The government is reversing its privatization program. Plans are underway in the Philippine National Oil Company to exercise its pre-emptive rights over the 40 percent holdings of Aramco in Petron, the country’s largest refinery.

Under the sales agreement with Aramco, PNOC which is the government’s stockholder in Petron, the refinery has 60 days within which to exercise pre-emptive rights.

That right will expire on May 12, 2008.

Ansor, a British asset management company has a preliminary agreement with Aramco to buy the shares.

If PNOC exercises the pre-emptive rights, Petron will be effectively re-nationalized. It will own effective control of 80 per cent of outstanding shares.

The plan to exercise the right directly violates the government policy of privatizing its assets to avoid competing with private business and to raise funds for its own various projects.

If control of Petron is returned to the government, the country may be faced with a situation where consumers will demand subsidy for fuel.

That directly translates into huge losses since the forces of supply and demand may be ignored if subsidy gives the political leaders the advantage of political mileage.

Ansor has reportedly committed to buy 40 per cent of Petron held by Aramco, for the reported price of $550 million.

The board of PNOC meets today to make a final decision on the re-nationalization of the country’s largest refinery.

The effect of this possibility is that PNOC will have to shell out $550 million instead of collecting a similar amount by not exercising the pre-emptive rights.