MANILA, Philippines—Consumers should brace themselves for further increases in fuel prices, as oil firms in the country claim that they have yet to recover at least P7 a liter in losses for diesel alone.
In a presentation Wednesday, Edgar Chua, Shell Companies in the Philippines country chair, said the industry was saddled with P7.01 a liter in under-recoveries (the amount that oil firms need to recoup) for the socially sensitive diesel—and that was just for June.
Should the oil firms jack up diesel prices by that amount, the pump price of the fuel used mainly by buses, jeepneys and trucks would soar to about P60 a liter.
Diesel now costs P51 to P52.97 a liter, premium unleaded gasoline P58.93 to P60.98, and kerosene P55.10 to P58.30.
Since the start of the year, gasoline, diesel and kerosene prices have risen 17 times for a total of P17 a liter for gasoline and P17.50 a liter for diesel and kerosene due to soaring crude oil prices in the world market.
Global oil prices have doubled in the past year and have risen by more than 40 percent since the start of 2008 when they breached $100 for the first time, triggering fears over inflation and slower economic growth.
Landed cost below selling price
Under-recoveries for diesel peaked in May at P9.11 a liter, according to Chua. He said oil firms enjoyed their last positive margin of 90 centavos a liter from diesel in January.
Chua said the landed cost of diesel—or the price of the product at the final delivery point, which included actual shipping, handling and import fees—was way below its selling price at the pump.
This, in effect, was causing oil firms’ under-recoveries for the product to balloon, he said.
Diesel demand up
Because diesel demand in the Philippines could be considered inelastic, with most public utility vehicles running on this fuel, he said oil firms had to contend with ever shrinking margins amid high demand for the product.
“Despite the rise in prices, diesel demand has actually increased steadily (from January to April). We now have to put in more money to bring the same amount of products into the country,” Chua said, adding that oil firms’ working capital for the past few months had actually doubled.
One blow or staggered
Siripong Phoungpaka, PTT Philippines president and chief executive, said the weakening peso was exacerbating the situation even more.
“If we include the foreign exchange losses, then the losses will be more,” he said.
The peso closed at P45.20 to the US dollar Wednesday.
Ramon Villavicencio, Flying V chair and chief executive, said recovering the losses could be done in one blow instead of the staggered price increases that oil companies were implementing.
This, he said, would be even better for the public transport sector as it would allow them to better compute their petitions for fare increases.
Efren de Luna, president of the Philippine Confederation of Drivers Organizations-Alliance of Concerned Transport Operators, said the impact of staggered price hikes or a one-time increase would more or less be the same.
But Fernando Martinez, Eastern Petroleum Corp. chair and chief executive, said the public transport sector would be better off dealing with weekly price increases instead of one huge increase as oil firms sometimes ended up not recovering their under-recoveries fully anyway.
“Staggered increases will be more beneficial to consumers because, historically, there are some under-recoveries that we end up not recovering when international prices go down. A one-time increase will be disadvantageous to the people. It may even trigger upheavals,” he said.
Relief
Vigor Mendoza, head of transport group 1-Utak, said the sector was looking for relief from the government, even by way of short-term measures.
Any form of subsidy, like the one-time P500 cash aid for consumers using at most 100 kilowatt-hours of electricity each month, would be very much welcome, he said.
Subsidies, like the dole for power users, could be taken from the government’s windfall from the 12-percent value-added tax on fuel products, Villavicencio said.
Anna Whitehouse, Total (Philippines) Corp. managing director, said the government should be transparent enough to let the people know how the VAT windfall was being spent.
“Any form of subsidy or relief will go a long way,” she said. With reports from Christine O. Avendańo and Gil C. Cabacungan Jr. and Agence France-Presse
