Roll back oil prices or face windfall tax

By Aurea Calica, Philstar

Calls for oil companies to roll back fuel prices mounted yesterday as Sen. Juan Ponce Enrile said these firms must be taxed for excess profits if they refuse to bring down prices.

The House of Representatives is also considering the imposition of a windfall profit tax on oil companies if they refuse to reduce pump prices. Oil prices fell below $90 a barrel on speculation that the spreading financial crisis would exacerbate a global economic slowdown and cut demand for crude oil. But until yesterday, oil companies could not commit to more price cuts. Enrile said the oil companies could not maintain the prices of fuel in the country on the basis of high crude prices.

“They have to scale down their retail price at this time. Otherwise, we will pass a law to see to it that we will get a portion of their huge profit if they are not going to scale down, because that means that if the cost of crude was down, then their margin will get bigger,” Enrile said. He warned he would sponsor a bill to impose an excess profit tax on oil companies. Enrile, chairman of the Senate finance committee, said the recent reimposition of the one-percent tariff on oil was not significant and should not be a reason to maintain high fuel prices.

“That is nothing, that is small. What is one percent of $83? It’s less than a dollar,” Enrile said.
He explained that only the government could pressure oil companies to bring down their prices, but lawmakers could file legislation to force them to give back their profits to the people. “We agree that business must make a profit, but not too much. A reasonable profit yes, but an excess profit can be subject to an excess profit tax… and then we will use that to help people that are suffering because of their refusal to scale down their retail price,” he said.

'Review or repeal law’

Enrile filed a bill to review or repeal the Oil Deregulation Law to prevent oil companies’ abuses.
He said he would also like to push for the anti-trust bill to prevent monopolies or cartels among industries, manipulation of prices of commodities, and price discrimination. He added that a lot of people would be “jailed” if this bill would be passed. He said a boycott of some oil firms would not make sense because it might affect all operations in the country.

But Sen. Francis Escudero, chairman of the Senate ways and means committee, said it would be better to revise or repeal the Oil Deregulation Law rather than impose a new tax on oil companies. “The problem is whatever tax, even on excess profit, will be hard to monitor. We might even give them a reason to further increase their prices,” Escudero said. “For me, the solution is to review or amend the Oil Deregulation Law to teach oil companies a lesson and provide more teeth for the government to sanction companies that do not follow right prices in the world market,” he said.

"Right now, the Department of Energy’s role is a barker and can not seem to guard public interest against the abuses of oil companies,” Escudero said. He said oil companies had been quick to increase their prices based on world market prices but are not as fast when prices are going down. He said it should not take months before oil companies could determine how much rollback must be done and that the DOE must make sure to break the cartel among oil companies. Under the current Oil Deregulation Law, companies could not be forced to scale down prices.

“There is a monopoly and oil companies connive with each other and so the government must have the right and the power to check on them. It should not be like the situation now where the government has to kneel or the President has to talk to oil companies for them to bring down prices,” Escudero said. Speaker Prospero Nograles said Congress would look at the possibility of imposing a windfall tax. “We join the senators’ call for oil companies to further reduce their selling prices,” he said.

Oil firms uncommitted

But oil companies have remained uncommitted on the prospects of another price rollback.
Shell companies in the Philippines country chairman Edgar Chua said most firms adopt a wait-and-see attitude on implementing a price rollback. Both major and new oil players said that the situation remains fluid, especially with the threat of a one- to five-percent import tariff.
Oil firms claimed that the ruling on the tariff on imported crude and refined petroleum products is flawed. Chua said that regulators forget to factor in the foreign exchange component in the trigger price for the level of the import oil tariff. Based on DOE circular 2008-01-0001, the trigger point or price for a one-percent tariff is $91.70 per barrel for Dubai crude and $113 for MOPS diesel. The trigger price for a two-percent tariff is $86.50 per barrel of Dubai crude and $100 for MOPS diesel. For a zero-tariff level, the trigger point is $103.50 per barrel for Dubai crude and $117 per barrel for diesel.

“What they forgot to include is the foreign exchange component,” Chua said at the sidelines of the Management Association of the Philippines (MAP) International CEO conference yesterday.
The recommendation for an amendment of Executive Order 691 must come from the DOE, which must be forwarded to the Department of Finance (DOF) and the National Economic and Development Authority. The DOF estimated that the one-percent tariff is roughly equivalent to P0.23 to P0.35 per liter for gasoline, and P0.46 per liter for diesel. The average price of Dubai crude for the month of September is $95.90 while the peso in the same period averaged P46.17.
For the month of October covering the period Oct. 1 to 6, Dubai price fell to $84.42 while the peso depreciated further to P47.19.

On Oct. 6 alone, Dubai weakened to $79.45 but the peso slumped further to P47.40. Chua admitted that their sales were lower by six to 10 percent compared to the same period last year.
It was Pilipinas Shell Petroleum Corp. that categorically admitted that they would lower the pump price in selected stations located near stations of new oil players. Unioil Petroleum lowered prices of its petroleum products by P3 per liter last month at a time when the rest of the field reduced prices by P1 per liter. People flocked to the Unioil stations but supply quickly ran dry.
There are speculations that prices could go down to $50 per barrel due to slumping demand brought about by the global financial crisis and economic slowdown.

‘Implement substantial rollback’

The Bagong Alyansang Makabayan (Bayan) also demanded that local oil companies immediately implement “substantial rollback” in pump prices, saying that not doing so is “glaring proof” that the Oil Deregulation Law has failed. The group said the drastic drop in oil prices worldwide "undoubtedly” warrants a pump price reduction of at least P7 per liter for diesel, P2.30 for gasoline, and P8 for kerosene. Based on the study by Bayan, oil companies should have already “implemented a major reduction in pump prices” since Sept. 26. It pointed out the steadily declining prices of Dubai crude as its benchmark for computing the price rollback and even factored in the weakening Philippine peso. “Even if the peso continues to weaken, and even if oil tariffs are restored, a substantial rollback can still take place. Having no rollback at all is totally unacceptable for consumers. That would be a gross injustice,” said Renato Reyes Jr., Bayan secretary-general.

Reyes said local oil firms should all the more implement a price cut since world oil prices are dipping below the $88 per barrel mark. “The trend in oil prices is that of a steady decline. The immediate P7 rollback may even be a conservative estimate in the light of even bigger drops in world oil prices. The previous oil price hikes were pushed by speculation. When the reality of the global economic slowdown set in, oil prices have been pushed down,” he said. Reyes criticized the DOE for “refusing to acknowledge and failing to understand that even if world oil prices go down, the power to lower pump prices of oil lies with the ‘cartel’ in the local oil industry.” Bayan insisted that the Oil Deregulation Law must be immediately scrapped.

“Government appears to be able to compute a price rollback yet (it) is powerless in the face of the deregulation law. Then why does government continue to uphold such a law?” Reyes said.
“It’s not about who can give the best sound bite. It’s about changing the policy. All your sound bites on the rollback are useless if you end up defending the Oil Deregulation Law,” he added. – With Katherine Adraneda, Jess Diaz