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Filipino gas first

THE unprecedented heat wave now sweeping the Philippines has sounded the alarm about the sufficiency or insufficiency of the country’s power supply and the need to find solutions fast.

One solution, however, has been presented and needs only quick action by Congress to be deployed, as soon as possible, to the frontline of our current battle for energy stability: the continued production of indigenous natural gas from Malampaya and the unleashing of more natural gas potential from new wells.

Such continued production will be hugely assisted by a Senate bill that would make indigenous or local natural gas supply the priority in use for power generation. Natural gas is already there. Malampaya has already shown it can deliver in the most urgent of times.

On April 16, when the power supply was faltering, Malampaya was able to supply above capacity. This was while other plants were deemed unreliable that transmission company, the National Grid Corp. of the Philippines (NGCP) had to declare yellow and red alerts.

The Malampaya operators estimated that the supply of Malampaya gas peaked at 290 million standard cubic feet per day (Mmscfd) against a maximum capacity of 262 Mmscfd. When the need arose, the will to deliver rose higher.

The response was quick on the part of the Malampaya operators, allowing the convenience of moving excess electricity from one grid to another in danger of falling short. It brought to the fore a valuable lesson in problem-solving — brilliant ideas are worth nothing unless implemented.

Its operators are already displaying world-class expertise in running the gas platform and are expected to bring this gold standard to the table when they start drilling up to three new wells, a commitment they made when Service Contract 38 was renewed.

The Senate’s Committee on Energy, led by its chairman, Sen. Raffy Tulfo, is currently hammering out Senate Bill 2247, or the proposed Philippine Downstream Gas Industry Development Act. It aims to fill the gaps in the further development of Philippine natural gas resources, including future ones.

The bill would make it state policy to use Filipino gas first, which would unlock and open the doors to a wave of investments not seen before in the Philippine energy sector.

What the bill seeks to do, which hasn’t been done before, is to fix a policy that would not only push the discovery of new natural gas wells but also its use for power generation as a priority over imported fuel, in this case, LNG.

It will not only complement but strengthen the continued operation of Malampaya under its Service Contract 38, which the Marcos administration extended by another 15 years.

The timing of SB 2247 couldn’t be more perfect as it will lay the foundations of a strong Filipino gas industry that would shield us from the need to import LNG at exorbitant prices.

SB 2247 is now being fine-tuned by the Senate committee’s technical working group even as the committee chairman, Tulfo, stressed the urgency of the proposed measure’s passage in light of the need to keep gas flowing from Malampaya.

“Filipino gas first” is a policy that is the most practical solution to keeping power generation costs low, as indigenous gas is definitely less costly than imported LNG. The Department of Energy has given its nod to SB 2247.

Sunfu: A test case for competition laws

An interesting case that may strengthen the legal framework against anti-competitive conduct in the Philippine business environment is pending with the Court of Appeals. In an economy dominated by monopolies and duopolies propped up by a legal system dominated by oligarchs, much of the work of the Philippine Competition Commission appears to focus on the review of proposed mergers and acquisitions, which tend to lessen the number of players in a given industry.

The preferred regulatory mode focuses on agreements, and not much attention is given to seemingly unilateral behavior by companies, which constitutes anti-competitive conduct. That may change with a legal suit involving alleged manipulation of the bidding process in government procurement.

Sunfu Solutions Inc., a Filipino-owned distributor of medical equipment, had accused the Japanese Fujifilm Philippines, a major player in global imaging, of unfairly influencing the outcome of bidding for the supply of medical equipment in the new OFW Hospital.

Sunfu alleged that Fujifilm engaged in anti-competitive conduct by manipulating distributor certifications to favor a specific bidder. It thus filed a complaint with the Philippine Competition Commission, seeking the “conduct of full administrative investigation against Fujifilm, imposing the maximum amount of administrative fines; and initiating civil and criminal proceedings against Fujifilm for violation of competition laws.”

However, the PCA dismissed the complaint without even conducting a full administrative investigation, citing supposedly insufficient evidence that the manipulation fell under anti-competitive concerns defined by the Philippine Competition Act. But the case was raised by Sunfu lawyers, Aceron & Attorneys, to the Court of Appeals, thereby giving a chance for the case to be reexamined for its merit.

Anti-competitive behavior

The essence of Sunfu’s complaint centers on the claim that Fujifilm unilaterally revoked Sunfu’s “First Tier Distributor Certification” during an ongoing bid to supply the OFW Hospital, thereby giving another bidder an undue advantage. Such certification acts as a guarantee for the manufacturer to support the bidder once the contract is awarded, thus assuring the procuring government entity and the end users that the item purchased would be per specifications, including warranties in performance.

Fujifilm had issued Sunfu such First Tier Certification, which is exclusive in industry practice. When Sunfu was about to undergo post-qualification procedures under the rules of Republic Act 9184, Fujifilm refused to validate without any reason the certification it issued earlier to Sunfu.

It turned out that Fujifilm had issued a similar First Tier Certification to another bidder and conveniently revoked Sunfu’s own certification, thereby ensuring the latter would be disqualified and the bidding awarded to the other bidder that it secretly backed. The outcome of the bidding, therefore, was effectively decided by the manufacturer Fujifilm, not by any genuine and fair competition among the bidders.

According to the Philippine Competition Act, any concerted action that substantially lessens competition qualifies as an anti-competitive “agreement” or “conduct.” Sunfu contends that Fujiflm’s deceptive certification practices fit this definition, effectively rigging the bidding outcome.

The potential market effects of such actions are severe, setting a precedent where government procurement outcomes are manipulated by the manufacturer rather than determined by fair competition among the bidders.

Implications

This dispute raises significant issues about business ethics and the integrity of competitive processes. The Philippine Competition Act and the Philippine Competition Commission were set up to combat such unfair practices, ensuring that all market players engage fairly. Internationally, similar cases under laws like the US Sherman Antitrust Act have shown a global intolerance for such manipulative behaviors, often likened to bid rigging and market manipulation. These examples highlight the need for the PCC to intervene decisively.

In its pleadings, Sunfu argues that the PCC has the duty to inquire into and investigate Fujifilm’s ruse, especially since such a deceptive tactic ruse has the potential long-term implications, which include enabling Fujifilm to emerge as the de facto sole participant in these government procurements. Similar-minded manufacturers may adopt the same anti-competitive conduct, as they could pick at their convenience the winners in the bidding by simply revoking certifications. This monopolistic trend directly contradicts the principles of competitive markets and consumer choice. Ultimately, such market dominance could lead to limited options for government agencies and hinder their ability to make choices that best serve the public interest.

Fuji’s dubious conduct not only prejudiced Sunfu but subverted the bidding process to the detriment of the government procurement entity, which was set up to serve OFWs.

The Sunfu v. Fujifilm case serves as a litmus test on companies’ adherence to Philippine competition law, even if they are foreign-owned. Such adherence is especially required for those involved in government contracts.


Facebook: Rigoberto Tiglao

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My website: www.rigobertotiglao.com

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