Tuesday, July 15, 2008 Cabaero: On under-recoveries and transfer pricing By Nini B. Cabaero Beyond 30
DEVELOPMENTS are pointing to how the oil crisis in the country is intensifying with new fare rates taking effect and force being applied by militant groups in defacing offices of fuel companies.
These actions are signs of how the crisis has gone past the initial manifestations of price adjustments and shorter lines at gasoline stations, into commuters and public utility drivers arguing over the fare and militant groups holding lightning rallies before offices and defacing private property.
No full-blown violence has been reported yet, but tempers are about to hit the ceiling and the tension is thick. Conflicting statements from oil companies and a watchdog over the reasons for increasing fuel prices or under-recoveries do not help.
After rolling back in the middle of last week the price of gasoline at P1 per liter, oil companies last weekend increased by P1.50 per liter the prices of diesel and kerosene and by P1 per kilogram the cost of liquefied petroleum gas.
Minimum fares for public utility jeepneys showed a progression of from P6 to P6.50 in a matter of weeks to P7 in a matter of days and to P8 as of yesterday. Jeepney fares rose by 33 percent from last January but transportation budgets of salaried individuals did not go up at the same rate.
Then, militant groups that used to stage rallies on streets have moved some of their protest actions to the premises of the oil companies to dramatize their demands for a stop to the continuing suffering of consumers.
What adds to the suffering is the contention of oil companies that they still have to recover more losses and thus the weekly increases are to be expected for another month or so.
Except, there is a dissenting report prepared by the Ibon Foundation, a research and information development institution, that said, while oil firms here complain of under-recoveries, their mother companies abroad continue to enjoy billions of dollars in profit.
The Ibon report (http://info.ibon.org) said Royal Dutch Shell, mother company of Pilipinas Shell, posted a net income of $27.6 billion in 2007. During the same year, Pilipinas Shell recorded profits of P4.12 billion.
Chevron, mother unit of Chevron Philippines (formerly Caltex), reported a net income of $18.7 billion in 2007. Its local unit in the country reported P2.75 billion in profits in 2007. Petron, which is co-owned by government and by Saudi Aramco, recorded profits of P5.94 billion in 2007, the Ibon report said.
It added that oil firms here do not show profits because of the practice of “transfer pricing.” This is the padding of the price of oil sold by the mother companies to their subsidiaries to shift recording of profits from subsidiaries to mother corporations. The net result of transfer pricing is that the seemingly lower profits of the subsidiaries, because of higher costs of oil imports, are actually off-set by higher profits of the mother companies.
With the conflicting contentions by the oil companies and the research group, there is need for a venue where these could be threshed out and resolved. Only more information and discussion on the crisis would hopefully prevent violence.
