1

I. Introduction
The discovery of Liquefied Petroleum Gas contributed a huge change in the
way of living of people all over the world. It is very useful in cooking and also in
transportation as a substitute for crude oil.
It always helps to know how LPG usage can also cause some
disadvantages. The disadvantage of using LPG has something to do with storage
and safety. In storage of LPG, you require secure tanks and cylinders and the
gas has to be kept pressurized. Since Liquefied Petroleum Gas is highly
inflammable its prone to fire accidents. This can also be observed by the number
of cases LPG cylinders have exploded and resulted in serious damages to lives
and property.
II. Background and Historical Account of the Industry
A. History/ Discovery
1910
Dr. Walter Snelling, of the U.S. Bureau of Mines examine
gasoline to find out why did it evaporated so fast and discovered
propane, butane, and other light hydrocarbons are evaporating gases.
He built a still that could split the gasoline into its liquid and gaseous
components and sold his invention to Frank Phillips, the founder of
Phillips Petroleum Company.
1912
Propane gas was used for cooking food in the home.
1913
The first car powered by propane gas was ran.


2

1915
Liquefied Petroleum Gas has been used as a transportation
fuel, mainly in heavy trucks and forklift vehicles, and was used around
the world for more than 60 years.
1920
Liquefied Petroleum Gas was sold commercially
1987
The World LP Gas Association was established and its goal is
to be the authoritative voice of the global LP Gas industry representing
the full LP Gas value chain. Its aim is to add value to the sector
through driving premium demand for LP Gas, while also promoting
compliance to good business and safety practices.
B. History in the Philippines Setting
1940
Shell products, including Shellane LPG were being sold to more
areas in the Philippines through installations and depots set up in
strategic points throughout the country.
1954
Caltex established the first oil refinery in Bauan, Batangas.
1960
Stanvac established an oil refinery, with the construction of what
is now the biggest oil refinery in the country, the Bataan Refining
Corporation.

3

1962
A local player, Filoil Refinery, began its operations.
1971
Republic Act 6173 was passed creating the Oil Industry
Commission (OIC) which was tasked to regulate the oil industry and to
ensure the adequate supply of petroleum products at reasonable
prices.
1972
Presidential Decree 87 or Oil Exploration and Development Act
of 1972 was signed creating a Petroleum Board. Presidential Decree
334 created the Philippine National Oil Company.
1973
The government created a new body, the Philippines National Oil
Corporation (PNOC) with the intention of developing a full-range of
petroleum-related operations, including refining, marketing, shipping,
transporting, and storage. One month later, PNOC launched its refining
and marketing wing when it acquired Esso Philippines--marking the
end of Esso's involvement in the country--and the refining and
marketing operations of Filoil. Esso Philippines was then renamed as
Petrophil Corporation and later as Petron Corporation.
1975
The Energy Conservation Movement was launched through the
issuance of Batas Pambansa '76 which enabled the DOE to implement
energy conservation programs.
1977
Presidential Decree 1206 created the DOE with its two line
bureaus: Bureau of Energy Development and Bureau of Energy
Utilization.

4

1979
The commercial production of the country's first oil-field, Nido,
started at the rate of 40,000 barrels per day.
1982
Masinloc, the country's third oil field started commercial
production.
1984
President Ferdinand Marcos created the Oil Price Stabilization
Fund (OPSF) as a buffer fund to stabilize oil prices. When world oil
prices were lower than the corresponding fixed pump prices, the firms
contributed to the fund.
1989
Occidental Petroleum discovered the Camago-1 gas field.
1990
Republic Act 6957 authorized the financing, construction, operation
and maintenance of infrastructure projects by the private sector though
the BOT scheme. The West Linapacan oil field was discovered.
1995
Liquigaz started to operate.
1996
Republic Act 8184 or the Oil Tax Restructuring Bill was signed to
restructure the excise taxes on petroleum products.



5

1997
The launching of the "Window of Opportunity" which is a special
package for foreign and local investors in petroleum exploration and
development in the country.
1998
The implementation of Republic Act 8479 or the downstream oil
industry act of 1998. O-Ilaw project was launched, aimed at electrifying
100 percent of all barangays in the country by 2006.
1999
Passage of Republic Act 8749 or the Philippine Clean Air Act of
1999 wherein DOE will be one of the implementing agencies.
2000
The establishment of a "Corridor of Focus", an investment package
under the "Window of Opportunity" which is composed of more
prospective areas near the Malampaya gas infrastructure or the path of
the future Trans-ASEAN Gas Pipeline.
2000
The Liquefied Petroleum Gas Industry Association, Inc. ( LPGIA ) is
the only industry association from the Philippines which is a member of
the World LPG Association, the global voice for the LPG industry with
150 members from 90 countries, and which was given Consultative
Status with the UNESCO.
2002
The full commercial operation of the Malampaya natural gas
downstream oil sector. The Joint Congressional Power Commission

6

(JCPC) endorsed to President Arroyo the implementing rules and
regulations (IRRs) of the Republic Act No. 9136 or Electric Power
Industry Reform Act (EPIRA). The 1,500 MW Ilijan natural gas project
went on full commercial operation.
2009
A bill had been passed in the House of Representatives with that
would have the effect of closing down the establishments of
independent LPG players and hand back control of the LPG sector to
the oil majors. LPGMA and its allied group, LPGRA, lobbied hard in
the Senate to oppose the passage of the law. Congress has now
adjourned without the LPG bill being approved. It will not be surprising
if the bill will resurrect in the next Congress.
B. Personalities Involved and Significant Events and Major
Breakthroughs in its Operation
In 1972 Presidential Decree 87 or Oil Exploration and
Development Act of 1972 was signed creating a Petroleum Board.
Presidential Decree 334 created the Philippine National Oil
Company during the administration of Ferdinand Marcos.
In 1977 the Presidential Decree 1206 created the DOE with its two
line bureaus: Bureau of Energy Development and Bureau of Energy
Utilization during the administration of Ferdinand Marcos
In 1984, then President Ferdinand Marcos created the Oil
Price Stabilization Fund (OPSF) as a barrier fund to stabilize oil
prices. When world oil prices were lower than the corresponding fixed
pump prices, the firms contributed to the fund. When the opposite
happens, the firms drew from the fund.
When Corazon Aquino took over as President, she created the
Energy Regulatory Board (ERB) through Executive Order (EO) 172.

7

The ERB basically took over the functions of the OPSF. Most
importantly, the ERB was tasked with setting the prices of petroleum
products. It was also during her term that the Department of Energy
(DOE) was created through RA 7638. The Act was important for
mandating the DOE to provide for an environment of free market and
to institute, with the Presidents approval, the deregulation of the oil
industry.
As part of its general thrust of opening the Philippine economy
to market forces, the Ramos administration passed into law on
March 28, 1996, RA 8180, An Act Deregulating the Downstream
Oil Industry. It took effect on April 16, 1996. The major effect of this
Act was allowing oil firms to set their own prices. Unfortunately, the
Asian crisis caused the peso to depreciate from P28:US$1 to
P40:US$1. Naturally, the oil companies increased their pump prices,
since the Philippines imports practically all of its crude oil
requirements.
Under Arroyo Administration the Senate bill no. 264 was
approved and introduced by Senator Osmena III an Act Rationalizing
the Manufacturer, Repair, Requalification, Sale and Distribution of
Liquefied Petroleum Gas (LPG) Cylinders, providing penalties for
violation thereof and for other purposes.
III. Performance of the Industry
A. Number of Players/Competitors in the Industry and Market Share
As of 2011, based on the data from the Department of Energy,
there is a total of 8 LPG manufacturers in the Philippines and these
are: Petron, Petronas, Liquigaz, Eastern, Seaoil, Prycegas, Total Pet.
and Shell.
The top three LPG players based on the market share from the
Department of Energy was Petron got the biggest market share with a
39.50 percent share, followed by Liquigaz with a share of 26.40

8

percent. Next was Shell with a share of 16.50 percent and lastly
17.60 percent came from the other players in the industry.
Figure 1 - Market Share (Department of Energy)

The top three players in the industry as of 2011
B. Types of Product/ Service produced (Downstream Oil Industry)
Liquefied Petroleum Gas (LPG)
Refilling of LPG cylinders
Premium
Regular
Kerosene/AV Turbo
Diesel
Fuel Oil
Others

39.50%
26.40%
16.50%
17.60%
Top Industry as of 2011
Petron
Liquigaz
Shell
Other Players

9

C. Type of Competition (to identify the market structure)

Assumption Characteristics Market Structure
# of Sellers Few


Oligopoly
Conditions of Entry Difficult
Product Differentiation None to Substantial
Sellers influence on
price
Very influential
Buyers influence on
price
None
Extent of strategic
behavior
Very extensive
# of buyer Many

D. Degree of Competition among the players
Liquefied Petroleum Gas (LPG) is an Oligopoly type of market
because there are only 8 companies that can supply in the whole
industry, which are Petron, Liquigaz, Prycegas, Isla LPG and
Petronas. The entry in this kind of business is difficult because new
entrants need a lot of capital, documents etc. to be able to operate.
The entry in this kind of business is difficult because economies of
scale. There are many buyers in this kind of industry because people
usually people need LPG to cook food and now it is widely used in
cars such as in taxis as a substitute to the use of crude oil and also
because it is much cheaper. The sellers has the influence on the
price because the players are few and can set price but must take in
to consideration what is the price decision of the competitors.
Strategic behavior is very extensive because companies need to
strategize what to do in a specific situation and then pursuing tactics
that maximize their gains and minimize losses. The influence of buyer

10

towards this industry is none because the world market dictates the
price.
E. Pricing Behavior used by the players for revenue generation
The chief cause of oil price increases was the effect of
increases in the international price of oil specifically in the world price
of Dubai crude, since the researchers found out that Philippines
import basically all oil product requirements. Any changes that will
occur in the international oil price will give huge impact especially in
price.
Generally, oil companies appear to elevate prices at the same
time because of the nature of the product which is homogenous, also
competition is involved and market share is the focal point because
the companies wants a high profit, revenue and capital. This is an
indication that market forces are working. When products are
homogenous, when market share is the focal point, then the
competition is in full swing, people should expect that oil companys
prices will look as if to rise and fall at the same time.
The pricing strategy for LPG is price matching strategy, in
which a firm publicizes a price and a promise to equally lower the
price offered by a competitor. Since the prices of LPG offered by the
companies in the market is almost the same as it goes down or as it
goes up, some of the companies find ways to lower their prices
because competition is involve in the industry, the companies do this
to gain a high percentage of the market share and to increase number
of new consumers and also to maintain customer loyalty. The players
in the industry can merely adjust the price into a least amount in order
to be performing same as with other competitors, this allowed the
firms to set their own price. Since LPG is a homogenous product, it

11

can be distinguished as a differentiated product based on the brand,
patent, etc.
Figure 2- Price of Liquefied Petroleum Gas (Department of Energy)

The price of LPG goes up from 20.92 in 2009 to 31.33 in 2012
F. Production and cost behavior (to identify the economies of scale
and productive use of its inputs to production)
The industrys production primarily requires a plant which
must have innovated facilities, a great number of workers and
engineers specifically project engineer, refinery engineer, refinery
technician, planning analyst, environmental engineers, and heavy-
equipment operators. For delivering the product, firms are required
to have barges and vessels refilling trucks. For the storage of the
product, tank trucks, and cylinders are required.
The cost behavior refers to how a cost will react or change
as changes take place in the level of business activity
0
5
10
15
20
25
30
35
2012 2011 2010 2009
LPG

12

Variable cost varies in total and fixed cost is constant in total,
regardless of change in the level of activity.
The financial statement that the oil companies have is all
consolidated. The cost behavior was not distinguished.
Figure 3- Petron Liquidity Ratio

The Current ratio of Petron in 2010 and 2011 is higher than 1 so it
means that they have enough resources to pay its debt over the next
business cycle. The company has safe liquidity.
The Acid test ratio of Petron in 2010 is 1.16 it means that they have
enough liquid assets to cover their current liabilities but in 2011 their Acid
test ratio goes down to .88 means that their liquid asset isnt enough to
cover their current liabilities.




0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2010 2011
Current ratio
Acid test ratio

13

Figure 4- Petron Leverage Ratio

The Debt ratio of Petron in 2010 is .67 it means that they have
more assets than their debts. In 2011 it goes down to .66 means that they
also have more assets than their debts.
The Debt to equity ratio of Petron in 2010 is 2.03 means that
majority of the companys assets are financed through debt. In 2011 the
Debt to equity ratio of Petron goes down to 1.95 but it also means that the
majority of the companys assets is still financed through their debts.
Figure 5- Liquigaz Liquidity Ratio

0
0.5
1
1.5
2
2.5
2010 2011
Debt ratio
Debt- to- equity ratio
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2010 2011
Current Ratio
Acid Test Ratio

14

The current ratio of Liquigaz in 2010 and 2011 is above 1 it means
that the company has enough resources to pay its debt over the next
business cycle. This means that the liquidity of liquigaz is safe
The Acid test ratio of Liquigaz in 2010 is .71 it means that liquigaz
has low liquid assets to cover their current liabilities. In 2011 the Acid test
ratio goes up to 1.04 it means that they have enough liquid assets to cover
their current liabilities.
Figure 6 Liquigaz Leverage Ratio

The Debt ratio of Liquigaz in 2010 is .56 it means that they have
more assets then debt In 2011 it goes down to .47 means that their assets
goes up than their debts.
The Debt to equity ratio of Liquigaz in 2010 is 1.279 it means that
the companys assets are financed through debt. In 2011 the Debt to
equity ratio goes down to .899 means that the companys assets are
financed through equity.


0
0.2
0.4
0.6
0.8
1
1.2
1.4
2010 2011
Debt Ratio
Debt to equity ratio

15

Figure 7- Liquigaz Profitability Ratio

The illustration above shows that in 2010 the return on equity is
greater than the return on assets which means that there is a positive
leverage which is same as to 2011 though the ratio is lower.
Figure 8 Shell Liquidity Ratio

The Current ratio of Shell in 2010 and 2011 is higher than 1 so it
means that the company has enough resources to pay its debt over the
next business cycle. The Shell has safe liquidity.
0
0.02
0.04
0.06
0.08
0.1
0.12
2010 2011
Return on equity
Return on assets
0
0.5
1
1.5
2
2.5
3
2010 2011
Current ratio
Acid test ratio

16

The Acid test ratio of Shell in 2010 is .94 it means that done have
enough liquid assets to cover their current liabilities. In 2011 the Acid test
ratio goes up to 1.55 means that they have enough liquid assets to cover
their current liabilities.
Figure 9- Shell Leverage ratio

The Debt ratio of Shell in 2010 is .56 it means that they have more
assets than their debts. In 2011 their debt ratio goes up to .41 means that
they have more assets than their debts.
The Debt to equity ratio of shell in 2010 is 1.27 it means that
majority of the companys assets are financed through debts. In 2011 the
Debt to equity ratio goes down to .7 means that majority of the companys
assets are financed through equity.



0
0.2
0.4
0.6
0.8
1
1.2
1.4
2010 2011
Debt ratio
Debt to equity ratio

17

IV. Major problem/s Encountered or Currently Encountering by the
Industry and Its Policy Implications
A. The Problem/s Significantly Affect/s the Operation of the Industry
(from news articles etc. to be found at the appendices)

1. LPG being not included in the list of commodities in Section 3
of the price act- Republic Act No. 7581, also known as the
"Price Act": One of the major problems of the downstream oil
industry in LPG is the irregularities of the Republic Act No.
7581, Liquefied petroleum gas (LPG) is not included under the
list of commodities considered as basic necessities under
Section 3 of R. A. 7581, which is very essential to Filipino
people in case a calamity may occur. Unfortunately, liquefied
petroleum gas (LPG) is not included under the list of
commodities considered as basic necessities under Section 3
of R. A. 7581.
Since LPG is widely used and is a basic need by each
Filipino families is must be included in the list of basic commodities.
As such, the price of this actual necessity is automatically frozen at
prevailing prices during emergency situations. Thus, immediate and
direct benefit will redound to the people, considerably easing their
economic plight during times of distress.
2. Oil firms hike LPG prices: Oil firms raised prices of liquefied
petroleum gas (LPG) for household and automotive use. Petron
Corp. and Isla LPG implemented an increase of P6 per
kilogram or P66 per 11-kg cylinder of LPG, exclusive of value-
added tax. Petron also marked up prices of auto LPG by P3.76
per liter.
The problem signifies that there is an increase on the price of
LPG for the household and automotive uses. Companies like
Petron Corp. and Isla LPG increased their prices that will surely

18

touch the attention of the consumer due to the poverty here in the
Philippines.
3. Tight LPG supply nationwide to ease up by tomorrow: The
tight supply of liquefied petroleum gas (LPG) nationwide. The
ships arrived last Aug. 2, but they were prevented from
docking at the pier because of strong winds and heavy rains,
Bolisay said.
The problem talks about the tight supply of the LPG
nationwide that is happening in the LPG industry. This is true and
because of the tight supply of LPG, prices increases and it affects
the buyers. Heavy rains and strong winds are also included in the
problem because it delays and prevents the ships from docking at
the pier for the supply of LPG here in the Philippines.
4. Supply ng LPG nag-kakaubusan: NABABAHALA na ang isang
party list representative sa nangyayaring ngayong kakapusan
sa supply ng liquefied petroleum gas (LPG) sa merkado.
Bunsod nito nangangamba si LPGMA party list Rep. Arnel Ty
sa epekto ng maaring idulot ng shortage ng LPG sa merkado.
Idinagdag pa ng solon na marami sa mga LPG distributors at
refillers ngayon angnagrereklamo dahil hirap na silang bumili
ng normal na supply mula sa kanilang dating pinagkukunan.
The problem talks about the shortage of LPG supplies here in
the Philippines that may trigger the prices of the LPG products to
increase. It is also explained above that LPG distributors and
refillers now are having hard time on purchasing normal supplies of
LPG products from their suppliers. It puzzled the minds of the
retailers because there was no problem that occurred on the LPG
market here in the Philippines and even on the other countries.

19

5. DOE assures ample LPG supply: Independent players, for their
part, are having troubles in their supply
The problem is about the independent players in the industry
are experiencing shortage in their LPG supply. Due to the rough
sea and high water in the Bataan port which is also a factor to the
delay of the shipment.
6. Oil companies may be creating artificial shortage for
LPG windfall profit - party-list lawmaker: Alam ng (oil
companies) na may increase next month. Bakit biglang nawala
ang supply? Syempre magdududa ka niyan, Ty told GMA
News Online in a phone interview.
The problem is about the artificial shortage of LPG by the oil
companies and it goes at the same time with the increase of price
for the next month. This irregularity is very destructive because
people will panic buy because of the disreputable issue regarding
the LPG shortage.
7. Safety in transporting or delivering LPG Tanks- LPG tanks
explode as truck flips on SLEx: A six-wheel truck full of
liquefied petroleum gas (LPG) tanks fell on its side, leading to
several explosions which left the truck a wreck and traffic
snarled for hours.
The problem talks about the LPG truck that is swerving from
left to right that cause the truck to fell on its side. Because of the
drivers immature driving attitude, flames occurred and explosions
happened on Slex that leads to traffic. This problem deals with the
accidents being encountered by LPG trucks.

20

8. Govt to issue guidelines to ensure safe LPG trade:
Mishandling of LPG cylinders poses safety problems and fire
risk
This problem indicates the increase of accidents in
motorcycles because of mishandling cylinders, cylinders are usually
transported through motorcycles to be delivered to the consumers.
9. Major LPG player supports BFP call: The illegal manufacturing
of cylinders (most notably, the popular 2.7-kilo Super Kalan),
use of scrap or dilapidated cylinders, under-filling of cylinders,
illegal refilling and cylinder capturing and tampering (usually
done to steal and rename cooking gas tanks owned by a
company).
This problem specifies the contributing factors to LPG-
related blazes are the unsafe and unfair practices in the industry
such as illegal manufacturing of cylinders, use of scrap or
dilapidated cylinders, under-filling of cylinders, illegal refilling and
cylinder capturing and tampering.

10. LPG in Visayas, Mindanao overpriced, says party-list:
excessive prices of the cooking fuel in the Visayas and
Mindanao.
It has been observed that there is over pricing of LPG in
Visayas and Mindanao.
The researchers conclude that the problems in the
downstream oil industry mainly in LPG are as follows:
a) LPG is not included in the list of commodities in
Section 3 of the price act- Republic Act No. 7581.
b) The price hike by the companies
c) Shortage in the supply of LPG
d) Safety in transporting and delivering LPG

21

e) Mishandling LPG cylinders
f) The illegal manufacturing of cylinders, use of scrap or
dilapidated cylinders, under-filling of cylinders, illegal
refilling and cylinder capturing and tampering (usually
done to steal and rename cooking gas tanks owned
by a company).
g) The overpricing of LPG in Visayas and Mindanao
Mostly the problems deal with the shortage in the supply of
LPG but the researchers examine well to distinguish what the major
problem is.
The researchers came out with the illegal manufacturing of
cylinders, use of scrap or dilapidated cylinders, under-filling of
cylinders, illegal refilling and cylinder capturing and tampering
(usually done to steal and rename cooking gas tanks owned by a
company) as the industrys major problem. The problem mainly
addresses an extremely destructive issue which may cause
accidents to the consumers and to the illegal players and huge
losses to the legal players in the industry because of illegally using
their resources such as cylinders and also the illegal players sells
cheaper than the legal companies offer.
B. Specific Actions Done or Doing by the Industry to Address/Remedy
the Problem/s
Energy Secretary Jose Rene Almendras reported that the DOE
and the Department of Trade and Industry are prepared to penalize
hoarders that refuse to sell their inventory under existing rules,
overpricing of petroleum products like LPG is sanctioned with an
administrative fine of at least P10,000 and an appropriate criminal
sentence.

22

Undersecretary Jose M. Layug Jr. said We plan to increase
government action and enforcement on LPG compliance and
proper handling of LPG cylinders, What we are set out to do is
draft a circular mandating specific or minimum requirements for
transporting LPG cylinders specially on two-wheel vehicles,
Under the three terms of Councilor Dante Santiago, passed a
City Ordinance No. 42-2009 called the "LPG SAFETY
ORDINANCE OF SAN JUAN CITY that will penalize illegal refilling,
adulteration, underfilling, and underdelivering of LPG and
automotive LPG in the city.
The Department of Energy (DOE) is crafting new rules to ensure
safety standards on the supply and distribution of liquefied
petroleum gas.
Congressman Arnel U. Ty filed a complaint to DOE regarding
the overpricing of LPG in Visayas and Mindanao
C. Specific Government Policy/s to Address the Problem/s (Laws,
Republic Acts etc.)
Republic Act 8479 Downstream Oil Industry Deregulation Act
of 1998
Under the Downstream Oil Industry Deregulation Act of 1998, oil
companies can price their products based on market forces so as
to encourage competition. The deregulation law prohibits the
government from intervening or influencing the pricing schemes of
the companies. It ensures continuous supply of petroleum products,
and enhances environmental protection.
The Department of Energy, these rules shall apply to all persons
or entities engaged in any, a combination of, or all activities or
business of the downstream oil industry, such as importing,
exporting, re-exporting, shipping, transporting, processing, refining,

23

storing, distributing, marketing, and/or selling, crude oil, gasolines,
diesel, fuel, oils, aviation fuels, liquefied petroleum gas (LPG),
kerosene, and other petroleum products as herein defined, as well
as persons or companies directly importing refined petroleum
products for their own use or requirement. This shall be like wise
include the activities or business of blending, recycling, and/or re-
processing of petroleum products.

Additionally, R.A. 8479 aims to promote retail competition by
encouraging entry of new participants and preventing unfair trade
practices such as monopolization, cartelization, and predatory
pricing. It also specified incentives for new investments. Clearly,
these are laudable aims. But there are several considered not
considered in the new law. First, the new law does not consider the
vertical relations involving new and incumbent firms in this industry.
This is serious for the oil industry has historically been
characterized by a high degree of vertical integration. The probable
effect of having more firms in the industry has not been studied;
instead the framers of the law take it as a given that more firms is
preferable to less. Lastly, no overt relation between the need to
deregulate the downstream oil industry and national competition
policy has been made. This paper weaves together all these
considerations. (WorkingPaper-2008-03-Tanchuco, Republic Act
no. 8479.An Act Deregulating the Downstream Oil Industry and for
Other Purposes. Retrieved October 1, 2007, from
http://www.chanrobles.com/republicactno8479.htm )
It ensures a truly competitive market under a regime of fair
prices, adequate and continuous supply of environmentally-clean
and high-quality petroleum products.

24

The entry of new participants needs to secure important
papers and adequate measures to start in engaging in the industry
and shall report to the DOE his or its every importation/exportation.
It ensures continuous supply of petroleum products, and
enhances environmental protection.
The monitoring of the relationship between the oil companies
(refiners and importers) and their dealers, haulers and LPG
distributors to help ensure the observance of fair and equitable
practices and to ensure the enforcement of existing contracts.
DOE provides a "Philippine Downstream Oil Industry
Investment Guide" to new industry participants and prospective
participants. Which includes: introduction to the Philippine
Downstream Oil Industry and the government's unwavering
commitment to deregulation, the entry requirements, and
information on the benefits and incentives for new industry
participants.
DOE shall promote and encourage by way of information
dissemination, networking, and management/skills training, the
active and direct participation of the private sector and cooperatives
in the retailing of petroleum products through joint venture/supply
agreements with new industry participants for the establishment
and operation of gasoline stations: Provided, that the training herein
shall include LPG retailing.
They ensure fair competition and prevent cartels and
monopolies in the Industry, the following acts are hereby prohibited:
(a)Cartelization which means any agreement, combination or
concerted action by refiners, importers and/or dealers, or

25

their representatives, to fix prices, restrict outputs or divide
markets, either by products or by areas, or allocate markets,
either by products or by areas, in restraint of trade or free
competition, including any contractual stipulation which
prescribes pricing levels and profit margins;
(b) Predatory pricing which means selling or offering to sell
any oil product at a price below the seller's or offeror's
average variable cost for the purpose of destroying
competition, eliminating a competitor or discouraging a
potential competitor from entering the market: Provided,
however, That pricing below average variable cost in order
to match the lower price of the competitor and not for the
purpose of destroying competition shall not be deemed
predatory pricing. For purposes of this provision, "variable
cost" as distinguished from "fixed cost", refers to costs such
as utilities or raw materials, which vary as the output
increases or decreases and "average variable cost" refers to
the sum of all variable costs divided by the number of units
of outputs.
Republic Act 6173 or Oil Industry Commission Act
Petroleum and its products being vital to national security,
and their continued supply at reasonable prices being essential to
the general welfare, it is hereby declared to be the policy of the
State that the act and business of importing, exporting, re-
exporting, shipping, transporting, processing, refining, storing,
distributing, marketing, and selling crude oil, gasoline, kerosene,
gas and other refined petroleum products as well as the operations
and activities of natural and juridical persons, firms and entities
engaged in the petroleum industry shall be carried out in a manner
consistent with the public interest.

26

To assure the public of reasonable prices for petroleum
products considering the international price levels of crude oil and
petroleum products and after allowing for proper and reasonable
cost of importing, shipping, transporting, processing, refining,
storing, distributing, marketing and selling crude oil and petroleum
products in the Philippines, and for a fair and reasonable return;
and to prevent collusive practices in the industry, particularly as to
prices;
To protect gasoline dealers and distributors from unfair and
onerous trade conditions;
To minimize the cost of, and the outflow of foreign exchange
involved in, the operations of the industry.
Executive Order (EO) 172
This executive order has the power to fix and regulate the
prices of petroleum products; Fix and regulate the rate schedule or
prices of piped gas to be charged by duly franchised gas
companies which distribute gas by means of underground pipe
system; Fix and regulate the rates of pipeline concessionaries
under the provisions of Republic Act No. 387, as amended,
otherwise known as the "Petroleum Act of 1949," as amended by
Presidential Decree No. 1700; Regulate the capacities of new
refineries or additional capacities of existing refineries and license
refineries that may be organized after the issuance of this
Executive Order, under such terms and conditions as are
consistent with the national interest; Whenever the Board has
determined that there is a shortage of any petroleum product, or
when public interest so requires, it may take such steps as it may
consider necessary, including the temporary adjustment of the
levels of prices of petroleum products and the payment to the Oil
Price Stabilization Fund created under Presidential Decree No.

27

1956 by persons or entities engaged in the petroleum industry of
such amounts as may be determined by the Board, which will
enable the importer to recover its cost of importation. The penalties
for violation of or non-compliance with the terms and conditions of
any certificate, license or permit or any order, decision, rule or
regulation of the abolished Oil Industry Commission, Bureau of
Energy Utilization and Public Service Commission, shall, to the
extent applicable and appropriate in the light of the foregoing
transfers of powers and functions, apply to and may be imposed by
the Board.
Senate bill no. 268 house bill no.16 LPG Cylinder Act of 2004
was approved and introduced by Senator Osmena III an Act
Rationalizing the Manufacturer, Repair, Requalification, Sale and
Distribution of Liquefied Petroleum Gas (LPG) Cylinders, providing
penalties for violation thereof and for other purposes. Aims to
protect the interests of the consumer, protect his general welfare
and to establish standards of conduct for business and industry.
This Act can issue closure orders for violators. There are
corresponding penalties and fines for violators. These are
considered unlawful acts: Importation of used or second hand LPG
cylinders; RE-sizing and alteration of LPG cylinders; Repair and
requalification of LPG cylinders by persons who are not accredited
and/or certified by the DTI in accordance with Section 4 of this
Act; Sale and distribution of LPG cylinders considered substandard
as defined by the PNS; Tampering of existing cylinder markings to
convert from one brand to another; Manufacture and/or sale of
cylinder/s carrying a brand name, logo, mark or distinction without
the express approval of the registered brand owner; Manufacture of
cylinder/s using substandard or non-industrial quality steel plates;

28

and Wrong or misleading information stamped on the cylinder i.e.
tare weight, etc.
This policy indicates that the DTI have the right to Inspect
and evaluate LPG cylinders, whether local or imported, prior to any
sale or distribution to LPG refiners or refillers and upon repair or
requalification, and certify to their conformity to PNS and their
fitness for public sale and distribution.
This policy includes confiscating illegally manufactured,
repaired, altered and tampered cylinders, whether local or imported
to ensure consumer safety.
This Policy minimizes the unlawful acts of LPG retailers by
providing penalties and fines for violators and setting standards of
conduct for business and industry. This protects the general well-
being and interest of consumers.
A systematic and pragmatic framework is seriously needed
in order to monitor the LPG Industry ensure fair trade practice,
compliance with quality, safety and health standards. This bill
enjoins accountability and responsibility among LPG Industry
participants while ensuring that the industry and consumers alike
could partake of the benefits of deregulation.
D. Discussion on the Strengths and Limitations of the Above Actions
by the Industry and the Government

a. Energy Secretary Jose Rene Almendras reported that the
DOE and the Department of Trade and Industry are
prepared to penalize hoarders that refuse to sell their
inventory under existing rules, overpricing of petroleum
products like LPG is sanctioned with an administrative fine of
at least P10,000 and an appropriate criminal sentence.
Somehow with this the problem can be addressed.

29

The firms in the industry that does overpricing in the
LPG products are not fully observed by the DOE and DTI
maybe because the consumers are not aware that there is
an overpricing with some retailers thats why the consumers
cant report directly to the DOE and DTI.
The DOE and DTI still cant resolve the problem
because there are irregularities such as the owner of retailer
store is not around or the owners just give them money to
keep their reports and records clean, the officials must be
transparent to fully eliminate the following irregularities.
b. Undersecretary Jose M. Layug Jr. said We plan to increase
government action and enforcement on LPG compliance and
proper handling of LPG cylinders, What we are set out to
do is draft a circular mandating specific or minimum
requirements for transporting LPG cylinders specially on
two-wheel vehicles .
The DOE can only impose fines and file cases on
violators, while the Department of Trade and Industry is the
one that confiscates the substandard product.
The DOE wants to have confiscatory powers since it
only collects 40 percent of the fines it is supposed to collect.
DOE fines range from 1,000 to P10, 000 depending on the
frequency of violation. He said that the passing of the LPG
Bill into law will also give the DOE more enforcement power
to violators.
The problem cant still be eliminated, because
presently the accidents related in transporting the LPG with
a two-wheel vehicle still occur and even got worst. Because
of the improper choosing of human capital, some owners of
the firms just hire irresponsible drivers and also many drivers

30

are under the influence of alcohol or drugs and some are
short tempered regarding road fights and issues.
c. San Juan City passed a City Ordinance No. 42-2009 that will
penalize illegal refilling, adulteration, underfilling, and
underdelivering of LPG and automotive LPG in the city.
Santiago said that the clamor to ban and penalize the
use of tampered and substandard LPG cylinders and the
need to punish illegal refilling and the use of dilapidated LPG
cylinders have grown not only in the city of San Juan but in
other places as well.
"As the lawmakers of the city, the Sangguniang
Panlungsod members have acted to protect families, homes,
property and communities from the threat of fires and
explosions that may be caused by unsafe and illegal LPG
gas cylinders or refilling stations," Santiago explained.
The ordinance aims to control if not totally stop
unscrupulous LPG industry players who will sell tampered
and underweight LPG products.
The ordinance helps the city of San Juan to minimize
the LPG industry players who sell underweight LPG
products. There is a strict implementation during the term of
Councilor Santiago.
d. The Department of Energy (DOE) is crafting new rules to
ensure safety standards on the supply and distribution of
liquefied petroleum gas.
The department circular aims to set safety standards
in the supply chain, the plan for LPG is to create rules
requiring standards compliance certificate (SCCs) for

31

gasoline stations and even bulk suppliers. Non-compliant
firms will be prevented from doing business with other
market participants The DOE has received reports that even
auto LPG stations are refilling cooking gas cylinders.
The problem still exist because many LPG industry
players is not afraid because they know that they will not be
caught, but the reports received by DOE is helpful because it
will also minimize the unscrupulous activities in the industry.
The DOE still lacks full force in eliminating the irregularities
they needed to be solved maybe because they only have a
small number of human capital.
e. Republic Act 8479 or the Downstream Oil Industry Act of
1998
Under the Downstream Oil Industry Deregulation Act
of 1998, oil companies can price their products based on
market forces so as to encourage competition. The
deregulation law prohibits the government from intervening
or influencing the pricing schemes of the companies. It
ensures continuous supply of petroleum products, and
enhances environmental protection.
It ensures a truly competitive market under a regime
of fair prices, adequate and continuous supply of
environmentally-clean and high-quality petroleum products.
The DOE could not do anything to check a problem in
the absence of a complaint.
Since the oil companies can decide for the price of
their products, they can over-power the government, the

32

price will change anytime and the players in the industry will
be planning how much their prices will increase.
f. Republic Act 6173 or The Oil Industry Commission Act
It assure the public of reasonable prices for petroleum
products considering the international price levels of crude
oil and petroleum products and after allowing for proper and
reasonable cost of importing, shipping, transporting,
processing, refining, storing, distributing, marketing and
selling crude oil and petroleum products in the Philippines,
and for a fair and reasonable return; and to prevent collusive
practices in the industry, particularly as to prices.
To protect gasoline dealers and distributors from
unfair and time-consuming trade conditions.
Theres still no solution regarding shortage of supply
in LPG that results to oil firms raised prices of LPG.
g. Executive Order (EO) 172
It provides policy guidelines and regulatory framework
for the activities and operations of the energy sector.
Theres still no solution regarding shortage of supply
in LPG that results to oil firms raised prices of LPG.
h. Senate bill no. 268 or LPG Cylinder Act of 2004
To safeguard the public, the bill specifies unlawful
acts by industry players .and the corresponding fines and
penalties. Some of these acts are Manufacture, sale and
distribution of LPG cylinders without necessary Philippine
Standard License, Re-sizing and alteration of LPG cylinders,
and Sale and distribution of substandard LPG cylinders.
This bill seeks to establish a comprehensive
framework for the monitoring and supervision of the LPG
Industry under a deregulated market environment. Even

33

under such structure, the Government reserves the right to
supervise the industry and enforce necessary sanctions to
safeguard consumer and worker rights, protect the
environment, and preserve public welfare.
This law is not strictly implemented. There are many
unscrupulous LPG retailers or dealers that use second hand
LPG cylinders; RE-sizing and alteration of LPG cylinders;
Repair and requalification of LPG cylinders by persons who
are not accredited and/or certified; Tampering of existing
cylinder markings to convert from one brand to another;
Manufacture and/or sale of cylinder/s carrying a brand name,
logo, mark or distinction without the express approval of the
registered brand owner; Manufacture of cylinder/s using
substandard or non-industrial quality steel plates.
V. Areas for Future Policy Prescriptions
A. By Identifying the Strengths and Weaknesses, Provide a
Discussion of your Policy Prescriptions/Recommendations

STRENGTHS WEAKNESSES OPPORTUNITIES THREATS

-Necessity of
people
-Always in demand
-Easy to market
-Increases
economic growth


-Increase of price
-Hoarding or
shortage of LPG
supply
-Lack of freedom
(government
controlled)


-Few competitors
-Profitable
-Discovery of natural
gas
-Exploration of
locations wherein
natural gas may be
present

-New entrants of
competitors
-Continuous
government
interference
-Emergence of the
bote-bote method
of retailing



34

Alternative Courses of Action:
ACA 1: The Department of Energy should monitor oil prices
regularly
Advantages:
It will let the public know what it is monitoring and how it is
being done.
It will earn the trust of the public and dispel the impression
that it may be acting as spokesperson for the oil companies.
Enlist the assistance or cooperation of entities or persons
who have credibility and in whom the public can trust for
whatever information the DOE wishes to release on its
monitoring efforts.
Will enable to persuade oil companies to spread oil
increases into smaller price hikes over an extended period
and inform the public so that the public understands the
reason behind frequent oil price increases.
Disadvantages:
May be accused of fixed pricing with the players in the
industry.

ACA 2: DOE should continue its efforts to explore and develop
indigenous energy resources
Advantages:
Encourage the use of alternative energy sources.
Promote programs for the conservation of energy and
avoidance of wastages in the use of oil products.
Creates a vast quantity of employment.
Increases the economys profit.
Disadvantages:

35

It takes too long to fully stick with the countys own
resources.
High cost because of the machineries needed.
Low knowledge about oil exploration.

ACA 3: The government should create a regulatory act
regarding the compliance of the retailers with the
requirements needed to start a legal activity in the industry
Advantages:
There will be critical implementation of continuous
and rigorous checking of the performances of LPG
producers and retailers.
License and permit will be required and must comply
with the requirement.
The government will work against illegal activities in
the sector such as: illegal manufacturing of cylinders,
use of scrap or dilapidated cylinders, under-filling of
cylinders, illegal refilling and cylinder capturing and
tampering.
The government will be more vigilant and organized in
the strict, equitable and effective enforcement of
regulations.
The government will ensure the personal safety of all
inspectors especially in cases where syndicates and
persons with strong political/police connections are
involved in product pilferage and other illegal
operations.
Disadvantages:
There might be a special treatment to the player/s
especially if they offer a vast amount of money to hide
irregularities.

36

Recommendation:
The researchers recommend that ACA 3: The government
should create a regulatory act regarding the compliance of the
retailers with the requirements needed to start a legal activity
in the sector must be implemented by the industry and the
government because of its very helpful advantage such as: there
will be critical implementation of continuous and rigorous checking
of the performances of LPG producers and retailers, license and
permit will be required and must comply with the requirement, the
government will work against illegal activities in the sector, the
government will be more vigilant and organized in the strict,
equitable and effective enforcement of regulations, the government
will ensure the personal safety of all inspectors especially in cases
where syndicates and persons with strong political/police
connections are involved in product pilferage and other illegal
operations. The ACA 3 has the less disadvantage which include
that here might be a special treatment to the player/s especially if
they offer a vast amount of money to hide irregularities.
With the said recommendation, the researchers visualized
that the industry will perform well and even improve its capabilities
such as by, being transparent to the players and soon with the new
entrants in the industry. Also this will minimize the activities of
illegal manufacturers of cylinders, the usage of scrap cylinders,
under-filling of cylinders, illegal refilling of cylinders, and cylinder
tampering. Improve in providing the needs of the consumers
specifically in the LPG product by promising safety with properly
checking and inspecting the firms.
The researchers came out with the illegal manufacturing of
cylinders, use of scrap or dilapidated cylinders, under-filling of
cylinders, illegal refilling and cylinder capturing and tampering

37

(usually done to steal and rename cooking gas tanks owned by a
company) as the industrys major problem. The problem mainly
addresses an extremely destructive issue which may cause
accidents to the consumers and to the illegal players and huge
losses to the legal players in the industry because of illegally using
their resources such as cylinders and also the illegal players sells
cheaper than the legal companies offer.
B. Discuss your Own View on the Prospect of the Industry for the Next
Five Years
Arias In the next five years the researchers prospect would be
that the LPG industry in the Philippines will be having a vast
innovation specially in fully producing our very own oil without
relying from import. The researcher envisions that the LPG industry
will be operating with minimal irregularities and is working hard to
seek for the compliance of the oil companies specifically in the LPG
industry. Also new players will be present to competitively compete
with the current players in the industry
Bernardo- In the next five years there will be an increase of
demand in LPG. There will be a shortage of supply in LPG. There
will be new regulated price structure and new laws improving the
safety of LPG product.
Gabas- After five years the researcher see that the LPG companies
will be more competitive in the market and the products will be
improved in quality. There will be also many competitors that will be
entering in this industry. The demand for the LPG products will
reach its peak that will result to high profit for the companies.
Mariaca- The researcher see the LPG market has a very successful
one after five years because the companies will surely innovate
their products and improve the quality of technology that they will
be using to produce LPG products by the help of the best engineers

38

in the world. After five years, these companies will be spreading to
many parts of the world and Middle East will be a rich part of the
globe because of the never ending demand for LPG products to
each and every part of the world. Many entrepreneurs will be
entering this market and it might be the one of the best market that
will happen in the history.
Sangil- The researchers point of view in LPG business in 5 years is
that it will be successful as it is now because as the researcher
sees it, it is now also use in powering up out vehicle, why? Because
it is much cheaper than any other gasoline it is very effective for
those who wants to cut their cost. The cost of Diesel now it P42 per
liter and AutoLPG cost only around P25 what a big savings right.
Many individuals use LPG in their daily lives, for example in
cooking food. LPG is one energy source that is environmentally
responsible, secure, affordable and available on the spot so thats
one thing the researcher see why LPG will be successful in the
future.