Oil price control seen to cause shortfall of supply

Malacañang on Monday ordered the Energy department to enforce a fuel price ceiling, to which oil companies responded by saying they would take back last week’s significant increases while warning of consequences for consumers. Following complaints that last Tuesday’s increases — P1.25, P1.50 and P2 per liter for gasoline, kerosene and diesel, respectively — were too much, especially since two devastating storms hit the country recently, the Palace on Friday issued Executive Order (EO) 839 capping prices in Luzon at October 15 levels. It cited the existence of a state of calamity on the island, which allows the Energy department to temporarily take control of the deregulated industry. Oil companies said they would comply, but warned that a supply shortfall and investor aversion, along with successive price increases once the state of calamity is lifted, could be the consequence. As of press time, the firms that had advised compliance were Seaoil Philippines, Inc. and Chevron Philippines, Inc. Independent players Flying V and Unioil Petroleum Philippines Inc. cut prices during the weekend. "It will have future implications on future investments, I can guarantee you that," said Ernst Wanten, country chairman of Total Philippines Corp., of the Palace order in an industry meeting called by the Energy department. "And we have questions about the next supply shipments we have to buy because at this time it’s a straight loss. And we’re going to a situation where it’s better not to sell," he added. In EO 839, President Gloria Macapagal-Arroyo cited Section 14 of the Oil Deregulation Law which states that "in times of national emergency, when the public interest so requires, the Department of Energy may, during the emergency and under reasonable terms prescribed by it, temporarily take over..." Mark C. Quebral, Chevron Philippines, Inc. manager for policy, government and public affairs, called the directive "precedent-setting." "It will set a precedent and it might not send a good signal to our mother company and other investors in general," he said. "We are looking at our remedies, legal or otherwise." Ramon F. Villavicencio, chairman of independent player Flying V. Corp., said that the public should expect companies to recover their losses down the road. "I hope that when the industry comes up with an increase, there will be no hullabaloo over this, no shouting and saying that this is unreasonable," he said. Energy Secretary Angelo T. Reyes replied: "We will cross that bridge when we reach it. Right now the bridge we are crossing is this executive order." Raymond T. Zorrilla, assistant vice-president for external affairs of listed independent player Phoenix Petroleum Inc., echoed Mr. Villavicencio’s statement. "Definitely [we will seek to recoup the losses]. It would fall under under-recoveries so we have to reflect this at the pump and recover our losses," Mr. Zorrilla said. Edgardo O. Chua, Pilipinas Shell Petroleum Corp. country chairman, asked if oil companies would be penalized should they stop selling to avoid losses, to which assistant chief state counsel Ruben F. Fondevilla replied: "it would depend on the circumstances." "They might or they might not be taken to court," Mr. Fondevilla said. Oil companies claimed recent import costs dictated a P2 per liter increase this week following last week’s adjustments, thus the Palace order would force them to deal with losses of some P4 per liter. Executive Secretary Eduardo R. Ermita, in a radio interview on Monday, said oil companies should "know the government is not without power to be able to regulate when the interest of the greater majority is at stake." Noncompliant oil firms will be penalized, he stressed. Mrs. Arroyo placed the entire nation under a state of calamity on October 2, a week after tropical storm Ondoy brought record floods to Metro Manila and neighboring provinces, and a day before supertyphoon Pepeng began battering northern Luzon. The storms caused over P30 billion in damage and claimed nearly a thousand lives. The state of calamity has been lifted in the Visayas and Mindanao but Luzon could remain covered until the end of the year, the Palace said. — from a report by J. B. F. Santos with inputs from B. S. Sto. Domingo, BusinessWorld