DOE mulls government re-entry in oil retail business

MANILA, Philippines - The Department of Energy (DOE) is open to the idea of government re-entering the downstream oil industry to act as catalyst in keeping the country’s oil supply stable.

Energy Secretary Jose Rene Almendras said PNOC-EC, the oil and gas exploration subsidiary of state-owned Philippine National Oil Co. (PNOC), is allowed to go into the oil downstream business under its mandate.

But he pointed out that what the government wants to see is for more competition in the market.

“I think what we’re trying to do now is we’re telling the independent guys to come in and try to be all over the place more faster,” he said.

The energy chief admitted that the smaller oil players have been hesitant to invest. “It is really not hard to convince them. The idea is capture a bigger share of the market. I can be wrong here, but the faster impact we can make is to encourage more participants. It’s really a function of business opportunity and competition,” he said.

Government went out of the oil retailing business when PNOC’s stake in Petron Corp. was sold to Ashmore Group and San Miguel Corp. (SMC).

Former PNOC-EC chairman Jacinto Paras said the government should always keep its option to import oil in dire cases or when the oil companies are not available to provide for the petroleum need of the country.

“If dire situations call for it, we could import, on behalf of the government fuel requirements from the region,” he said.

Based on its mandate, PNOC-EC is allowed to engage in both upstream and downstream oil development.

“Although PNOC-EC is engaged in upstream being a partner of Shell and Chevron in Service Contract 38, it is likewise capable of engaging in downstream, if permitted,” he said.

Paras said if the government will have its own downstream oil industry player, it could immediately address this supply problem.

“If oil companies would not be able to supply, PNOC-EC may be able to supply through contacts abroad,” he said.

According to Paras, PNOC-EC’s charter allows it to create an oil company. “It is in our mandate. Unless the government would want to create a new corporation either by legislative or administrative order,” he said.

Asked how investors would likely react on this proposed move, he said: “It’s going to be just another player in the block. There are oil companies being put up every now and then. It will compete just like any other player in the market.”

“What we intend to do is to create competition.  If there is real competition in the market, consumers will be assured that they will get the best prices,” he added.

If it materializes, PNOC-EC’s downstream oil subsidiary will help maintain the national oil stockpile.

PNOC-EC’s shares of stock are 99.78 percent owned by the Philippine government through PNOC, with the remaining 0.22 percent held by public shareholders.

In its early years, PNOC EC served mainly as a catalyst in petroleum exploration, focusing its activities in frontier onshore areas in Cagayan Valley, Central Luzon and Samar.

In 1994, PNOC EC’s three-megawatt San Antonio gas power plant in Echague, Isabela was commissioned, providing electricity to more than 10,000 households. The operation of SAGPP made PNOC-EC the country’s first producer of indigenous natural gas.