Smaller oil firms accuse Petron, Shell, Caltex of ‘predatory pricing’

New oil players and liquefied petroleum gas (LPG) refillers have accused Petron Corp., Pilipinas Shell Petroleum Corp. and Caltex Philippines Inc. of predatory pricing.

They urged the Department of Energy (DOE) to file a criminal complaint against the three major oil companies in the country.

Under Section 11 of Republic Act (RA) 8479 otherwise known as the Downstream Oil Industry Deregulation Act of 1998, predatory pricing is defined as "selling or offering to sell any oil product at a price below the seller‘s or offeror’s average variable cost for the purpose of destroying competition, eliminating a competitor or discouraging a potential competitor from entering the market."

Variable cost is defined as a cost which varies as the output increases or decreases. Average variable cost refers to the sum of all variable costs divided by the number of units of outputs.

In a letter to the DOE, the complainants said the three oil majors are selling diesel products in the domestic market at prices lower than their landed cost. Likewise, the majors were accused of favoring their own LPG dealers over the market refillers.

The complainants are the New Petroleum Players Association (NPPA) represented by its president Fernando L. Martinez, and the LPG Refillers Association represented by its president Constancio Francisco. "Most of the new players rely heavily on the sale of diesel and LPG to remain competitive in the market," the NPPA said.

Martinez pointed out that as of Nov. 6, landed cost of diesel is P14.28 per liter compared to the selling price of the three majors which is P13.83 per liter.

Martinez said the oil majors have been undercutting the new entrants in order to contain their market share erosion.

"The pricing does not only ignore the variable costs but in fact cuts deep into the fixed operating costs in order to induce the bleeding of the new players," he said, adding that the majors are selling their diesel products at prices way below their average variable cost.

Martinez and Francisco said that while lowered local prices for diesel and LPG may be good for the public, it is bad for the new players, the future, and the success of the deregulation of the downstream oil industry.

"The people may soon realize in the end, and may be too late, that oligopoly has once again made a formidable but subtle re-emergence," they added.