Petron urges PNOC to honor all terms of land lease deal

MANILA, Philippines – Petron Corporation, the country’s biggest oil refiner, warned that investors might lose interest in the Philippines if the government decides not to honor some terms in any concession agreement.

“Government should always honor the contracts. 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,” Petron president Ramon Ang said last week.

This was his reaction to the Philippine National Oil Company (PNOC) wanting to cancel out certain terms of its lease agreement with Petron, which is set to expire in August 2018.

The contract covers a total of 32.2 hectares across the country.

The Ang-led oil refiner has established 67 service stations and 24 bulk fuel plants within PNOC properties.

These PNOC-owned lands range from 321 square meters (sqm) to 377,000 sqm.

PNOC had expressed intent to invalidate Section 2 of the lease contract. This section states that “in case the parties fail to come to an agreement, same terms and conditions will apply except the initial rental rate for the renewal period will be the rental rate at the time of expiration plus 2% thereof. [S]ubsequent rental rate shall be escalating by 2% per year.”

The state-run agency had also wanted to nullify Section 3 of the contract, providing 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,” it added.

Financial risk

For Ang, waiving the terms of the agreement is a risk to its “billions of dollars of investment.”

“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,” the Petron chief added.

Petron has been eyeing the expansion of its plant in Bataan, by leasing some additional PNOC land. Once expanded, plant production would increase to 260,000 barrels a day, from the current 180,000.

Ang said expanding the old refinery will cost $5 billion to $10 billion. (READ: Petron net income surges to over P8 billion in 1st half of 2017)

“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,” he said.

“If we can acquire it by lease or acquisition from other people then we will consider to expand the refinery.”

Ang added that Petron prefers to expand its refinery rather than build a greenfield plant, which would be costlier.

“If this can be done then we will just expand it because it is much cheaper and faster. If it’s going to be a new refinery to accommodate, it will cost $15 billion to $20 billion.” – Rappler.com