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Petroleum tariff increase shelved on oil price highs
Jeffrey O. Valisno and Bernardette S. Sto Domingo, BusinessWorld (6 Aug 2004)

PHILIPPINES: A planned 2% tariff hike on imported petroleum products has been shelved by Malacañang in a bid to cushion the impact of escalating world oil prices.

Executive Order 336, which increased the import duties to 5% from 3%, was supposed to take effect shortly after the President signed the order on July 23, Energy Secretary Vincent S. Perez, Jr. yesterday said.

However, the Palace decided to indefinitely postpone the EO implementation while world oil prices are at an all-time high, Mr. Perez told a briefing in Malacañang.

"The reason why we have not implemented this yet is because President Gloria Macapagal-Arroyo wanted to ensure that any increase in tariff will not be felt by the consumers, and we will only do so when the oil prices start declining," Mr. Perez said.

The President decided to increase the tariff as part of revenue measures aimed at addressing the budget deficit. The current 3% tariff, Mr. Perez said, is one of the lowest rates among oil-importing countries in Asia. He added that imported oil products by the Philippines are one of the least taxed in the region.

With world oil prices hitting fresh highs this week -- brought about by external factors like the rising oil demand of China, political tensions in the Middle East, refinery capacity cutbacks in South Korea, and the recent terrorist warnings in the US -- the government deemed that the EO's imposition would be untimely.

The EO may stay shelved for a considerable period, as Mr. Perez said "All these of these world developments suggest that prices in the Philippines will remain high, and we are concerned that as the winter season in the North Hemisphere nears ... the prices will remain high..."

Aside from delaying the implementation of higher import tariffs on oil products, Mr. Perez assured the public that the government is taking other steps to soften the blow of the latest round of oil price hikes.

The Energy department has warned oil companies and other individuals and groups in the downstream oil business not to take advantage of the prevailing oil prices by indiscriminately adjusting prices of their products.

"The Energy department will run after individuals and companies that will resort to unscrupulous practices, particularly unfair pricing, at this very crucial time in the industry," Mr. Perez said.

He also called for cooperation and vigilance among the consumers to help report abuses.


Mr. Perez called on other sectors to refrain from further clouding the oil issue by sending wrong information to the public about rising fuel prices, including blaming the privatization of Petron Corp. as the reason for the government's helplessness amidst rising pump prices.

"I feel at this point the issue of oil prices is really unrelated to our ownership of Petron," he said.

"This (privatization of Petron) doesn't do anything to the oil prices. We are already pleased that Petron has been partly privatized. We only own 40%. The government is comfortable with that level. We do not intend to increase it nor do we intend to sell it. We believe this is just enough participation for us to have an influence in the oil market," he added.

Senate Franklin M. Drilon has proposed that the government buy back Petron from Saudi Aramco, who owns 40% of the oil firm, as a solution to higher oil costs and charges that big oil companies are conspiring for higher profit.

Mr. Perez said Petron did not follow the 50-centavo price hike implemented over the weekend by oil companies. This, he said, is a clear manifestation of the government's influence in the oil market.

Mr. Perez also said it is up to oil companies to justify rate hikes since the government has no business doing so under the deregulated environment.

"It's really very hard to have a benchmark because it's a deregulated industry. Companies may wish to move or not move and therefore it's difficult for the Energy department to justify an increase," Mr. Perez said.

Dubai crude oil has been hitting all-time highs in the past few days. Yesterday, Dubai crude further jumped to $37.70 per barrel from $37.50. MOPS-based unleaded gasoline, meanwhile, has soared to $50.82 per barrel and diesel to $50.37 per barrel.

Mr. Perez said he met with independent oil firms and businessman Raul T. Concepcion last Monday where he asked oil companies to explain the recent adjustment.

"We agreed that we need to have informal consultations more often to avoid differences that end up being publicized. There was also a common sentiment expressed that perhaps price adjustments more frequent but smaller may be better than infrequent and large adjustments, I support that sentiment," Mr. Perez said.

The Department of Energy (DoE) warned on Wednesday that world oil prices will likely remain high due to terrorist threats in the United States and further tightening of global supply.

"These developments continue to state that prices will remain high and as the winter season nears, the DoE is concerned that prices may remain at these levels," he said.

Mr. Perez also said the Philippines has sufficient petroleum inventory of 56 days with an additional 9,000 barrels to be loaded this month, all of which will extend inventory until October.

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