2 oil firms earned P70B, says lawmaker
Philippine Daily Inquirer
First Posted 01:04:00 07/21/2008
MANILA, Philippines—Oil companies in the country have been raking in huge profits amid soaring fuel prices, according to Cebu Rep. Eduardo Gullas.
But Petron Corp. said its earnings were small compared with other industries, while Pilipinas Shell Petroleum Corp. said it was just making “reasonable financial returns.”
Gullas Sunday called on the Department of Energy to use its powers under the Downstream Oil Industry Deregulation Law to prevent oil companies from possible pricing abuses.
Pilipinas Shell and Petron have accumulated a combined net profit of almost P70 billion since the law was passed 10 years ago, the lawmaker said, citing regulatory filings of the two companies.
Shell, which controls 31 percent of the domestic market, earned P33.59 billion from 1998 up to the first quarter of this year, while Petron netted P35.18 billion during the same period, he said.
Gullas said similar figures pertaining to Chevron Philippines Inc. (formerly Caltex) were not readily available. He said the last report from the company showed it had a net profit of P2.75 billion in 2006.
Aside from the possibility of excessive profits, Sen. Joker Arroyo said early this year that big oil companies could also be the country’s biggest smugglers because they were keeping their books away from closer scrutiny by authorities.
Enormous pricing power
“There is no question that as a result of soaring world oil prices, industry players are enjoying enormous pricing power that has enabled them to pump up their profit,” Gullas said in a statement.
“Consumers are now extremely vulnerable to potential pricing abuses.”
Since the beginning of 2008, he said oil companies had jacked up the price of diesel and kerosene 20 times for a total of P24 to P22.50 a liter. Gasoline prices had been increased 19 times for a total of P19 a liter.
Petron and Pilipinas Shell said they may be posting billions in profits each year, but these were but small percentages of the investments that they were injecting into their businesses each year.
In a statement issued to the Philippine Daily Inquirer on Sunday, Petron said its net income was actually equivalent to just around 2-3 centavos for every peso in sales.
“This is significantly lower than other industries. Additionally, we have been investing heavily to improve the quality of our fuels and to ensure the energy security of the country,” Petron said.
“For instance, in 2005, we made a $100-million investment for cleaner fuels. This year, we opened our $300-million facility that will enable us to produce more white products (such as) gasoline, diesel and liquefied petroleum gas for domestic consumption. This is outside the billions of pesos in investments (for) service stations, additional distillation capacity and others that we have made since the deregulation (of the industry),” it said.
Petron in the first quarter registered a net income of P658 million, 31 percent lower than the P953 million the company posted in the same period last year.
Capital intensive
Roberto Kanapi, Shell general manager for external affairs, said it was not enough to just look at an oil firm’s bottom line, considering the capital-intensive nature of the downstream oil industry.
“Profits should be measured and taken in context of returns. Two (Department of Energy)-commissioned audits of Shell’s performance during deregulation indicated reasonable financial returns,” Kanapi said in a text message sent to the Inquirer newspaper (parent company of INQUIRER.net).
The latest DOE-commissioned study, jointly conducted by Sycip, Gorres, Velayo & Co. and University of Asia and the Pacific, showed that Petron in 2007 posted a return on equity (ROE) of 2.44 percent, including exports and 0.4 percent net of exports.
Shell, on the other hand, posted a significantly higher ROE of 12.21 percent.
ROE shows how efficiently a company generates profits from every peso invested or how well a company uses its investments to grow its earnings.
Check potential abuse
With the oil deregulation law proving to be a “boon” to both Shell and Petron, Gullas said the energy department should use its powers under the same law to keep oil companies from manipulating prices.
“(It) has adequate powers under the law to rigorously watch pump prices and check potential abuses,” he said. “The law did not render (it) helpless with regard to any excessive and unreasonable increases in the prices of petroleum products.”
Under Republic Act No. 8479, he said the department could “act upon any unreasonable increases in the prices of petroleum products.”
Gullas said the law empowered the energy secretary to scrutinize oil players and make public the department’s findings.
Joint task force
Gullas said a joint task force involving the energy and justice departments could “gather information under oath and investigate on its own any matter about the industry.”
“It may also file certain complaints before the proper court, if necessary,” he said.
Gullas said Malacańang or Congress could also instruct the Energy Department to “investigate and report the facts relating to any alleged violation of RA 8479 by any person or corporation.”
The Pagkakaisa ng mga Samahan ng Tsuper at Opereytor Nationwide (Piston) claims that there is a P12-per-liter overpricing in the domestic prices of petroleum products, as supposedly shown by a study of Ibon Foundation. Christian V. Esguerra, Abigail L. Ho and Leila B. Salaverria
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