Cebu fuel costs higher due to 'lack of competition'

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Tuesday, April 26, 2011

MANILA -- Petroleum prices in Cebu are more expensive than in Manila owing to lesser competition in the Philippines' third-largest island and high costs of transporting oil from Luzon, where the country's fuel depots are located.

Department of Energy (DOE) Undersecretary Zenaida Monsada reiterated this on Monday, the same day a task force vowed to look into the disparity of fuel prices in Manila and Cebu.

"I think the biggest factor behind the high retail cost in Cebu is the transportation of fuel from their Luzon depots," Monsada, who is also the department's Oil Management Bureau head, told Sun.Star. "The lack of small, independent oil players in the area might also affect pricing, there is less competition."


Prices of the prime commodity went up 12 times this year, with diesel prices jumping by P9.60 per liter and gasoline prices rising to P8.60 per liter.

In Metro Manila, prices of diesel and gasoline have reached P47.15 to P49.15 and P53.95 to P60.22 per liter, based on DOE estimates as of April 19.

In Cebu, pump prices are higher by P5 or P7 than in Luzon and Mindanao.

In an earlier interview, Energy Secretary Jose Almendras said fuel costs in Cebu can be trimmed further if more independent companies compete against the three big oil companies: Petron Corp., Pilipinas Shell Petroleum Corp., and Chevron Philippines Inc.

Independent oil players in Cebu have reportedly complained about expensive real estate prices, making it difficult to set up storage facilities in the region.

Provinces in Mindanao, like Davao, enjoy low oil prices because a small company imports fuel from Singapore and directly transports the commodity to the region.

Petron, Shell, and Chevron control 85 percent of the country's oil supply, while small firms grouped under the Independent Philippine Petroleum Companies Association cover some 15 percent of the local fuel market.

These smaller players include Eastern Petroleum Corp., TWA Inc. (Flying V), Seaoil Philippines Inc., Unioil Petroleum Philippines Inc., Phoenix Petroleum Philippines, Inc., Filoil Gas Co., Filpride Energy Corp., and Oilink International Corp.

Phoenix -- which reported P427 million in profits last year -- only has six retail stations in Visayas; four of them are found in Cebu as of March 2011. In contrast, the company has 135 stations in Mindanao and 37 in Luzon.


Monsada also said that she supports calls to amend the Oil Deregulation Law to effectively counter unfair pricing of petroleum products.

"I think the law must be amended in such a way that we agree on a common reference price. Our computation is based on the international oil prices using Mean of Platts Singapore (Mops), which serves as the benchmark for imported oil in Asia including the Philippines," she said.

At present, petroleum companies found guilty of manipulating prices face a minimum fine of P250,000 and imprisonment of at least three years as provided for under the law. The violators will be determined by a joint task force composed of the energy and justice departments.

The Philippines consumed 111.8 million barrels last year, which translated to an average daily requirement of 306,300 barrels.


In Malacañang, the DOE and the Department of Justice (DOJ) task force said it is looking into complaints of high pump prices in Cebu.

"There is already an ongoing review of the disparity in pump prices by the DOE and DOJ task force," Almendras told Sun.Star.

However, Almendras, who himself is a Cebuano, admitted that high fuel prices in Cebu has long been a problem that can be attributed to high shipping costs and "market forces".

"Per historical data, difference can be attributed to higher freight costs and 'market forces'," he stressed.

Asked if the task force could help in coming up with a way to bring down Cebu's oil prices, he said the body's function is only to "address complaints filed regarding unfair fuel pricing, cartelization, and to determine if there are violations of the oil deregulation law."

Roll back

In a related development, Almendras announced that fuel prices should roll back this week.

He said all oil companies should reduce their pump prices depending on the increase it implemented last week.

"This week, our view is oil prices should roll back depending on how much you increase last week. If you increase last week, your roll back should be higher. If you did not increase, then it should be lesser than those that did the increase," Almendras said.

He reiterated that several oil companies that did not follow the oil price increase calculated by the DOE will be punished by the DOE-DOJ task force.

"The law is clear. If the joint task force feels that there is an abuse, then the DOJ task force will file a case in court and subsequently the appropriate action will be followed depending on the law," he said.

He said the DOE calculation last week showed that gasoline price should have gone up by the maximum of 39 centavos rounded off to 40 centavos, but some companies went as high as 60 centavos.

For diesel meanwhile, the DOE calculation was it should have increased by 16 centavos rounded off to 20 centavos but some companies went as high as 25 centavos.

"People might say it is such a small amount (to pursue a case against oil companies) but this is the fourth and fifth times, since we assume office that we ask the oil companies to explain the discrepancy... Every centavo counts," he said.

Almendras said the DOE-DOJ task force asked oil companies that did not follow the DOE figures to submit an explanation in writing within 10 to 15 working days.

The task force, meanwhile, still has to decide whether those that roll back prices will still be required to explain.

"The task force has to wait, has to evaluate, has to do the comparatives, has to look at the numbers and then make an opinion based on that opinion will be the decision on how to pursue beyond that point," he said.

Almendras said oil company owners could be put in jail if found guilty of violating the Oil Deregulation Law. (Jill Beltran/Sunnex)

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