Task force to look into charges of predatory pricing vs top oil firms

The Department of Energy (DOE) and the Department of Justice (DOJ) will convene a task force to look into allegations of predatory pricing against Petron Corp., Pilipinas Shell Petroleum Corp., and Caltex Philippines Inc.

"The task force will be convened and they will have to conduct hearings about the claim," Energy Secretary Mario V. Tiaoqui told The STAR in an ambush interview.

However, the joint task force will still have to define predatory pricing under any existing law since the law establishing the energy department does not mention predatory pricing at all.

"We must be able to define what predatory pricing means. It is not defined by the DOE law," Tiaoqui said, adding that the task force will not set any specific time frame to pass its decision.

Energy officials said that when the task force is convened they will ask the top three oil firms and their detractors to submit their position papers. Based of their submitted documents, the joint task force will determine if there is probable cause or merit to conduct an extensive hearing.

Meanwhile, a Shell official admitted that there are times when their retail or wholesale price tends to be lower than its variable cost or the landed cost of petroleum products. However, he pointed out that these prices were depressed due to socio-political reasons rather than conspiratorial in nature.

Under the implementing rules and regulations (IRR) of Republic Act (RA) 8479 or 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.

It added: "Provided that pricing below average variable cost in order to match the lower price of the competitor and not for the purpose of destroying competition shall not be deemed predatory pricing."

Likewise, variable cost is defined as costs such as utilities or raw materials, which vary as the output increases or decreases and average variable cost refers to the sum of all variable costs divided by the number of units of outputs.

In another interview, Shell country chairman Oscar Reyes admitted the tendency to what is termed as "predatory pricing."

"But it was not designed to put undue advantages to them (new oil players), nor was it meant to limit the competitiveness of the new players," Reyes said.

He explained that there are pressing external conditions like socio-political pressures which are forcing them to keep the prices depressed or suppress price adjustments. Malacañang and the energy department almost always urged oil companies to "temper" any price adjustments.

"By keeping prices lower than the landed or the variable cost, we were losing more since we are selling larger volumes of petroleum products compared with the new oil players. And the price of petroleum products ex-refinery does not always come out cheaper than the price of imported products," the Shell official said.

"It is predatory pricing as defined by law if the conditions are normal, then an oil company drops or suppresses prices for no reason at all than to create unfair competition, then that is predatory pricing. There must be a pattern of consistently lower or depressing prices to the disadvantage of the competition."

The New Petroleum Players Association (NPPA) and the LPG Refillers Association urged the energy department to file appropriate charges of predatory pricing on the three major players.

They said the oil majors were selling their diesel products in the domestic market at prices lower than its landed cost while favoring their own LPG dealers over the market refillers.

"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," the NPPA said.