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March 10, 2000

Oil prices up 80"/liter

The bargaining took almost half an hour. And in the end, Malacaqang's best "negotiator" did not have to go down on his knees and beg to temper a P2.10 per liter increase in pump prices.

President Estrada, who once again negotiated with top executives of oil firms on behalf of the consuming public, convinced the oil companies yesterday to reduce their latest price increase to just 80 centavos per liter.

The higher pump prices took effect last midnight.

Mr. Estrada announced the new prices after meeting yesterday with the chief executive officers of three oil firms: Oscar Reyes of Pilipinas Shell Petroleum Corp., Joey Syjuco of Petron Corp. and Fernando Martinez of new player Eastern Petroleum Corp. They were joined by Energy Secretary Mario Tiaoqui.

"The bargaining took almost half an hour. At first, they refused to lower the price hike to P1. That's when I almost found myself having to go down on my knees and beg. Fortunately, it didn't have to come to that, and they agreed to 80 centavos," the President said.

Petron increased the prices of all its petroleum products by 80 centavos except liquefied petroleum gas which was raised by only 56 centavos per kilog. Shell increased all its products, including LPG, by 80 centavos.

Mr. Estrada immediately appealed to public transport groups not to pursue their threats to stage strikes.

The President noted that compared to neighboring countries, the Philippines still has the lowest per liter price of gasoline.

"My next meeting will be with leaders of organized public transport groups. I will ask them to understand, to work with us. We are now in the process of recovery. We need to put our act together," he said.

The original plan meant premium gasoline would have cost about P14.92 a liter.

Energy Secretary Mario Tiaoqui said the latest price increase was unavoidable because of rising world market prices.

Major players Petron and Caltex Philippines Inc., in separate statements the other day, said they plan to hike pump prices by as much as P2 per liter, claiming they could no longer afford to sell petroleum products at present rates.

Earlier, Shell said it would be increasing its rates by about P2.10 per liter in the next few days.

The President said he was thankful to the oil firms for reducing the price adjustment to only 80 centavos.

"They told me that 80 centavos was the lowest they could go or else they would have to close shop and cause more harm to the economy," he said.

Meanwhile, security was beefed up yesterday around vital installations including fuel depots, oil firm offices, the Department of Energy (DOE) and the US embassy, a favorite target of left-wing protesters.

The DOE headquarters and several provincial oil depots were recently hit by attacks carried out by communist rebels in retaliation for the oil price rises.

Rebels warned of more attacks if the oil firms proceeded with the attack.

Western Police District police commander Chief Superintendent Avelino Razon Jr. said policemen, soldiers, the Coast Guard and a SWAT team had been deployed to guard the Pandacan oil depots near Malacaqang Palace.

House to review oil law - Villar Speaker Manuel Villar said yesterday the House of Representatives has initiated a review of the Oil Industry Deregulation Law in response to the continuing rise in the price of petroleum products.

"If the present setup does not serve the best interest of Filipinos, then something has to be done immediately," Villar said.

He has also ordered the immediate passage of bills which, he said, will effectively bring down and stabilize the prices of imported petroleum products.

Two such measures are currently being deliberated in the House, namely: the creation of a national oil exchange (OilEx) and the imposition of zero tariffs on the importation of crude oil.

The first bill, authored by Rep. Enrique Garcia (LAMP, Bataan), seeks to establish the OilEx that will serve as a "middle man" bidding out monthly the country's requirements of gasoline and other petroleum products.

The bidding is meant to obtain the lowest possible price for consumers, with oil companies around the world being invited to participate in process.

Garcia estimated that local fuel prices can be lowered by as much as $3 a barrel by an oil exchange.

The OilEx proposal would entail government takeover, on a rental or purchase agreement, of terminals and storage facilities of existing oil companies in the country. These facilities would no longer have a use for the companies that own them in the proposed setup.

The second bill, introduced by Rep. Marcial Punzalan (LAMP, Quezon), seeks to strengthen the oversight functions of the government to review prices set for domestic petroleum and crude oil products under a deregulated setup so that actual costs will be lowered.

Villar said the two bills are being discussed and threshed out "to see how they may fully benefit the Filipino consumer."

In a related development, former senator and now Rep. Ernesto Herrera (LAMP, Bohol) warned the oil firms against increasing prices, "unless they want to risk eternal damnation from the Filipino people."

The lawmaker said oil firms should wait for crude costs to stabilize before even thinking of an adjustment in prices.

He noted that crude costs in the world market fell by $3 the other day on reports that Saudi Arabia and Iran have agreed to increase production.

Herrera also urged the President to support the proposal to establish a national oil exchange.

The President initially supported the idea, but later changed his mind when his economic advisers said it would go against the government's deregulation and liberalization policies.

Herrera claimed that those afraid of the OilEx idea are investors and companies raking in profits not through competition "but through the undue advantage they enjoy as bullies in the oil sector."

He urged Tiaoqui and members of the Economic Coordinating Council to rethink their opposition to the proposal.

New players in the deregulated oil industry earlier expressed fears of a possible shortage of petroleum products if prices are not raised soon.

According to the New Petroleum Players Association Inc. (NPPA), the continued suppression of pump prices could force oil companies to embrace drastic measures, including a temporary shutdown just to stop the bleeding.

"We have three options so that we can remain viable: to temporarily halt operations, to temporary sell at a loss, or to pass on the additional cost to the end-user," said Eastern Petroleum's Martinez, who is acts as president of the group.

The NPPA said the most likely scenario would be for oil companies, particularly the new and smaller players, to stop buying crude and refined products from international markets like Singapore.

While the alternative could significantly cut down local supply, it would temporarily stop the financial bleeding of small players, which have been buying crude at a relatively high price in the overseas market but selling at a loss in the local market.

World crude prices have soared from $10 per barrel in early March to more than $26 this month. However, local pump prices have not increased by the same rate.

On a per liter basis, the cost of crude has risen by P4.89 per liter while local pump prices have gone up an average P3 per liter.

"This means that we lose nearly P2 for every liter we sell locally. Only the major companies can continue taking such a beating," Martinez said.

Petron and Shell earlier admitted that they have reduced the capacity of their refineries.

The Petron refinery, which has a maximum capacity of 180,000 barrels of oil per day (BOPD), has reduced its capacity to 140,000 BOPD. Shell's production, on the other hand, is down to 110,000 BOPD from the maximum refining capacity of 155,000 BOPD.

Militant groups hit new price increase Prior to the announcement of the new price hike, some 200 members of militant cause-oriented groups were already picketing the Shell main office in Makati City.

The Bagong Alyansang Makabayan (Bayan), Kilusang Mayo Uno and the Kontra Kartel belied yesterday earlier claims of the major oil companies that they were incurring huge losses due to rising world crude prices.

"How can they claim that they are suffering losses when their mother companies are the first to gain from a price increase in the international market?" Bayan secretary general Teodoro Casiqo asked.

Royal Dutch Shell, Saudi Aramco and Texaco are the respective mother companies of Shell, Petron and Caltex, collectively known as the "Big 3."

Casiqo claimed that the business logic of the oil giants was to increase total profits from its global operations around the globe.

"They want to repatriate almost all the revenues they have generated from doing business here but at the same time they do not want the public to know they are earning a lot because it will work against them when they impose an oil price increase," he said.

Meanwhile, the country's biggest coalition of labor unions asked Congress yesterday to immediately review the Oil Industry Deregulation Law, which gives the oil firms a free hand in controlling prices.

The Labor Solidarity Movement (LSM), made up of four major trade union centers and 40 labor federations, said the law has left the poorer sectors of society "defenseless against price increases."

LSM vice chairman Ramon Jabar called on lawmakers to enact safety measures against overpricing and fluctuations in the price of crude oil in the world market.

"This is the right time to review the law and make the necessary refinements. Senators and congressmen should not wait for a revolution to happen," Jabar said.

The labor leader warned that impending increases ranging from P1.20 to P2 would lead to double-digit inflation rates and further endanger an already fragile economy.

He reminded Congress that workers constitute the population's biggest consumer bloc, and that continuous price hikes will seriously erode "whatever is left of the working man's wages."

"We have no choice but to take to the streets to dramatize our grievances," Casiqo said. - By Marichu Villanueva and Ted Torres, with Liberty Dones, Jose Rodel Clapano, Cecille Suerte Felipe, Jess Diaz

http://www.philstar.com/

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-- (Dee360Degree@aol.com), March 10, 2000