Petron, OPSF & oil prices

Over the weekend, the business grapevine was abuzz with talk that tycoon Ramon “RSA” Ang was selling Petron Corp. back to the government.

But when I asked him, RSA doused cold water on the rumor that had spread like wildfire. He wonders who started the story.

“We are not selling,” he said on Saturday.

Late last year, during a hearing at the House of Representatives, RSA – perhaps frustrated over insinuations from militant groups that oil companies like Petron have been raking in profits amid skyrocketing oil prices – said he can easily sell Petron  back to the government, even through installment over five years.

“Kung sa tingin niyo, jackpot ‘yong negosyong ‘yan, let the government buy it, (even) at market valuation lang,” RSA said then.

This time around, I don’t know where the smoke is coming from, but several sources have been asking me the past days because they’ve been hearing the same thing.

Perhaps, it seems a logical move for Petron to sell because of the volatility in global crude prices and the still uncertain oil situation across the globe due to Russia’s ongoing war against Ukraine.

Fortunately for the country, RSA said it’s not true, because I honestly don’t believe the government should go back into business.

I don’t know why our militant lawmakers keep suggesting it. Lawmakers from the Makabayan bloc have been suggesting the possibility of putting Petron back in the hands of the government. I’m not sure what metrics they are using to even suggest such a proposal.

For one, it would take a huge amount of taxpayers’ money to buy Petron from SMC. Note that Petron isn’t just a network of some 2,000 retail service stations.

It is now the country’s lone oil refiner, which supplies nearly 40 percent of the country’s oil requirements. Petron operates an integrated crude oil refinery and petrochemicals complex with a rated capacity of 180,000 barrels per day in Limay, Bataan. Its refinery processes crude oil into a full range of petroleum products including gasoline, diesel, liquefied petroleum gas (LPG), jet fuel, kerosene, industrial fuel oil, and petrochemical feedstock benzene, toluene, mixed xylene, and propylene. That’s certainly not a cheap refiner.

Shell and Caltex Philippines have already shut down their refineries as they were no longer viable.

The same is true across the globe. Many companies are now shutting down their refineries, especially with declining fuel demand during the pandemic.

Competition from Indian refineries has also become tougher.

Indian refineries have been boosting their fuel exports, tapping into markets such as Europe that are now boycotting imports of Russian oil.

“India has bought about 62.5 million barrels of Russian oil since Moscow’s invasion of Ukraine on Feb. 24 – more than three times more than in the same period in 2021 – more than half for private refiners Reliance Industries and Nayara Energy, Refinitiv Eikon data shows,” according to a June 1 report by Al Jazeera.

Petron has not had it easy as well. In 2020, it incurred a net loss of P11.4 billion although it managed to bounce back last year with a net income of P6.14 billion.

Still, it would be unwise and costly for the government to buy Petron and operate it again as militant groups have been proposing.

It’s a populist measure and I hope President Marcos realizes this early enough, especially with different sectors suggesting a revival of many of his father’s programs.

Reviving the OPSF

1-Pacman Party-list Rep. Mikee Romero, for instance, proposed the revival of the Oil Price Stabilization Fund (OPSF), which was created by the first Marcos administration in 1984 to cushion oil price spikes.

He said there is a need for a “buffer fund” to absorb the price hikes, noting that prices would remain “volatile and elevated” because of the Russia-Ukraine war and the recovery of many countries from the COVID-19 pandemic.

“We should revive the OPSF or establish a similar buffer fund, which the government could use to avoid frequent adjustments in the pump prices of oil products due to fluctuations in the cost of crude oil in the world market and in the peso-dollar exchange rate,” Romero said in a statement.

But reviving OPSF will be problematic. It was born out of necessity at the time, but is no longer viable now. The government will be buried in debt when oil prices become too expensive.

All these programs were products of their time. Today, we all know business is better off in the hands of the private sector because we’ve seen what happened when the government operated our utilities.

Remember state-owned PLDT of the decades past, when the lines were riddled with party lines?

Subsidies

As for oil prices, the viable thing to do now is to provide direct subsidies to the most vulnerable sectors, such as public transport drivers. This is the better option instead of populist proposals such as revising the OPSF or forcing the government to get back into running an oil company.

Iris Gonzales’ email address is [email protected].

Follow her on Twitter @eyesgonzales. Column archives at eyesgonzales.com