Palace threatens oil firms

Executives warn of ramifications, supply shortage

The government warned that it would not hesitate to file charges against oil companies if they failed to comply with Executive Order 839 that rolls back pump prices in calamity areas to October 15 levels. In a radio interview on Monday, Executive Secretary Eduardo Ermita said that the Department of Justice would file cases against non-compliant companies if there were enough evidence that they were not following the order issued by President Gloria Arroyo.

“I hope that we won’t go further or force them to open their books just to see that they are really following EO [Executive Order] 839, which is the benchmark price,” the secretary added.

He said, “It’s good that there’s an oil company, a small player, Unioil, that volunteered to implement the President’s order. This is not just following the order but also a show of social concern for victims of the calamities.”

Ermita added that he was calling on Petron, which is partially owned by government, to follow the lead of Unioil in reducing its prices at a certain level. The executive secretary said he did not see a reason why other companies do not follow the order.

Executive Order 389 is based on Republic Act 8479, or the Oil Industry Deregulation Law, which states that “in times of national emergency, when the public interest so requires, the DOE [Department of Energy] may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any person or entity engaged in the industry.”

President Arroyo had said that she wanted to stop “unreasonable” increases in petroleum prices in calamity areas. She had also called for a study of the possible inclusion of petroleum to the list of products to be placed under price control.

Firms’ counter-warning

Executives of oil companies also on Monday warned of dire consequences—both on their finances and on the supply of fuel—resulting from Executive Order 389.

In an industry meeting held at the Department of Energy, oil executives said that the order would not bode well as this would mean that they would be selling at a loss.

Jim Meynink, Chevron Philippines Inc. (formerly Caltex) country chairman, said, “It will have an impact on our business profitability. International prices have gone up as we have seen in the last two weeks. This will result to losses and affect our business going forward.”

Executives of other oil firms echoed this position with some adding that they were already holding off imports to mitigate a direct hit on their finances.

Ernst Wanten, Total Philippines Corp. country chairman, said, “It will have implications on future investments. I can guarantee you that. And we have questions about the next supply shipments we have to buy because at this time it’s a straight loss. And we’re going to a situation where it’s better not to sell.”

Despite the warnings, however, the executives said that they would comply with the executive order.

Ed Chua, Pilipinas Shell Petroleum Corp. country chairman, said, “Like the others we will comply. We have no choice. But just to warn there are serious implications not only to supply of products in the country but also to the investment climate.”

Rationale and concerns

Ruben Fondevilla, Department of Justice assistant chief state counsel, said that the basis for the issuance was that the declaration of a state of calamity was tantamount to a declaration of national emergency.

“In the 1986 Constitutional Commission, [a] national emergency was explained as encompassing external aggression, calamities or natural disasters, emergency to a sudden unforeseen risk that requires immediate action . . . when the President declares a state of calamity the declaration of national emergency was also made,” he explained.

However, industry officials pointed out that a declaration of national emergency, which grants the Energy department with the authority to take control of oil firms’ prices under the Downstream Oil Deregulation Act of 1998, should have been coursed through Congress first.

Plus, the executive order was enacted for the whole of Luzon, including areas and oil firms’ customers (industries, airlines and others) that were not affected by the series of typhoons that hit the country recently.

On the other hand, the militant umbrella group Bayan, which espouses public relief from high fuel prices through the repeal of the deregulation law, said that the implementation of the executive order was “strange and appeared to have no guidelines.”

“Malacañang is leaving it to [Energy] Secretary Angelo Reyes. However, Secretary Reyes is himself opposed to the idea of having a price ceiling for oil products. How then can he diligently implement the measure?” asked Bayan Secretary General Renato Reyes Jr.

The ensuing rollback from the executive order would redound to a P2 a liter reduction in diesel prices and P1.25 a liter for gasoline prices. A fresh round of price increase, which should have been reflected this week, would also be held back.

But Reyes said, “We have no alternative but to follow it. We cannot have a situation where an issuance has been made and compliance is optional. Compliance to any law or any presidential issuance is mandatory. So we will implement this law. We would like to request the oil companies to take a hit, take a loss at this time when the country is reeling from the devastation.”–Angelo S. Samonte And Euan Paulo C. Añonuevo, Manila Times