Getting the facts right

There is no debating on the fact that local pump prices have reached levels that are insanely high.

We also know that the reason for these high prices is the simple fact that we as a country are dependent on imported crude oil and finished products. And unless we can dig up some oil or find viable and sustainable alternative sources of fuel to run our vehicles, or unless we want to go back to the good old days of using horse-drawn carriages or kalesas, then we unfortunately do not have a choice.

We can understand why there are people, especially militant groups and politicians especially, who have been observing the movement of world crude oil prices to find out if there is reason enough to ask for a rollback on local pump prices. Prices of imported crude oil and finished products have been highly volatile, resulting in upswings and downswings in local pump prices.

Just recently, militant groups have been claiming that prices should be rolled back by P8 to P10 per liter, but when pressed for basis of the claim, none could be presented.

Dubai crude, which is the benchmark for crude trades in the Far East, had been fluctuating from $100 per barrel in February this year to $106.56 per barrel as of end-September.  The September Dubai crude price is about 15 percent higher than at the start of the year.

There are over 200 crude oil types in the world priced based on a few crude oil benchmarks namely Brent, World Texas Intermediate (WTI), and Dubai. Over the past few years, WTI has lost its relevance as an international benchmark due to logistical limitations at Cushing, Oklahoma - the oil trading hub and delivery point for WTI crude.  Limited pipeline facilities flowing from Cushing has caused an influx of crude oil, overwhelming refining capacity and, depressing WTI prices. WTI reflects more the local demand-supply balance in the United States.

To further illustrate this “disconnect,” WTI is averaging about $86 per barrel in September versus $114 for Brent – a nearly $30 barrel differential EVEN if WTI crude quality is better than Brent.  Dubai crude meanwhile is averaging around $107 per barrel for the month.

So we should be wary when politicians and other groups use WTI as a reference point as it only adds to the confusion of an already complex situation. Could this be the reason for the alleged P8 to P10 per liter overprice? Some sectors might be using WTI when it is not the basis for pricing in the region.

While Dubai is the benchmark for crude oil prices in Asia, Mean of Platts Singapore (MOPS) is the region’s basis for finished products. Dubai benchmark refers to crude oil, while MOPS benchmarks finished products such as gasoline and diesel.

The Philippines imports around 40 to 50 percent of total domestic consumption of finished products. Finished products in the region are usually based on MOPS prices. Refiners in the country also use MOPS as basis for the prices of their production to be competitive with finished product importers.

Considering that all oil players in the Philippines adopted previous week’s average MOPS to adjust finished product prices, they seem to have the same level of pricing to ensure they do not lose volumes to competitors if they price above MOPS, or lose margins if they price below MOPS.

Now, we can better understand if the local oil players will not give in to the demands for an P8 to P10 per liter rollback.

Not so hidden agenda

Dismal third quarter. Philippine Long Distance Telephone Co. (PLDT) chairman Manuel V. Pangilinan says the telecommunication giant’s revenues for the third quarter of this year are lower than that of the same period last year but is more optimistic about the company’s overall performance for the year. The telecommunications industry is not alone. GMA Network chairman Felipe Gozon tells this writer that their third quarter numbers are below their expectations. The numbers are down due to a general reduction in industry advertising spend, particularly from the multinationals, he says.

Standstill. Philippine Airlines (PAL) president Jimmy Bautista shares that given that the Ninoy Aquino International Airport (NAIA) is already congested, then the Diosdado Macapagal International Airport (DMIA) at Clark, Pampanga should be explored as an alternative for airline companies using the NAIA terminals. DMIA is indeed a viable alternative as a second international gateway. Unfortunately, the government seems to be dilly-dallying on tapping DMIA’s potentials. Clark International Airport Authority (CIAC) president Chichos Luciano revealed that there is no word from Malacañang on what to do with the proposed second terminal at the DMIA. The Philco-Aero group, which is supported by San Miguel Corp. (SMC) president Ramon Ang, submitted an unsolicited proposal during the time of President Arroyo to undertake the construction of a second terminal, but discussions on the terms of reference (TOR) for the conduct of a Swiss challenge have been put on hold. The Aquino administration has frowned upon the unsolicited proposal route, especially those submitted during the previous administration, and now wants to bid out everything, even if this means that the public sector has to foot part of the bill. Even the Metro Pacific Investments Corp. (MPIC) group has expressed interest in developing DMIA. Unfortunately, the DMIA management has to wait for an official policy decision on the matter, and until then, we have no choice but to use the NAIA terminals.

Security risk. President Aquino has given our local Civil Aviation Authority (CAAP) marching orders to take us out of the Category 2 list by the first half of next year. It will be recalled that from Category 1, the US Federal Aviation Authority (FAA) has downgraded the Philippines to Category 2 because the country “either lacks laws or regulations necessary to oversee air carriers in accordance with minimum international standards, or that its civil aviation authority – equivalent to the FAA – is deficient in one or more areas, such as technical expertise, trained personnel, record-keeping or inspection procedures.” In order to achieve Category 1 status, the CAAP must comply with the standards set by the International Civil Aviation Organization (ICAO), which has also classified the Philippines as having significant security risks. PAL was one of the most affected by the downgrade because it has brought in two Boeing 777-300ER aircrafts and cannot use them for the North American routes. Local aviation authorities are allowed to set standards higher than ICAO standards and the standards of the US FAA are definitely higher than ICAO standards. The US FAA just wants the Philippines to comply with the minimum standards, which we seem to have a hard time achieving. The European Union has also blacklisted the Philippines for non-compliance with ICAO standards. It was learned that other countries like Japan were also looking at doing the same, but changed their mind nevertheless.

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