“Ashmore has been investing in the Philippines since the 1990s and has exposures in Maynilad, Alphaland, Subic Power, to mention a few.”
by Ducky Paredes
In the end, the government did the only thing it could do with the offer of Ashmore, a leading emerging markets fund manager based in London, to purchase the 40% share in Petron of Aramco, the Saudi Arabian petroleum company.
During the term of President Fidel Ramos, the idea privatization was the thing for governments to do; the other idea of partnering with Saudi Arabia also seemed like a great idea. Thus, when Petron, 100% owned by the government was privatized, 40% of Petron was offered to Aramco Overseas Company BV. Another 20% was sold to the investing public and second 40% remained with the Philippine National Oil Company (PNOC),
The partnership between PNOC and Aramco was sealed on Feb.3, 1994 when the two parties signed a Share Purchase Agreement (SPA). Thus begun the union between the country’s largest oil refining company and the world’s number one exporter of petroleum.
Petron supplies more than 41% of the country’s oil requirements while Saudi Aramco supplies more than 56% of the world’s. More than 92 % of Philippine crude oil requirements come from the Middle East.
Recently, however, for whatever reasons it may have had, Aramco decided to totally divest its shares in Petron. Aside from economies of scale, the Arabian company had decided to pursue still another oil development project that will boost its oil production output from 11 million barrels per day (MBPD) to 12.5 MBPD.
Last March, as provided for in the exit clause of the 1994 SPA, a 60-day notice ending May 11 was issued to the PNOC by Aramco asking the former to exercise its right of first offer (ROFO) to buy its 40% share that it had offered to the Ashmore Group of London.
With Aramco’s announcement of divesting its shares, three courses of action were open to PNOC:
PNOC could exercise its Right of First Offer (ROFO) within 60 days upon receipt of the Transfer Notice; or, it could assign its ROPO to a third party; or, just do nothing and not avail of the ROFO.
(There were feeble efforts to extend the deadline but Aramco rejected these outright because it would adversely affect Aramco and Ashmore’s business plans.)
Should PNOC have grabbed the 40% Aramco shares? PNOC and government do not have the financial capability to pay Aramco the $687.60 to $825 million required to cover the transaction. The government has to work with budgets and no appropriation for such an amount had been set aside.
Also, under our present fiscal situation, that money could be better used to address the requirements for food, housing, infrastructure, education, livelihood, alternative energy search and other pressing social and financial concerns.
Also, a government buy back would run counter to the liberalization and privatization policy.
Government control of Petron would not necessarily translate to lower oil prices since pricing is determined by the oil producing countries and not by the Philippine government
The petroleum business is a supply-and-demand driven industry. (Predictions are that the ever-increasing demand from China, India, Korea and Japan will not diminish and may even increase, regardless of the soaring cost of oil.)
If the government decides to borrow to bankroll its repurchase of Petron, such borrowings would increase interest expense and negatively affect our fiscal position since this is not part of the programmed borrowings for 2008
According to the Department of Budget and Management (DBM), making such a huge payment would cause a budget deficit of P23 billion, pointing out that this amount could be more useful in building more than 1,000 kilometers of road or other necessary projects.
It is also pointed out that with the global experience of Ashmore and its presence in major capitals around the world (including the Philippines where it has large investments in real estate, among others), the share value of Petron would rise in our stock market impact on the 60% owned by local investors and PNOC. This can then be sold at a very high margin in pursuance of the government’s liberalization and privatization policy.
The idea that re-nationalization of Petron would enable government to control the movement of petroleum products locally is invalid. How can this happen when the main pricing decisions are made abroad and are dictated by the OPEC?
As to the Ramos reason for bringing in Saudi Aramco in order to assure us a steady supply of oil, Aramco has done that for us by affirming its commitment to supply the Philippines with oil in case of shortages up to 2014. Saudi King Abdul Azziz made the same commitment to the President when she visited the kingdom in 2006
The buyer, Ashmore Group was established in 1992 as the emerging markets division of Australia and New Zealand (ANZ) Bank. It was spun off in 1999 as a result of a buyout by managers of the fund. Ashmore is the founder and co-chair of the Emerging Markets Trade Association (EMTA)
It was listed in the London Stock Market in 2006. As of 2007, Ashmore managed US$365 billion in pooled funds and structured products that cater to institutional clients worldwide, including central banks, governments, public corporations and giant insurance companies. The investment in Petron is held by four funds with a net asset value of US$9 billion.
Ashmore has been investing in the Philippines since the 1990s and has exposures in Maynilad, Alphaland, Subic Power, to mention a few. Ashmore also has large invested funds in China, Indonesia, Russia, South America, Singapore and Thailand.
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We found out from the congressional hearing on power that a power company was allowed up to 1% of all its sales as its own consumption that it could charge its clientele. Considering the size of Meralco’s sales, this is in the millions of kilowatt-hours monthly which could give all of its executives and even some Lopez companies free electricity.
This is a bad regulation. Sure, a franchise-holder in a rural area could probably use up to 1% of its sales for its offices but with the large Meralco franchise area, even .01 percent (a hundred times less than what Meraco now claims for its own consumption, as allowed by the ERC) would probably already suffice to take care of all the Meralco offices.
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hvp 05.13.08)
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