Government threatens to sue oil firms for overprice

Published by rudy Date posted on April 26, 2011

MANILA, Philippines – Oil firms should roll back pump prices this week or be haled to court for overpricing after they unduly increased fuel prices by an average of 40 centavos per liter, Energy Secretary Jose Almendras said yesterday.

As he issued the statement, Pilipinas Shell Petroleum Corp., Seaoil Philippines and Eastern Petroleum Corp. announced a rollback of diesel pump prices by 40 centavos per liter and gasoline prices by 25 centavos per liter effective today.

Noting that world crude prices went down last Thursday and Friday, Almendras said oil companies that raised pump prices last week have been ordered by the government to explain in writing the reason for the increase.

Eastern Petroleum chairman and president Fernando Martinez said their latest price reduction reflected the decline in the price of crude oil in the international market.

“Eastern did not move its prices last week as a business decision but respects the right of other companies to do otherwise in the spirit of a deregulated industry,” Martinez said.

In a press briefing at Malacañang yesterday, Almendras said, “This week, our view is oil prices should be rolled back depending on how much you increased last week. So if you increased last week, your rollback should be higher. If you did not increase, then it should be lesser than those that did the increase.”

President Aquino has ordered the Department of Justice-Department of Energy (DOJ-DOE) task force to review the successive increases in the retail prices of oil products.

The task force will decide on the appropriate charges to be filed against oil firms found guilty of overpricing.

The government, however, cannot impose a price ceiling on pump prices, the oil industry in the country being deregulated.

“We cannot make a sweeping statement and say pump prices should be limited to a certain level,” Almendras said.

“If we see a price that is not justified, we can take them to court, in the same way that the DOE and DOJ task force can cite another company for the increase,” he added.

Oil firms usually cite the rise in world old prices as the reason for increasing the retail price of fuel.

Almendras said the pricing of crude in the international market, apart from being unfair, is also highly speculative.

“During the International Energy Forum (where Phl sits in the board) in Kuwait, the Philippines made a position that we felt that international oil prices are now heavily speculative,” he said.

“We have no factual computational basis to have made that statement. We were criticized for being emotional. And I said, we have every reason to be emotional… In my country, they burn my pictures every time fuel prices go up,” he added.

This was initially received as a joke among oil ministers. “Everybody laughed, the other oil ministers laughed. I said I’m not joking. But that’s the reality for a country that does not produce a single drop of oil,” he said.

One of the options initially considered by the government is the suspension of the value added tax (VAT) on oil products to lower pump prices. President Aquino, however, said this cannot be done because the government earns billions in revenues from the 12 percent VAT on oil.

Aurora Rep. Juan Edgardo Angara said if the government cannot afford to suspend the VAT on oil, another way to ease the burden of rising oil prices would be to reduce the excise tax levied on gasoline.

He noted that it is not well-known that aside from VAT, the government also imposes an excise tax on premium and regular gasoline, and on aviation fuel. The excise tax is actually a bigger component of the price of gasoline than VAT.

Citing 2010 Customs data, Angara said excise taxes paid by importers on 1.296 billion liters of premium gasoline amounted to P5.507 billion, while VAT payments for the same volume reached only P4.331 billion.

Excise tax paid on 297 million liters of imported regular gasoline totaled P1.144 billion, nearly P200 million more than the P931 million VAT collected from the same product.

Angara said oil companies advance the payment of excise tax and then pass the expense to consumers.

“VAT is what we see because it is there in the receipt every time we buy gasoline, but it has a bigger but hidden cousin called the excise tax,” he said.

He noted that gasoline sold here – whether premium or regular – is perhaps the most heavily taxed oil product in the world.

Because of this, he said the government should be able to give up or substantially cut one tax on gasoline.

Premium gasoline is levied an excise tax of P4.35 per liter if unleaded and P5.35 if regular. Aviation fuel is levied a P3.67 excise tax per liter.

Kerosene, liquefied petroleum gas and diesel are exempt from excise tax.

Angara said the exemption of these products is unfair to farmers, fishermen, tricycle drivers, and other marginal workers using gasoline.

“Most sport utility vehicles and premium cars run on diesel. So what we have here is a situation where the owner of a diesel-run BMX X5 SUV does not pay an excise tax, while a farmer pays an additional P4.35 per liter on the gasoline he uses for his hand tractor,” he said.

“The disparity does not end there. A billionaire pays an excise tax of P3.67 for every liter of aviation gas for his jet, while a marginal fisherman coughs up P4.35 per liter for gasoline for his banca,” he added.

He added that the reduction in excise tax would be easier to implement because it is fixed, unlike VAT, which is based on price.

Bayan Muna party-list Rep. Neri Colmenares urged Aquino to compel oil firms to open their account books during the review of the successive price increases.

He also urged Aquino to reconsider the suspension of VAT on oil products.

Quezon City Rep. Winston Castelo, on the other hand, backed the repeal of the Oil Deregulation Law.

“Review of oil prices cannot lower its cost. It’s time to repeal the Oil Deregulation Law to enable the government to regulate once again oil prices,” he said.

Almendras said the DOE is amenable to a review of the Oil Deregulation Law by Congress.

“Should they do it, we will comply. That’s the decision of Congress,” he said.

Almendras said that based on their review last week, gasoline price should have gone up by a maximum of 39 centavos. “Now, our agreement with all the oil companies was we round of as we were taught in gradeschool which is you round off to the nearest zero—so that should have translated to only a 40-centavo increase. But the increase went as high as 60 cents. For diesel, our calculation showed it should have gone up by only 16 centavos, so you round it off to 20 centavos but some companies went as high as 25,” he said. –-Delon Porcalla (The Philippine Star) with Jess Diaz, Paolo Romero, Donnabelle Gatdula

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