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P65/liter gasoline price looms

Oil firms admit no relief for consumers

By Abigail L. Ho, Ronnel Domingo
Philippine Daily Inquirer
First Posted 00:51:00 06/03/2008

Filed Under: Oil & Gas - Downstream activities, Consumer Issues, Energy & Resources, Electricity Production & Distribution

MANILA, Philippines?Consumers will have to deal with weekly fuel price increases of P1.50 a liter that started on Saturday, as oil firms scramble to recover losses resulting from skyrocketing crude prices in the world market.

Allowing the oil firms to recoup their losses could drive the price of gasoline to a record P65 a liter.

An industry executive said fuel prices could go up by between P8 and P11 a liter to reflect the higher oil prices.

"Under-recoveries [the amount that oil firms need to recoup] have soared ... There's really no relief in sight. Consumers will have to bear weekly increases, most likely by P1.50 a liter," the executive said.

Virginia Ruivivar, public affairs manager at oil refiner Petron Corp., said that for diesel alone, the current pump price was P8 a liter lower than the actual imported price of the product.

The hefty fuel price increases are expected to further jack up the prices of almost everything else, making life more difficult for most Filipinos.

Consumer groups Monday called for the removal of the 12-percent value-added tax (VAT) on oil products to cushion the impact of high fuel prices.

The militant Bagong Alyansang Makabayan (Bayan) said it was not right that the government was enjoying a windfall from VAT collections when consumers "have their backs against the wall in the face of rising inflation."

But the Federation of Philippine Industries said subsidies and socialized pricing schemes were the best way to address the rise in fuel prices.

Over the weekend, the latest price increase of P1.50 a liter brought the price of premium unleaded gasoline to between P50.67 and P55.15 a liter, diesel to between P42.91 and P48, and kerosene to between P48.30 and P53.50.

Since the start of the year, gasoline, diesel and kerosene prices have risen 12 times for a total of P9.50 a liter for gasoline, and P10 a liter for diesel and kerosene.

Too high

Energy Secretary Angelo Reyes said the under-recoveries that oil companies were quoting were too big.

"At current foreign exchange levels, I think P11 is just too high. If forex moves up again, then maybe (the oil firms) will be right. At this point, that estimate is too high," he said.

Ruivivar said diesel was the main source of oil companies' under-recoveries, as they could not just reflect world price increases at the pump due to the nature of the fuel.

Almost all public utility vehicles in the country, especially jeepneys and buses, run on diesel.

"It's also hard to offset diesel recoveries with gasoline, as diesel accounts for twice the volume of gasoline demand. At this point, weekly increases will most likely continue. We just don't know for sure how much each increase will be," Ruivivar said.

Contingency measures

Reyes said a multi-agency task force met for the first time Monday to discuss contingency measures.

The meeting of the Energy Contingency Task Force had on its agenda projections on where oil prices would go and how these would affect the economy, and what steps the government could take to alleviate the impact of high prices on consumers.

"We'll be coming out with short-term, medium-term and long-term plans of action. It's a multi-agency approach. We want all bases covered," Reyes said.

Fluorescent lamps

The Department of Energy, he said, would recommend energy conservation, the shift to compact fluorescent lamps and the conversion of gasoline-fed engines into those that use alternative fuels.

The Department of Social Welfare and Development would discuss the identification of families to be given subsidies for their electricity bills, while the Commission on Higher Education would present plans to extend loans and scholarships to students.

The government campaign to combat the effects of rising oil prices would also include the more aggressive revival of the Government Energy Management Program, which served as a watchdog on how government agencies consumed fuel and electricity.

The departments of finance and of budget and management would discuss how the proceeds of the VAT would be allocated to ease the effects of high oil prices.

More urgent

Bayan secretary general Renato Reyes Jr. said the continued rise in international prices made the scrapping of the VAT on oil "all the more urgent."

"This is the fastest and most direct way of providing relief to consumers, especially since the VAT that consumers pay gets bigger as oil prices rise," Reyes said. "As the base for 12-percent VAT increases, paying this tax becomes all the more unjust."

Data from the Bayan-led Kontra KulimVAT campaign show that for every P1 per liter increase in the oil price, the national government collects an additional P5.47 million in revenue daily.

The group also calls for the lifting of the VAT on electricity, with the aim of lowering power rates.

Revenue from diesel

Kontra KulimVAT data further show that a big part of the additional VAT revenue comes from diesel, which generates P2.12 million daily in extra VAT collections for every P1 per liter oil price increase.

The group claims that the government also earns an additional P1.21 million daily for every P1 per liter increase in the price of gasoline; P540,000 from kerosene; P960,000 million from fuel oil; P610,000 from liquefied petroleum gas, and P40,000 from other petroleum products.

The group believes that pump prices of various petroleum products can go down by P5 to P6 per liter if the VAT is removed.

"The uncontrollable rise in oil prices has a snowballing effect on other consumer goods and a respite is certainly timely since schools are opening this month and there is a pending petition for fare hikes from operators of buses and jeepneys," Reyes said.

He said Kontra KulimVAT, which was launched two weeks ago, was embarking on a community-based campaign to gather support.

Lifting of tax opposed

FPI president Jesus Arranza said lifting the VAT on oil would affect the country's revenue generation and its credit ratings.

"If collection of the VAT on oil continues, we can use the revenues to subsidize the cost of diesel for the transportation of goods, for example," Arranza said.

He said manufacturing firms were more concerned about the impact of rising oil prices on the cost of electricity.

The effect of oil itself on the cost of production of goods is not as high as that of electricity because oil accounts for only about 8 percent of the country's power generation mix, according to the FPI head.

Socialized LPG pricing

"We suggest that we try implementing a socialized pricing scheme like for LPG," Arranza said.

He said overall increases in LPG prices could be less for households that buy the gas in cylinders of 11 kilograms or smaller.

"A household of five, for example, should not absorb the full force of a P1 increase in the price of LPG," Arranza said.

"Large LPG users should shoulder the bigger part of price hikes since they are able to pass this on to other end-consumers, which households are not able to do," he added.

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