Government oil price committee formed

MANILA, Philippines – President Aquino has formed a committee to address the recent oil price increases and ensure steady supply of fuel in the country amid political unrest in the Middle East and Africa.

Aquino issued Administrative Order 6 creating the Inter-Agency Contingency Committee (IACC) as a prudent and precautionary measure even as officials stressed there was no imminent danger of any oil supply disruption in the country.

Energy Secretary Jose Rene Almendras said the government was not considering any subsidy or removal of the expanded value added tax on fuel and other products, saying these were financial concerns that must be looked into by the Department of Finance.

He said a repeal of the Oil Deregulation Law also was not considered since it would mean the government would have to take over the supply of fuel in the country.

Based on AO 6, necessary preparations will be in place in the event the situation in the Middle East and North Africa deteriorates.

“The government is taking steps to ensure the continuous, adequate and stable supply of petroleum and other energy sources in the country… the coordination of all government agencies is vital in evaluating and enhancing the existing contingency plan for its effective implementation,” Aquino said.

The IECC would be comprised of the Departments of Energy, Finance, Budget and Management, Justice, Trade and Industry, Agriculture, National Defense, the Interior and Local Government, Transportation and Communications, Foreign Affairs, the National Economic and Development Authority and the National Security Council.

The IACC is tasked to evaluate and enhance existing contingency plans, and audit of available resources, among others. The task force is also mandated to submit reports and recommendations to the President regarding the enhancement of existing contingency plans.

Almendras said he discussed with President Aquino last Thursday the various concerns as regards supply and prices of fuel and other fuel products.

Almendras noted the Department of Energy (DOE) had been closely monitoring the activities of oil companies in the past two to three weeks and was quite concerned about the inventory levels.

“We’ve been talking to them. The price obviously is a big challenge, given a choice, there’s no businessman who would buy a commodity when it’s very high,” Almendras said.

Almendras has issued a circular requiring oil firms to maintain a minimum stock equivalent to 15 days’ supply of petroleum products.

For liquefied petroleum gas, the minimum inventory level shall be kept at seven days’ supply, said the circular published in a local daily on Wednesday.

Oil refiners are required to maintain a minimum inventory of 30 days’ supply of petroleum crude oil and refined petroleum products.

As regards subsidy and regulation of the oil industry, Almendras said these would not be cheap, especially considering limited government resources.

“Even Indonesia and Malaysia that used to subsidize were hurting… the money that was supposed to be for a year had been spent (easily) so they did not want it anymore,” Almendras said.

He said the trend now is to allow the markets to reflect the true price of oil.

Almendras also said regulating the oil industry would mean the government should have P1.6 billion a day for fuel supply and the “assets, the storage tanks, the facilities to handle that.”

He said it was Congress that would ultimately decide on the matter but he stressed that deregulation of the oil industry had been the worldwide trend.

“How do you compete or participate in a completely deregulated environment in a regulated manner? It is going to cost you money and some initial ranks show it’s about P400 billion that needs to be put in place. Our national budget is only P1.6 trillion, are we willing to put one-third of our national budget into the operation of fuel?” Almendras said.

More increases

This developed as more oil firms increased the prices of their fuel products yesterday.

Following the move of Chevron (formerly Caltex), Pilipinas Shell Petroleum Corp. and Total (Philippines) Corp. also raised their prices by P1 for gasoline and 75 centavos per liter for diesel that took effect yesterday.

Chevron had announced a price hike late last week. It adjusted its prices to keep up with competitive pressures as Shell and Total carried out less price increases.

Chevron announced a P1 per liter increase across all pump products effective 12:00 a.m. Friday.

The recent price adjustment was the second for the week after they and other industry players hiked their prices by P1.25 per liter for gasoline and P1 for diesel and kerosene.

The political unrest in some oil producing nations in the Middle East and North Africa is triggering fears of disruption of oil supply in the world market.

Shell, for its part, stressed they have been observing prices in the world market.

“As has been observed in the market, when prices are increasing, which is what is happening now, even if refiners hold a longer term inventory of say, 45 days, if they continue to sell at lower prices till they use up their inventory, this may be seen to be undermining competition,” Shell said.

At present, oil refiners have 40 to 60 days of stock, while product importers normally maintain about 7-14 days.

Shell said that when prices drop, oil importers will immediately reflect the current lower prices, “which refiners are forced to match in order to remain competitive.”

“For how will they make the public accept a delayed price reduction, just because they have stocks bought at high prices? How will the public know what inventory levels and days they should wait before prices are reduced? Will the oil companies not be accused of delaying price reduction to make more money?” Shell said.

Shell said adjustment of prices based on global trend makes local prices more transparent.

Shell also stressed the need to ensure security of supply and the implementation of measures to cushion impact of price increases to the public, especially the disadvantaged sectors.

Initiatives

Lawmakers, on their part, took the initiative to propose measures to reduce the prices of petroleum products or, at least, keep them at their present levels.

Congressmen made the proposals as oil companies increased their prices again yesterday and are planning to effect another P1 adjustment early next week. That would mean increases in less than two weeks of P3 per liter.

Eastern Samar Rep. Ben Evardone urged the government to subsidize gasoline and diesel, while Cagayan de Oro Rep. Rufus Rodriguez recommended the temporary removal of the 12-percent value added tax (VAT) on petroleum products.

Evardone said the government could use its savings from interest payments on foreign loans for oil subsidies.

He said Congress has appropriated P357.1 billion in the 2011 national budget for interest payments on foreign debt based on an exchange rate of P48 to one US dollar.

“Since the rate is now hovering between P43 and P44 to the dollar, the government will have substantial savings, which it could use to subsidize oil while there is crisis in the Middle East,” Evardone said.

He added the government should explore all measures that could mitigate oil price increases.

Evardone pointed out the frequent adjustments could result in similar spirals in the cost of goods and services, “which would make life more difficult for our people.”

Evardone also called on concerned agencies such as the DOE and the Department of Trade and Industry to check possible hoarding of petroleum products and consumer goods, and file charges against hoarders.

Rodriguez, along with his brother Maximo, representative of the party-list group Abante Mindanao, filed House Bill 4309 to suspend the collection of VAT on oil products when the price of crude oil in the world market goes beyond $80 per barrel.

The Rodriguez brothers said the suspension of VAT is one way of easing the difficulties caused on the public by high oil prices.

Under their proposal, they said the government “would not lose too much, while at the same time, the consumers are not imposed such a heavy burden when it comes to gas prices.”

They added that oil products used to be VAT-exempt.

Sen. Juan Miguel Zubiri, on the other hand, said the DOE lacked the political will to address the continuing increase of oil prices in the country.

Zubiri echoed the statements of Sen. Ralph Recto that the DOE had to look into the books of oil companies to see just how much they are earning based on his assumption that the first quarter numbers would be extraordinary.

“The DOE said it is not inclined to look into the books of oil companies so it is a matter of political will. We don’t need to amend the law (to look into the books), it is already in the law,” Zubiri said.

“They (DOE) lack political will. I do not know why they are afraid,” he added.

Zubiri said the inaction of the DOE has only caused more suffering for consumers who have to put up with rapidly rising fuel prices on top of other expenses which have also gone up. –-Aurea Calica (The Philippine Star) with Donnabelle Gatdula, Jess Diaz, Marvin Sy