Oil tariff may not affect power rates

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By Adam J. Ang

THE additional tariff on imported petroleum products is set to take effect this week, although this may not affect electricity rates immediately as such cost is not automatically passed on to consumers.

President Rodrigo R. Duterte on May 2 signed an executive order temporarily raising duties on imported crude oil and refined petroleum products by 10%, the revenues from which will be used to finance the government’s coronavirus disease 2019 (COVID-19) pandemic response.

The Department of Energy (DoE) expects pump prices to reflect the impact of higher tariffs this week.

The Energy Regulatory Commission (ERC) said the new taxes or increased duties through laws are not automatically reflected on electricity bills as passing these charges on to consumers will require the commission’s approval.

“Any change in law resulting [in] additional taxation, surcharge or tariff [the cost] is not automatically passed on as it will usually require separate ERC approval. That is why some may say na walang (there is no) impact because it is subject to ERC approval,” ERC Spokesperson Floresinda B. Digal told BusinessWorld.

Ms. Digal said power generators may just absorb the added cost from the increase in fuel prices.

“For most [generation companies], knowing how difficult it is to get an ERC approval, what we’ve seen is they will just absorb the increase,” the ERC official said.

The DoE earlier said the government may earn an estimated P6.78 billion by the end of the year from the additional oil import tariffs, which are seen to raise prices of gasoline by P0.60 per liter (L), diesel by P0.84/L, and kerosene by P0.55/L.

DMCI Power Corp. (DPC) sees an increase in electricity charges because of the additional tariff, alongside the general volatility of oil prices amid the global pandemic and economic slowdown.

“As far as the drop in the price of fuel in the world market and the government mandate to increase the oil import tariff, these events will have an impact [on] the electricity rates which effectively affects the revenues of DPC. However, these events will not affect DPC’s net income because of the ‘pass-through’ policy of the regulators,” DPC President Nestor D. Dadivas said.

Some of DPC’s power plants, which serve utilities in Masbate, Palawan, and Oriental Mindoro, run on coal and diesel.

Other power plants will not immediately purchase fuel around this time when demand is still relatively low due to community lockdowns, according to Philippine Independent Power Producers Association (PIPPA), noting their fuel supplies are at a “safe” level.

“[G]iven the low demand, it would seem that the fuel supply is at a safe level given that demand is down and there is no regular dispatch for these plants. As such, there is no immediate effect at this time until these plants decide to purchase more fuel,” PIPPA Executive Director Anne E. Montelibano said.

“Fuel is the largest cost for oil-fed power, [meaning] that any future [price] increase may result in, but does not necessarily automatically translate to, increase [in] power rates,” she added.

The Philippine Electric Plant Owners Association (PEPOA), a group of power utilities, said the added tariff may only affect the cost of transportation of coal used by baseload power plants.

“If ever there will be a price impact on the fuel cost of power supply, it will probably be in the shipping and transportation cost of coal, which is the fuel predominantly used by baseload power plants,” PEPOA President Ranulfo M. Ocampo claimed.

Since May, fuel prices are increasing with the rebalancing of supply and demand in the global oil market.

Year to date, oil prices dropped by P7.97/L for gasoline, P11.09/L for diesel, and P14.44/L for kerosene.

As power demand is starting to pick up with businesses resuming operations after months of lockdown, the Independent Electricity Market Operator of the Philippines earlier said electricity prices at the Wholesale Electricity Spot Market are likely to rise to as much as P4.27 per kilowatt-hour (kWh) this month with peak demand to reach 13,368 megawatts (MW) and a stable average daily supply of 14,970 MW.