Gov’t acts to attract investments in oil refining

Malacañang is considering the issuance of an Executive Order (EO) that would impose a tariff differential between crude and finished petroleum products in order to attract oil firms to invest in refineries in the Philippines.

Energy Secretary Raphael P.M. Lotilla said yesterday that a tariff differential is likely to revive the interest of existing oil refiners – Petron Corp. and Pilipinas Shell Petroleum Corp. to upgrade and expand their facilities.

He said this will ensure security of supply of petroleum products in the country and shield consumers from continuing surges in prices of crude oil in the world market.

With the regime of high oil prices today, Lotilla said oil refiners are currently enjoying the fruits of having stayed because refineries are making better that oil importers. "Of all the oil companies in the Philippines, it’s the refineries right now that are in a better financial position, because of the differentials between crude and refined products. And that’s a phenomenon all over the world," Lotilla said.

He said that the price difference of crude versus refined products based on Mean of Platts Singapore (MOPS) have widened.

This means that refiners, which uses crude as a primary blend, are not as heavily hit by the high oil prices as against oil importers. Lotilla said there are indications of a shortfall in refinery capacity all over the world and the tariff differential will be a window for oil companies to expand.

Under the original Oil Deregulation Law or RA 8180 signed in 1996, there was a four percent tariff differential between imported and refined products but it was nullified by a Supreme Court ruling.

The tariff differential was cited as one of provisions that made the law unconstitutional. Thus, the remedial legislation under RA 8479 or the Oil Deregulation Law of 1998 took out the said policy.

Today, both crude and finished product are imposed a five percent tariff.

"For the long-term, we’re looking at an Executive Order, which can have differentials. We’re looking into that because if you remember the first downstream oil deregulation law was struck down because of the tariff differentials between crude and refined products," Lotilla said.

"I don’t know if the Supreme Court will still view it that way now, because at that time it was seen as a barrier to entry considering we had only three major players and the price differential at that time in the view of the Supreme Court could have kept the competition out. But now, looking at it from the perspective if there’s a good balance between imported and refined," added Lotilla.

Lotilla said the DOE is currently studying the legal implications of the SC decision. "We want to be absolutely sure as far as the legal side, which is to make this defensible as far as/in relative to the Supreme Court decision. We just have to study that well, and as far as the differential is concerned we’ll have to determine what kind of differential," Lotilla explained.

If an EO will not have the same "stability and predictability" as a law, Lotilla said the government can push for amendments to RA 8479.