Shell officials were referring to the opposition of Petron to Senate Bill (SB) 2203, which proposes to impose a 20-percent tariff on imported grade 1 baseoil and lubricants. A three-percent tariff is currently being applied which is considered among the lowest in the region.
In an interview, Shell vice president Rey Gamboa said the proposed legislation encourages the industry to buy its baseoil requirements from a local source instead of importing them which will further reduce the country’s dwindling dollar reserves.
"On the other hand, the country has a grade 1 baseoil refinery which could supply all the needs under that category. And we do not sell our products in dollars but in the local currency," Gamboa said.
Shell claims that the country can save up to $40 million if the market purchases all its grade 1 baseoil requirements from its refinery. Furthermore, the government can earn P1 billion in direct and indirect taxes annually if the Pililia refinery will continue to operate at fuel capacity.
Petron, which is 40-percent owned by the national government through the Philippine National Oil Corp. (PNOC), reportedly imports nearly half of its requirements for baseoil and lubricants.
Gamboa said it is understandable for foreign-dominated companies like Castrol, Mobil Oil, Caltex and Total to prefer importation as they are buying from sister companies.
"Total, for example, is totally dependent on imported lubricants as their principals are major gold global players in that business," the Shell executives said. "But Petron is partly owned by the Philippine government," he added.
The Pililia refinery is reportedly capable of supplying the domestic requirements for grade 1 category baseoil.
Nearly 60 percent of the entire baseoil requirements of the country is sourced locally while 40 percent comes from foreign sources.
Grades 2 to 5 category baseoil are not produced locally although their combined volume is lower than the demand for grade 1.
SB 2203 states that only imported grade 1 baseoil products will be covered by the 20-percent tariff while all other grades will remain under the present tariff scale.
"Our purpose here (SB 2203) is not to increase prices of locally-produced baseoil products but to encourage locally-produced products," Gamboa told The STAR.
Petron chairman Jose Syjuco Jr. had been quoted as saying the Senate bill would create "a monopoly that would compromise the baseoil supply in the country."
"We are currently using a two-tier supply system to give us the flexibility of sourcing our baseoil at the least cost to our customers. The increase in tariff would have a single entity supplying both the raw materials and finished products. It could easily dominate the lubricants market by controlling pricing schemes," Syjuco said in a statement.
The Petron chairman likewise expressed doubts to claims by Shell that it would price the locally-produced baseoil at the three-percent tariff.
"While they have publicly announced that they would not increase present prices, they have historically fixed their baseoil prices on import parity. What will stop them from doing so once the proposal is passed? The bill basically gives them a free hand to price their products at any rate," he added.