De La Salle University

Ramon V. del Rosario College of Business

Management and Organization Department

A Case Study on
Philippine National Oil Company Energy Development Corporation (PNOC-EDC)

In partial fulfillment
Of the course requirements in
BUS560M - Lasallian Business Leadership, Ethics and Corporate Social Responsibility

1st Term, A.Y. 2017-2018

Submitted by:

Group 5
Alariao, Christine Joy
Gono, Giancarlo
Raval, Ruby
Vergel de Dios, Ronnel

Submitted to:

Dr. Maria Paquita Diongon-Bonnet

7 November 2017
 I. EXECUTIVE SUMMARY

The Philippine National Oil Company Energy Development Corporation (PNOC EDC) was
established in 1976 to respond to the country’s increasing need of alternative, viable indigenous
energy solutions to reduce dependence on imported fuel especially during the global oil crisis in
the 1970s. PNOC EDC was the second largest producer of geothermal power in the world, a global
geothermal energy industry pioneer, and the recognized world leader in wet steam field
technology. It is also the largest vertically-integrated geothermal developer in the Philippines.

In 2006, PNOC-EDC’s Initial Public Offering was completed in December with the sale of 5.22
billion shares at Php3.20/share generating net proceeds of Php9.14 billion for PNOC and the
national government. A secondary offering for the sale of the additional 20% of PNOC-EDC
common shares was conducted in July 2007 at Php5.70 per share. In November of the same year,
the remaining 60% was auctioned, 40% in common and 20% in preferred shares. The sale of PNOC
EDC was completed on December 1, 2007 with the Lopez-led group of Red Vulcan Holdings
Corporation submitting the highest bid of Php58.5 billion, thus completing its full privatization. It
is now known as the Energy Development Corporation.

The company decided to provide a Php600,000 budget for the energy camps to be run in 2007. An
equity issue arise as to how this budget will be utilized. The workforce in Fort Bonifacio suggested
that the budget be used for the benefit of the employees rather than for outsiders. The employees
in Fort Bonifacio felt that they were spending way too much money for the townsfolk around the
company’s geothermal sites.

The CEO and President, Paul Aquino, rationalized that their own resources must be shared as well
to the community since they have given them so much in terms of natural resources. While the
budget of Php600,000 may seem small if compared to their total gross, the amount, if spent for the
camps organized for the community folk, would mean so much to the community especially to the
townsfolk. Moreover, if this will be given to the workforce in Fort Bonifacio, the budgeted amount
will be shared by many employees so the amount that will be received by employees may be
measly.

PNOC EDC had been running energy camps since 2004, with the pilot camp set up in Dumaguete.
Although the last three energy camps are successful in meeting its goals and objectives, the
employees in Fort Bonifacio continually questioned the subsidy provided for these camps.

In March 26, 2004, a tragic incident happened when a band of about 60 armed extremists seized
the company’s Php100-million Rig 8 in Barrio Tongonan in Kananga, Leyte demanding ransom
payment. PNOC EDC ignored the extremists’ demand and the extremist’s opened fire when the
police responded near the seized job site, killing some of the regular workers who were coming to
work. When Paul Aquino flew to Leyte to empathize with the bereaved families, he was surprised
when some of the townsfolk showed no sympathy or care for the bereaved family. He conducted
an informal survey and found out that the residents did not relate that much to PNOC EDC or even
to its employees. There seems to be an unhealthy relationship between the host community and
the company.

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 II. STATEMENT OF THE PROBLEM

How would the Company efficiently and effectively allocate its annual budget for energy camps
that fairly meet not only the needs of the host communities but also its employees?

III. OBJECTIVES OF THE CASE

1. To identify existing and potential challenges or issues in the subsidy of energy camps and
other CSR programs.
2. To determine different causes of underappreciation of its existing CSR programs especially
its employees.
3. To assess ethical concerns of the company among stakeholders.
4. To come up with a realistic, sound, and feasible recommendation that will benefit not only
the interest of the Company but also the stakeholders especially the employees.

IV. AREAS OF CONSIDERATIONS

The group will use the Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis to
summarize key facts of the case.

Strengths

1. Provided Alternative to Imported Fuels. The company’s operations had reduced the
country’s dependence on imported oil. They also provided foreign-exchange savings of
about US$3.1 billion since its operation in 1983.
2. Initiated Livelihood, Education, Health, and Environment CSR Programs. Environment
protection started as early as 1978 and community development in 1987. The company
paid royalties amounting to Php1.6 billion to its host province, municipality, or city and
barangays. They contributed a total of Php497 million to fund local livelihood,
environmental, electrification, and other developmental projects.

Weaknesses

1. Employees’ Predicaments. EDC employees in Fort Bonifacio does not empathize much on
the energy camp initiative since they are not aware of the situation.
2. Lacking in Security. The company should hire or provide tighter and more cohesive
security in building their geothermal plants.

Opportunities

1. Expansion through Local and Foreign Investments. They can further expand their business
through investments from other countries or from entrepreneurs. With the right investors,
they can even become the largest producer of geothermal power in the world.

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Threats

1. Demand for Solar Energy Systems. While both energies harness the power of the sun, the
demand for solar panels have increased especially in high-end subdivisions and
commercial establishments. It might seem costly at first but the overall return seems to be
favorable in the long run.
2. Extremists and Existence of NPAs. Even with top of the line security, the extremists can
still provoke and seize plants belonging to the company with their number.

V. ALTERNATIVE COURSES OF ACTION

The group has identified several alternative courses of action that will help EDC reach its
objectives. The establishment of every alternative’s pros and cons will help narrow the options to
reach a specific objective.

1. Provide Corporate Social Responsibility (CSR) programs and activities that encourage all
employees (home office, project site, and host communities) to participate (e.g. Service
Learning Programs)

Pros
a. It bridges the gap of unhealthy relationship between employees and host
communities.
b. It increases business operation awareness of home office employees.

Cons
a. It can exceed their allocated budget.
b. Difficulty in managing employees and host communities.
c. It requires extensive planning.

2. Retain the allocation of energy camp budget to host communities (status quo)

Pros
a. Increase concern and awareness to host communities.
b. Fosters good working relationship between employees and host communities.
c. It promotes community development.

Cons
a. Home office employees might feel neglected when it comes to budget allocation.

3. Allocate all the budget to Fort Bonifacio employees

Pros
a. Considers the welfare of home office employees.

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 Cons
a. The removal of energy camp budget to host communities can damage brand image
to host communities.

VI. DECISION MATRIX

For the decision matrix, the group utilized the Markkula framework for ethical decision-making
to assess the alternative courses of action depending on the framework’s ethical standards.

Ethical Standards Definition Weights

This is a criterion in which an ethical action provides the
Utilitarianism 15%
greatest balance of good over harm to affected people.
This is a criterion in which an ethical action protects and
Rights and Duties 20%
respects the moral rights of affected people.
This is a criterion in which an ethical action treats every
Justice and Fairness 20%
person with equality and fairness.
This is a criterion in which an action contributes to the
Common Good 25%
common welfare or good of everyone affected.
This is a criterion in which an ethical action ought to provide
Virtue Ethics 20%
consistent ideal virtues to the development of humanity.
TOTAL 100%

The group evaluated the options based on these guide questions:

 Which option will produce the most good and do the least harm? (The Utilitarian
Approach)
 Which option best respects the rights of all who have a stake? (The Rights Approach)
 Which option treats people equally or proportionately? (The Justice Approach)
 Which option best serves the community as a whole, not just some members? (The
Common Good Approach)
 Which option leads me to act as the sort of person I want to be? (The Virtue Approach)

Criteria Weight ACA #1 ACA #2 ACA #3

Utilitarianism 15% 14% 13% 11%
Rights and Duties 20% 19% 18% 15%
Justice and Fairness 20% 18% 16% 14%
Common Good 25% 24% 20% 17%
Virtue Ethics 20% 18% 16% 13%
TOTAL 100% 93% 83% 70%

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 VII. RECOMMENDATION

The utilization of Markkula framework to assess the alternative courses of action helped the group
to come up with a sound and equitable recommendation. From the above decision matrix, the
group recommends the company to provide other service learning programs (CSR) that will not
only benefit the host communities but also the home office employees. They can provide energy
camps for home office employees’ children, siblings, or even volunteer themselves to participate
or help conduct the camps.

With this move, the company can still continue to give back to the community in their project sites
(host communities) and ensure equity between the two stakeholders. The home office employees
will have a better understanding as to why these camps are initiated and conducted. They will not
feel abandoned or neglected when the budgets are allocated to various energy camps. There will
be a renewed sense of compassion, empathy, and social responsibility to others.

This course of action will serve not only the needs of the host communities and its residents but
also the other stakeholders. The collaboration that will be formed from these service learning
programs or CSR activities will surely benefit the company in the long run, from improved
geothermal plants services and several productive livelihood programs to sustainability in the
future.

VIII. REFERENCES

Energy Development Corporation. 2017. About Us: Who We Are.

[http://www.energy.com.ph/edc-at-a-glance/who-we-are/]. Accessed November 7, 2017.

Philippine National Oil Company. 2017. About PNOC: Milestones.

[http://www.pnoc.com.ph/aboutpnoc.php?sectionid=ac587724-1514-11df-a7de-
92d1637a39b1&menuid=b9077b2f-154e-11df-93b0-42bae035655c]. Accessed November 7,
2017.

Santa Clara University. 2009. A Framework for Ethical Decision Making.

[https://www.scu.edu/ethics/ethics-resources/ethical-decision-making/a-framework-for-ethical-
decision-making/]. Accessed October 22, 2017.