Tariff body bucks higher tariff on baseoil products

The Tariff Commission (TC) is not in favor of the proposed 20-percent ad valorem tariff on imported baseoil products, citing conflicting provisions embodied in Republic Act (RA) 8180 or the Oil Deregulation Law and several executive orders.

In a legal advice to the House of Representatives committee on ways and means, TC chairman Emmanuel T. Velasco said the existing three-percent ad valorem tariff on crude oil and other refined petroleum products including baseoil will be retained. Velasco was referring to House Bill (HB) 11800 (now HB 12268) which proposes to increase the tax to 20 percent.

Velasco said the Inter-agency technical working group (TWG) of the Tariff and Related Matters (TRM) committee during its deliberations last June decided to maintain a uniform tariff rate of three percent. "The commission, being a member of the TRM technical committee, hereby submits the same position on the proposed HB 12268," Velasco said.

The commission added that while the tariff structure will be revised by 2004 based on certain commitments to the World Trade Organization (WTO), the present three-percent tariff will only be increased to five percent. Velasco explained that an upward tariff modification is possible but only up to five percent. This, he said, is to protect the new players while giving any interested party the opportunity to establish a refinery for the purpose of extracting baseoil from imported crude oil.

"The uniform tariff structure will (remain) in effect."

HB 12268 authored by Rep. Danilo Suarez seeks to increase the tariff on imported baseoil to 20 percent from the present three percent. Baseoil or basestock is the residual product from a variety of crude oil which when refined produces lubricating oils, petroleum grease, residual fuel oil, still wax, asphalt and coke.

HB 12268 has met stiff opposition from the oil industry which claims the proposal will result in higher prices of refined products affecting a large number of industries and consumers.

In a press statement, industry leader Petron Corp. said HB 12268 will have "extensive repercussions on various sectors such as power generators, manufacturing and transport. The proposal will increase the operating costs of these industries and would ultimately be passed on to Filipino consumers."

Caltex officials said the bill would create a situation where the supply of baseoil and its byproducts could be scarce. That could result in even higher prices of baseoil and baseoil byproducts or a stoppage of certain industries requiring baseoil byproducts.

Sea-Oil Petroleum manager Francis Glenn L. Yu said that the proposal is counter-productive as it will negate the competitiveness of the new players and net importers of baseoil. This, he said, will give undue advantage to the only baseoil refinery in the country which is Pilipinas Shell Petroleum Corp. "The spirit of deregulation and open competition is compromised by the proposed bill."

Shell operates the only baseoil refinery located in Pililia, Rizal which has a capacity of up to 1.9 million metric tons. Shell officials claim that the refinery contributes some P1.2 billion in revenues to both the national and local government. "Its closure could affect several thousands of families dependent on the continued operations of our Pililia refinery," they added.

The country’s appetite for baseoil is estimated at 200 million liters per year or roughly 17 million liters per month. Industry sources indicate that more than half of these are from direct importations. As of end July, the Philippines has already imported 58 million liters of baseoil with Pilipinas Shell Petroleum Corp. reportedly accounting for nearly half of the total importations.

The companies said to be hardest hit by HB 12268 are net importers and industry like new players Total Petroleum Phils. Corp., Mobil Oil, Sea-Oil Petroleum Corp., Eastern Petroleum Corp., and Castrol Oil.