By J R Ruaya
Energy and Chemistry Consultant
According to today's papers, Energy Secretary Angelo Reyes said Wednesday that the Gokongweis and investment group JP Morgan have expressed interest in buying a 40 percent stake owned by Saudi Aramco in oil refiner Petron Corp.
Well and good. At least it shows that despite its mediocre performance in the past years, the refiner can still command some interest. In the first quarter of this year, Petron had a net profit of P 658 M, down 31 % year- on- year. Really, a silly performance in an industry where the price of its prime product, oil, is at stratospheric levels.
According to the covenant signed when Saudi Aramco acquired the stake in 1994, PNOC has the right of first refusal when the acquirer likes to divest the stake to another party. PNOC can also assign its option to a third party. Its board meets today to decide a course of action.
Let us hope the members of the board have given the matter the deepest thoughts.
The Gokongweis are no stranger to the industry. They have taken a dip into the industry through JG Summit Petrochemicals Corp., a unit of its flagship company, JG Summit Holdings. The petrochemicals unit is said to be the country's first integrated polyethylene and polypropylene plant. Therefore, the Petron stake fits nicely to the Gokongwei's portfolio.
Petron itself hopes to jumpstart its petrochemicals business this year by opening its new facility in Bataan. It hopes to increase its gasoline production and extraction of propylene, a raw material for plastics.
JP Morgan, on the other hand, has made its mark in the financial world as a financial adviser, principally in loan syndication, public offerings, and mergers and acquisition. This time it might be representing some clients, but it is also known for taking direct stakes in target companies with the hope of flipping these later for a tidy profit. Very much like the "dreaded" Ashmore.
Because Ashmore made the offer with only a slight premium, JG Summit and JP Morgan must be salivating over the stake, for they could get it for a song.
But wait. The government need not assign the stake to a third party at the same price as what Ashmore offered. It can, in effect, go through the motions of exercising its right of first refusal and put the stake into play, where anyone, including the known corporate raiders and vulture capitalists can take part in open bidding.
Better still, the Gokongweis and JP Morgan should offer to buy the government's other 40% stake while letting Ashmore partake of the other 40%. Putting both stakes together as a block at 80% would surely command a better price, but this would spark an open revolt from the ultranationalists and protectionists.
This is also the chance for the government to get out of Petron altogether. Many interests still have misty eyes about protectionism, energy security, and semblance of control of oil prices, but look what have we got?
We have tried tight control before and lossening up with partial privatization of Petron, but have we stopped or abated the onslaught of the oil price increase juggernaut? Market forces, like acts of God, are simply too strong to resist. Not by government. Not by a monopoly.
Re-acquiring the Petron stake by the government would run contrary to the vision of broadening the shareholder base of vital corporations such as Petron -- or Meralco, the other vital issue currently in the limelight.
The Gokongweis and JP Morgan are probably eyeing the wrong Petron stake.
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(Note added: After this has been posted, the Gokongweis clarified through a letter from Lance Y Gokongwei of JG Summit Petrochemicals Corporation that they are offering P 26.4 B or roughly 6.55 per share of the government's own stake, not Saudi Aramco's, according to Businessworld).
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