gasoline, diesel and petrochemicals.

The expansion doubled the propylene production company and refining

complexity in the region. It was able to enable the refinery to adhere to Euro 5
global clean air standards to produce fuels, helping to improve the air quality.
Petron was also able to expand and strengthen its retail network, integrate the
petrochemicals business and increase its presence in the export market with this
expansion.
Caption