House leader calls for probe into alleged smuggling of diesel in Subic

Reports that the government is losing some P1.2 billion annually in uncollected taxes due to diesel smuggling in the Subic Bay Metropolitan Area (SBMA), have prompted a leading member of the House to call for an investigation into the possible violations of the reporting requirements and other provisions of Rep. Act 8479, otherwise known as the Oil Industry Deregulation Act.

Nueva Vizcaya Rep. and House Minority Leader Carlos M. Padilla said there are two oil companies operating in SBMA, the Subic Bay Fuels Company, Inc. (SBFC) and the Subic Bay Distribution, Inc. (SBDI).

The two are joint venture companies of the Petroleum Authority of Thailand and Coastal Aruba Refining Co. of Aruba, which is now supposedly owned by El Paso Corp. of Texas.

Padilla asked for the probe in a privileged speech he delivered recently as he filed House Resolution 796 directing the committee on energy "to conduct an investigation, in aid of legislation, on the alleged smuggling activities at the Subic Bay Metropolitan Area (SBMA) and, thereafter, to make appropriate recommendations."

He said SBFC imports petroleum products, free of duties and taxes, and stores these products in its storage facility inside SBMA. From SBMA, it exports the products to local industries and domestic oil companies, including SBDI.

These local industries and domestic oil companies are considered as importers when they buy products from SBFC. All such transactions are denominated in US dollars and, as a rule, when the products leave SBMA for domestic consumption, duties and taxes must be paid to the Bureau of Customs. SBDI, on the other hand, sells to local industries and domestic oil companies the products it procures from SBFC. The transactions are treated as if these were local sales.

Padilla explained that under R.A.8479, all oil companies are required to submit reports to the Department of Energy (DOE) specifying the sources of their oil supply, as well as the disposition and destination of their products.

"There are reports that actual volumes of oil products imported into the SBMA, are not accurately reflected in the reports submitted to the DOE. If true, this would be one source of diesel smuggling," Padilla said. The Vizcaya solon said that one of the aims of his proposed investigation is precisely to find out if Subic Bay Fuels Co. and Subic Bay Distribution are faithfully complying with the reporting requirements of the law.

"We would also like to know if Petroleum Authority of Thailand, Coastal Aruba Refining Co. and El Paso exercise any degree of operational control over their local partners. Because if they do, then they have the obligation to see to it that the transactions of these two firms are invested with the highest degree of transparency, particularly on the disclosure requirements relative to the sources and volumes of their fuels imports, and the disposition thereof," Padilla said.

Padilla also cited a study conducted by the Asian Institute of Management Policy Center, which confirmed the allegations of diesel smuggling and identified the SBMA as one of the entry points of smuggled diesel. The study reported that last year, the use of 290 million liters of diesel was not declared. He also said that the government should earn at least P3 billion in revenue annually on oil products alone if duties and taxes on these products are properly collected.