‘Big 3’ hands off in Bohol fuel pricing —DOE

Now, the buck stops at the local dealers of petroleum products in the controversy surrounding the high prices of petroleum products in Bohol.

This has been cleared up during the first round of the reinvestigation on the higher prices of petroleum products in Bohol compared to adjacent areas conducted on Friday by the Sangguniang Panlalawigan upon the motion of SP Member Tomas Abapo Jr.

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Supervisors of the Department of Energy (DOE) science research specialists at the DOE-Visayas Field Office, Lawyer Rino Abad and Rey Maleza, appeared during the SP investigation where they belied claims by local dealers that it is the head offices of the Big 3 oil companies that dictate the pumping prices in the provinces.

Abad said the local dealers of the Big 3- -Petron, Shell, and Caltex- -actually have the liberty to set the pumping prices.

Their statement was in response to the claims of representatives of local dealers that they only follow the prices set by the head offices of oil companies that they are affiliated.

The DOE officials, however, pointed to at least three factors that affect the prices of petroleum products in Bohol.

They noted that there is no direct import terminal in the province which can be addressed by setting up one to that would serve the Bohol market.

Another factor is the lack of enough oil depots to store enough volume of petroleum products for a longer period to prevent shortage, especially that the transport business in Bohol, a tourist destination, is in demand.

The DOE officials noted that there are only two oil depots in Bohol- -one along Graham Avenue and the other in Bien Unido.


The Tagbilaran depot only has a capacity of 18,500 liters, according to the DOE officials.

Another factor that they noted is the practice of hoarding of supply at the height of high demand.

In summary, the DOE officials suggested to establish direct importation of petroleum products, additional oil depots and invite more local dealers or investors for gasoline station business.

They believe that having more industry players encourages competition where the dealers’ expected strategy is to lower pumping prices to draw more customers.

The DOE officials also recommended the creation of an advisory group on the oil industry in Bohol just like the Bohol Energy Development Advisory Group (BEDAG) that takes charge of the concerns regarding power supply.

The DOE online portal provides updates on the “oil pricing formula in a deregulated downstream oil industry” to serve as a guide to the public.

The DOE explained that “the recent increase in demand for oil internationally, particularly in the Asian Region, has caused a surge in the domestic price of oil”.

“Since November 15, 2010, diesel has increased by P4.75 per liter (with a decrease of P0.75 per liter, thus a net increase of P4.00 per liter), while gasoline has increased by P5.25 per liter (with a decrease of P0.25 per liter, thus a net increase of P5.00 per liter),” according to DOE.

On this, the DOE closely monitors actual oil price movements–both in the international and domestic market.

This is “to prevent unreasonable adjustments and abuses amidst the increases in oil prices, and consistent with its statutory mandate to protect the public”, according to DOE.

FORMULA

The DOE adopts a formula previously used by the Energy Regulatory Board.

In the formula, DOE “compares the peso landed cost of bringing in the finished oil products to the domestic market on a week-on-week basis using the price build-up”.

The peso landed cost for a given week is arrived at by first getting the components of the cost of importing oil products in dollars.

This pertains to the freight on board (FOB) price of the product based on the weekly average of the Mean of Platts Singapore (MOPS) plus freight, to arrive at cost and freight (CNF).

Then the CNF is converted “to peso per barrel by multiplying CNF with the average exchange rate applicable for the said week”.

What follows it getting the applicable duty, if any.

“Currently, there is no duty imposed on oil products in the Philippines,” DOE explains.

The rest of the steps are as follow: “get the ocean loss by multiplying the CNF in pesos (product in step 2 above) with the industry standard of 0.5 percent; add the results in items 2, 3 and 4 above to arrive at peso landed cost without value-added tax (VAT); multiply result in item 5 above by 1.12 to arrive at peso landed cost with VAT; divide the result in item 6 by 159 to arrive at the peso landed cost in liters; and follow the calculation formula above in computing the peso landed cost in liters for the previous and the present week. Get the difference to determine the estimated price adjustment expected the following week”.

The weekly timing is intended for timely adjustments and in consideration that “products bought last week from Singapore are likely the ones being sold in the Philippine market this week”, DOE explained.

This has been adopted starting 2009 after the “consultation by DOE with both the oil industry players and the consumers, including the transport and industrial sectors”.

The DOE also clarified that the formula excludes the costs beyond importation such as storage, handling, distribution or retailing and costs associated with the biofuels program such as the cost of the biofuels – bioethanol, and biodiesel and logistics.

ALTERNATIVE FORMULAS

The DOE also adopts three alternative formulas, considering the limitations on MOPS data sharing.

One of the formulas is the simplest where it assumes a P1.00 per liter increase or decrease in domestic oil price for every $3.00 change in MOPS.

However, “a significant change in any variable will no longer make the formula reliable.

The other formula “was suggested by UP Professor Winnie Monsod” referring “to the DOE Oil Monitor posted in the DOE website every Tuesday for the change in MOPS and the value of the peso-dollar exchange rate. The result of this computation would be the estimated adjustment for the week”.

In this formula, the amount in $ per bbl of the change in MOPS for two immediate past consecutive weeks is multiplied by forex of the second week and the result is divided by the result of the multiplication of 159 by 1.12.

The third formula “considers both the change in international prices of oil and the change in the peso-dollar exchange rate with each item having its respective factor. As in the previous formulas, the factors are valid for a range of FOB prices and peso-dollar exchange rates. Like Alternative Formula 1, any significant change in variables will no longer make the formula reliable”

The DOE added that the Oil Deregulation Law prescribes no specific formula and the prices depend on the market but industry players “must adhere to the fundamental principle of fair prices”.



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