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Govt sets stage for fuel price cap revocation


The Philippine government appears to be setting the stage for the lifting of a cap on fuel prices, with the Energy department warning that supplies were running low and the Justice department announcing an agreement with the oil industry was near. Recommendations from both agencies are required for President Gloria Macapagal Arroyo to rescind Executive Order 839 which fixed fuel prices in Luzon to October 15 levels. The October 23 directive was issued after oil firms raised prices by as much as P2 per liter a few weeks after two storms devastated parts of the island. The government has insisted that a state of calamity warranted the price freeze, which has been criticized by the oil industry, business groups, and foreign chambers of commerce. On Monday, however, Energy Secretary Angelo T. Reyes said supplies were running low and that the government could not force firms to operate at a loss. "Our estimation at DoE (Department of Energy) is that the [finished product] inventory is anywhere from eight to 13 days. And the average inventory for the year has been 21 days," he said. "You cannot force corporations to sell at a loss indefinitely, because they will stop doing business," he added. Oil companies claim that current domestic prices are about P4 to P5 lower than international prices. With some sectors concerned that the lifting of EO 839 would lead to a significant price spike, industry officials said they planned to phase in the increases. Acting Justice Secretary Agnes VST Devanadera, meanwhile, told a separate briefing that the government and oil firms were starting to reach a consensus on how to relax the cap on prices. Oil company representatives present during a dialogue on Monday, she said, put forward a "package of reliefs" that includes discounts in areas most affected by the storms. "We were moving towards a consensus. We did not even talk much [about the negative impact of the Palace order]," Ms. Devanadera said. She declined to provide more details, but said the proposal includes the "assessment of the places most affected by the recent typhoons. There is a need for a mapping ... so that the benefits would be given to those most in need." Mr. Reyes said local oil refiners may have to make up for the supply shortfall, caused by importers holding off from new purchases due to higher world prices. "After 13 days we will run out of finished good inventory. The crude inventory will have to be converted," he said. But the country’s two refiners — Petron Corp. and Pilipinas Shell Petroleum Corp. — said their stocks were insufficient to fill the supply gap. Edgardo O. Chua, country chairman of Shell, said importation of crude oil is made about two-three months in advance. "[W]e cannot be expected to cover the shortfall if the others stop importing," Mr. Chua said. "Normally we can only manage [a] plus or minus 5 percent increase in retail [demand], other than that it becomes really difficult." Petron president Eric O. Recto, meanwhile, said the firm was refining on a program that was determined two months ago. He also echoed Mr. Chua’s estimates on how much they can add to supply. "We are able to service an increase in the demand only to a marginal extent, another 5 percent or 10 percent more," Mr. Recto said. Petron, he said, is "not ready to commit to do business in this environment where the losses continue to mount." Mr. Reyes declined to comment on whether he would be advising Mrs. Arroyo to lift the order, only saying that the inputs gathered on Monday would be presented in a Cabinet meeting. "We will have a Cabinet meeting [on Tuesday] and we don t know what will be decided there," he said. - with reports from Jose Bimbo F. Santos and Ira P. Pedrasa, BusinessWorld

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