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PAL vs. COA: Fuel Procurement Dispute

The Commission on Audit advised Philippine Airlines to stop bidding out its fuel supply contracts and instead procure fuel solely from PETRON Corporation, as required by existing regulations for government-owned corporations. Philippine Airlines sought reconsideration, arguing that relying on a single supplier would be impracticable for its business and could lead to inefficient or excessive costs. The Supreme Court ultimately ruled that while the Commission was correct that the regulation applied to Philippine Airlines, requiring sole sourcing in this case would represent an abuse of discretion, given the valid reasons provided by the airline for seeking an exemption.

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488 views1 page

PAL vs. COA: Fuel Procurement Dispute

The Commission on Audit advised Philippine Airlines to stop bidding out its fuel supply contracts and instead procure fuel solely from PETRON Corporation, as required by existing regulations for government-owned corporations. Philippine Airlines sought reconsideration, arguing that relying on a single supplier would be impracticable for its business and could lead to inefficient or excessive costs. The Supreme Court ultimately ruled that while the Commission was correct that the regulation applied to Philippine Airlines, requiring sole sourcing in this case would represent an abuse of discretion, given the valid reasons provided by the airline for seeking an exemption.

Uploaded by

Gin Fernandez
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

91890 June 9, 1995

PHILIPPINE AIRLINES. INC., petitioner,


vs.
COMMISSION ON AUDIT and PETRON CORPORATION, respondents.

FACTS:

PAL is a domestic corporation duly organized and existing under Philippine laws, principally engaged in
the air transport business. At the time of the filing of the petition, majority of its shares of stock was
owned by the Government Service Insurance System (GSIS), a government corporation.

To assure itself of continuous, reliable and cost-efficient supply of fuel, PAL adopted a system of bidding
out its fuel requirements whereby PAL awarded to the lowest bidder sixty percent (60%) of its fuel
requirements and to the second lowest bidder the remaining forty percent (40%), provided it matched
the price of the lowest bidder.

COA advised PAL to desist from bidding the company's fuel supply contracts, considering that existing
regulations require government-owned or controlled corporations and other agencies of government to
procure their petroleum product requirements from PETRON Corporation.

PAL sought reconsideration for preferring to bid out and secure its fuel supply from more than one
supplier and for its contention that the Department Order which states that all departments procure
their petroleum product requirements from the PETROPHIL Corporation at prices not exceeding those
set by the Oil Industry Commission should not apply to PAL.

COA denied PAL 's request for reconsideration.

A final appeal for reconsideration was made by PAL but was denied.

ISSUE:

Whether the Department Order should apply to PAL.

RULING:

COA was correct in ruling that the said Department Order applied to PAL as a government agency at the
time, it nonetheless gravely abused its discretion in not exempting PAL therefrom.

The reasons given by PAL for seeking exemption from the operation of Department Order were, to our
mind, meritorious. They far outweigh the policy enunciated in Department Order of giving preference to
government sources in the filling of the needs of the government for supplies.

As a business operation heavily dependent on fuel supply, for PAL to rely solely on a single supplier
would indeed be impracticable. To compel it to do so would amount to a grave abuse of discretion on its
part as this might well lead to irregular, excessive or unconscionable expenditures, the very evil sought
to be avoided in the creation of the COA.

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