Petron Corp. fights back against oil smuggling

About one in every three liters of gasoline or diesel fuel sold in the Philippines is smuggled, resulting in P30 billion to P40 billion (US$725.7-967.6 million) in yearly lost revenue on the part of the government, according to the head of the country’s biggest oil refiner. The lost revenue estimate is bigger than what the government expects to generate this year from higher taxes on sin products.
Ramon S. Ang, Petron Corp. chairman and chief executive officer, said studies from 2007 to 2011 showed that smuggled oil products, “now account for at least a third of the total volume sold in the market. (Our) retail or service station volumes have remained flat despite the fact that registered vehicles increased from 5.5 million to 7.1 million over the period,” Ang said. “On top of lost government revenue and an uncertain investment climate in the oil industry, smugglers are cheating consumers since these products are of uncertain quality,” he said.
Besides official fuel imports, an estimated 36 million barrels were smuggled into the country, Ang said. Petron is majority-owned by San Miguel Corp.
Petron, which accounts for an industry-leading 34.9% share of the domestic market in the first half of 2012, saw its profit plunge 73% to P2.3 billion (US$55.6 million) last year, down from P8.5 billion (US$205.6 million) in 2011. The huge drop in Petron’s profit came despite a 55% jump in revenue to P424.8 billion (US$10.3 billion) in 2012.
The company attributed the fall in margins to volatility in crude and product prices last year. Its expanded Bataan refinery, which cost US$2 billion, is expected to start operations next year.
For Ang, stopping oil smuggling is not “rocket science.” “It doesn’t take much to stop these smuggling activities since you would only need to closely monitor special economic zones and other ports. I believe another way the government can monitor smuggling activities is to go after retail outlets that are selling fuel at extremely low prices,” he said.
Fernando Martinez, chairman of the Independent Philippine Petroleum Companies (IPPC), said his group shared Ang’s concerns on the rampant oil smuggling. “We have made presentations to both the Department of Finance and the BOC (Bureau of Customs) about the problem,” said Martinez.
But Martinez, president of Eastern Petroleum, said that Ang should not generalize that retailers selling fuel at way below market prices was an indication that they were selling smuggled fuel. Martinez said there could be valid reasons for a retailer to sell at below-market prices. “What if the retailer is deliberately selling at a loss just to buy market share or meet a sales quota?” Martinez asked.
Since industry deregulation 16 years ago, small oil companies belonging to the IPPC have boosted their market share to 25%, he said. Last year, the government imposed taxes on fuel products entering the country through free ports and economic zones to help curb oil smuggling.
The Bureau of Internal Revenue (BIR) issued a regulation in February 2012 that said, “The value-added and excise taxes which are due on all petroleum and petroleum products that are imported and/or brought directly from abroad to the Philippines, including the free port and economic zones, shall be paid by the importer thereof to the Bureau of Customs.”
The BIR issued the regulation because of findings that crude oil was being smuggled out of the free ports and economic zones. Petroleum products imported through the free ports are exempt from the value-added tax and excise taxes provided that these are used inside the special economic zones.
Customs Commissioner Rufino Biazon acknowledged that oil smuggling had remained rampant in the first three years of the Aquino administration’s “daang matuwid” (straight path). “This problem is one that has been going on way before I came to this office. “
He said he and Finance Secretary Cesar Purisima had agreed to tighten the monitoring of oil imports into the country, especially the ports under the BOC’s direct jurisdiction. “We’re doing a tour of these ports to gather information and impress upon our personnel the importance of stopping the smuggling of petroleum. We’re setting up an information-gathering system for analyzing the movement of petroleum through those ports,” Biazon said.
(April 2, 2013)