Gov’t forecasts P1 cut in diesel prices

REPORT FROM BUSINESSWORLD DIESEL PRICES are expected to go down by as much as P1 per liter anytime between February 1 and February 15, Energy Secretary Angelo T. Reyes on Wednesday said. In a phone interview, Mr. Reyes said the Energy department would be endorsing a two percentage point reduction in the 3% tariff on all petroleum products starting next month. His new forecast, based on current indicators, exceeds the P0.70 per liter for diesel the government originally announced last week. Executive Order 691, which approves stepped tariff reductions if world oil prices hit certain levels, was signed on January 10. A final draft of the implementing rules and regulations will be signed by Mr. Reyes before the week ends, with the scheme to take effect on February 1. "The [effect of the] two percent[age point] reduction will be applied to diesel because it is the most widely used by consumers. This will especially benefit the transport sector," Mr. Reyes said. Drivers and operators late last year threatened to call for higher fares, citing unmanageably high fuel costs. Zenaida Y. Monsada, director of the Energy department’s Oil Management Bureau, explained that oil firms are expected to implement cross-subsidies from the savings from imports of crude oil and refined products. "Whatever [savings] from all the imports that will come in, you focus that on lowering diesel prices,’ she said. "The latest we expect prices to go down is on February 15," she said, which gives oil companies a two-week window to observe world prices. The 3% tariff will be cut if the following trigger prices are breached: $83.37 per barrel for crude and $105 for diesel, which would mean a 2% tariff; $92.41 per barrel for crude and $110 for diesel, to further lower the tariff to 1%; and $103.25 per barrel for crude and $115.70 for diesel, which will remove the tariff altogether. Energy department data showed the January average for Dubai crude oil at $89.79 per barrel and for Mean of Platts Singapore (MOPS) diesel at $110.99 per barrel as of Wednesday. These levels merit a 1% reduction outright, but Mr. Reyes is banking on an uptrend in world oil prices to breach the second trigger price. The Energy department will send the Finance department a certification which trigger prices have been met on February 1, he said. Finance Undersecretary Gil S. Beltran said "The Energy department certifies which level of import tariff should be cut, and we turn around to the Customs bureau and instruct them to cut the [collections]." The exact drop in pump prices will be computed by the Energy department and the oil companies themselves, he said. On the revenue side, the government expects to lose as much as P10.66 billion. "We estimate that if the government were to maintain a 3% tariff on oil even though the price of crude oil was at an average of $92.62, the price of diesel was at $110 or more per barrel, and the peso was P41 to the US dollar, then the government would enjoy that much windfall," Mr. Beltran said. Oil company officials said they had been ready since last November when the tariff reduction scheme was proposed by the Energy department to the Tariff Commission. Independent Philippine Petroleum Companies Association (IPPCA) Chairman Fernando L. Martinez was adopting a wait-and-see stance. "Anything we import starting February 1 will have lower tariff, that’s good. But we have to watch MOPS for the next 15 days. As of Tuesday it was higher than the December average by $3 which translates to P1. So whatever we can pass on in February will be net savings," Mr. Martinez said. "Iba pa ang Dubai [Dubai is different]," he warned. So far, Dubai has registered the highest jump in price since November last year. It follows trends in other markets, such as New York’s, where trading is currently in the high 90s. IPPCA President Ramon F. Villavicencio has also warned that retailers still have under-recoveries and could implement price increases for other petroleum products. "That’s about P3 or P4 starting this year, this month. But a reduction is better than nothing. Even if the prices will rise, the increment will be smaller," he said.