CHAPTER CLOSED: PNOC formalizes PhP116 Million Settlement Agreement with PNOC EC for Batangas Energy Supply Base after six years

‘CHAPTER CLOSED.’

State-run Philippine National Oil Company (PNOC) has officially paid PNOC Exploration Corporation (PNOC EC) a Settlement Agreement worth more than PhP116 Million for the Batangas Energy Supply Base (ESB) Port. This payment comes six years after the transfer of the project assets formerly owned by PNOC EC.

Last 13 March 2024, PNOC EC President Franz Josef George E. Alvarez and PNOC President Oliver B. Butalid finally concluded the long-standing negotiation on the payments for the turnover of the Batangas ESB from PNOC EC to PNOC in 2018. Both presidents signed the agreement inside the Office of the PNOC President at Bonifacio Global City, Taguig.

Moving forward, the settlement amount will be allocated for the benefit of the members of the company and will serve as additional support to PNOC EC’s immediate projects set this year until the next five years.

 

ESB: Where it started

Specifically located in Mainaga Mabini, Batangas, the ESB was primarily established to support the logistical needs of the energy industry. The support expanded to other commercial clients following the granting of a Permit to operate “as a private commercial port” by the Philippine Ports Authority (PPA) on 8 October 1996.

According to its project description, the ESB is a “private commercial port with excellent berthing, cargo handling, storage, and warehousing facilities that continues to serve the needs of various oil and energy-related companies.” This means that the port serves as a support to energy-related exploration activities, offering pier services, handling of cargoes, equipment rental, manpower services, and water bunkering, among others.

In 1994, PNOC EC absorbed the Batangas ESB from Petron and operated the project from then on. However, the former had to transfer the ownership to PNOC in adherence to the mandate of the Governance Commission for GOCCs (GCG), through Memorandum Order Nos. 2014-25 and No. 2014-26.

Under this, the GCG directed PNOC to restructure its organizational framework upon dissolving two subsidiaries — PNOC Development Management Corporation (PNOC DMC) and PNOC Alternative Fuels Corporation (PNOC AFC).

In compliance, PNOC drafted a letter dated on 20 February 2017, stating that the PNOC Group supports the transition to a fully operational entity, while its subsidiaries, including PNOC EC, prioritize initiatives directly attached to its core mandates.

This signified that PNOC had to transition from functioning solely as a Holding Company that administers and monitors operations of its subsidiaries, to an Operating Company that actively participates in the operations itself.

With this, PNOC and PNOC EC collaborated to facilitate the transfer by establishing a Transition and Turnover Plan through a joint Technical Writing Group (TWG) composed of representatives from both companies.

 

The transfer of assets to PNOC

On 23 February 2017, a PNOC EC Board Resolution was issued in approval of the transition and transfer of ESB Operations to PNOC, followed by the Certificate of Assumption on 1 January 2018. This signaled the official turnover of the ESB to PNOC.

The assets were categorized into three: “Permanently fixed to the ground,” “Machinery, furniture, and office equipment,” and the “Unserviceable items for disposal.”

As indicated in the Settlement Agreement’s key provisions, “Permanently fixed to the ground” assets include Administration Building, Guard House, Warehouses, Truck Scale, Triangular Pier, open yard, roadways, canals and drainage, RoRo ships, and the entire ESB Compound, among others.

“Machinery, furniture and office equipment” such as office tables, machines, and similar items amounting to more than PhP2 Million worth of assets were transferred to PNOC via a Plant and Equipment Transaction Receipt (PETR).

Further, as also stated in the key provisions, the Department of Energy (DOE) directed PNOC EC to engage in a Lease Agreement with PNOC for service vehicles and forklifts, identified as “Unserviceable items for disposal.” The said agreement pertains to the renting of storage space, now owned by PNOC, for the remaining assets in the ESB compound.

 

COA call for collection

On 22 February 2019, the Commission on Audit (COA) issued an Audit Observation Memo (AOM), recommending PNOC EC to enforce the collection of PNOC’s acquisition of the project.

Additionally, COA emphasized that there must be a written agreement signed by all parties to be adhered to.

This, however, underwent a series of discussions, traversing across administrations in both companies for six years.

 

Chapter Closed: The Settled Agreement

Amidst the complexities of the six-year negotiation between the two companies, the agreement has finally been formalized under the time of PNOC EC President Alvarez. The successful close was notably facilitated by his good relationship with PNOC President Butalid, underscored by their shared understanding and alignment of views.

The settlement agreement showcases a positive step forward for PNOC and PNOC EC as they work together to advance energy infrastructure development in the country.