Who can stop price shocks?

A recently released Supreme Court ruling that gives the government the authority to intervene in fuel pricing and even take over the operations of oil firms will have far-reaching implications for the oil industry.

The SC reversed a 2013 Court of Appeals decision and said the Department of Energy is vested with the authority to oversee the deregulated industry under Section 14 (e) of Republic Act 8479, also known as the Downstream Oil Industry Deregulation Act of 1998.

Under the ruling, the President has the prerogative to determine national emergencies and the propriety of delegating authority to the DoE.

Citing Article XII, Section 17 of the Constitution, which allows the President to take over privately owned businesses with the public interest, the court recognizes the legal foundation for his broad powers to cap fuel prices during emergencies.

The case arose from a dispute in which Pilipinas Shell and Petroleum Corp., a unit of multinational Shell, contested the validity of Executive Order 839 issued by former President Gloria Macapagal Arroyo in 2009.

The EO directed oil firms to maintain prices after tropical cyclones “Ondoy” and “Pepeng” hit, resulting in massive damage to the country.

The Makati Regional Trial Court sided with Shell, declaring Section 14 (e) void, but did not rule on the validity of EO 839 due to subsequent actions by the government.

The petitioners appealed to the CA, which upheld the decision regarding Section 14 (e) but still did not address the EO, which was rendered moot by the issuance of EO 845, lifting its mandates and discontinuing oil price controls.

According to the decision, the SC settled that laws, including ordinances enacted by local government units, enjoy the presumption of constitutionality.

“To overthrow this presumption, there must be a clear and unequivocal breach of the Constitution, not merely a doubtful or argumentative contradiction,” the SC indicated.

“It added that the conflict with the Constitution must be shown beyond reasonable doubt. Where doubt exists, even if wellfounded, there can be no finding of unconstitutionality. To doubt is to sustain,” the tribunal ruled.

“Section 14(e) of Republic Act 8479 is a proper delegation of takeover power to the Department of Energy. Absent any actual proof from respondents that the exercise of this provision has caused it harm or injury, we hold that the challenge claiming the provision unconstitutional must fail,” the SC ruling said.

“Certainly, the temporary control over oil industry entities does not involve the suspension of constitutionally protected liberties, but the regulation of the operation of a public utility or a private enterprise that affects the public interest. This does not entail that the President personally handles the takeover,” a portion of the ruling read.

Significant in the ruling is the recognition of the President’s power to intercede and prevent the spiraling of oil product prices during periods of emergencies that the government determines.

The emergency “instances require the Chief Executive to act personally because the exigencies of the situation demand it.”

The secretaries of each department function as the President’s alter egos; however, they are not given complete discretion over how to exercise the delegated authority.

The doctrine of qualified political agency dictates that the President retains control, having the authority to “confirm, modify[,] or reverse the action taken by his department secretaries.”

In short, the ruling recognizes the President’s prerogative to determine a critical situation and influence the prices of commodities, primarily petroleum prices.

Under the ruling, the President has the prerogative to determine national emergencies and the propriety of delegating authority to the DoE.

According to the decision, the SC settled that laws, including ordinances enacted by local government units, enjoy the presumption of legality.