Petron refinery to close ‘very soon’

By Adam J. Ang, Reporter

THE country’s lone refiner Petron Corp. will be closing its 180,000 barrel-per-day refinery in Bataan “very soon” as it continue to bear losses from a challenged, refining environment and uneven playing field, its top official said on Tuesday.

The listed fuel firm is set to follow the move of its rival Pilipinas Shell Petroleum Corp. that announced two months ago the permanent shutdown of its 110,000 barrel-per-day refinery in Tabangao, Batangas due to worsened margins and the slump in fuel demand during the coronavirus pandemic.

Unless the Philippines will be able to provide a level-playing field for oil refiners and importers, the company will have to close its refining facility to plug billions in losses incurred especially from various taxes, Petron President and Chief Executive Officer Ramon S. Ang told reporters in an online briefing.

“’Pag ‘di maging level-playing field ang Petron refinery with the importers, magsasara na rin kami siguro,” the official said. (If there won’t be a level-playing field between the refinery and importers, we may have to close.)

Oil refiners are imposed with a 12% input value-added tax (VAT) for imported crude oil, which will be refined and later sold as finished products to the market. Finished products are also levied with a 12% output VAT and excise tax. Meanwhile, importers only carry VAT and excise taxes for the importation of finished products.

Mr. Ang claimed the company suffers losses from selling finished fuel during times of price fluctuations in the global oil market, making it impossible to recover prior costs in paying taxes.

He said “the only way” to save the refinery is going to Congress and asking lawmakers to amend the tax regime for the downstream oil industry.

Asked to comment, the Finance department said while it recognized the concern, it’s more of a “supply chain issue rather than a tax issue.”

“We don’t need to change our tax laws on this,” Finance Secretary Carlos G. Dominguez III told reporters in a message.

“It’s happening worldwide; refinery margins are getting squeezed. Big oil companies have been shutting down their refineries in various parts of the world,” he added.

Petron earlier reported that it incurred P15 billion in inventory losses in the six months to June. It recorded P14 billion in net loss in the same period with the price collapse and poor refining margins.

Closing the refinery would help in reducing its losses, Mr. Ang said. The company would not go on default as it still earns from its fuel stations, and that its parent San Miguel Corp. can cover its debts and other obligations, he added.

Shares in Petron inched down 0.62% to close at P3.20 each.

FUEL SUPPLY IMPACT
The Department of Energy (DoE) sees no adverse impact on fuel supply with the impending closure of Petron’s refinery.

“There is none,” said Oil Industry Management Bureau Rino E. Abad, “as long as mag-transition sila nang maayos sa full importation gaya ng ginawa ng Shell (as long as they would properly transition to full importation like what will Shell do).”

Pilipinas Shell earlier said it would convert its refinery into a full importation terminal that will still cater to the fuel needs of its customers in Luzon. The closure of the said facility is part of the wider rationalization scheme of its parent Royal Dutch Shell PLC to reduce the number of its refineries around the world to 10 by the end of the year from 17 a year ago.

Petron, for its part, would also have to convert its refinery into a small importation terminal, Mr. Ang said.

IMPORT DEPENDENCE
Meanwhile, consumer group Laban Konsyumer, Inc. said the loss of a local refining sector would place the country “at the mercy” of foreign oil traders and suppliers.

“It will make us dependent on foreign supply and prices,” Victorio Mario A. Dimagiba, its president, claimed.

The Philippines’ implied import dependence is expected to jump to 67% by 2025 from 48% over the past decade, though this could “rise further depending on the outcome of Petron’s decision,” Fitch Solutions said in a research note last week.

As the country becomes more dependent on energy imports, its economy will also get “tied to fluctuations” in international power prices.

The research agency said this high dependence poses risks, such as added burden on foreign exchange reserves or the ability to attract foreign investment.

There is also the risk of depreciatory pressures for the domestic currency, while the risk of import inflation or disinflation will become “more elevated.”

In the first half of 2020, the total petroleum import volume slumped to 5.954 billion liters, lower than in the same period in 2019, according to a recent report of the DoE’s oil bureau.

Imported fuel made up over a half of the country’s total fuel demand of 10.794 billion liters. Diesel and gasoline were the top imported products.

Petron and Pilipinas Shell, both of which closed their refineries in May, recorded a 19% decline in combined refining output to 3.878 billion liters between January and June.

With one or no refiner, the Philippines is seen to pay an additional $600,000 to $900,000 each year on oil imports, Fitch said.

Energy Secretary Alfonso G. Cusi in a statement said both Energy and Finance Departments are working together to look into this taxation concern.

“At the same time, we are also evaluating how a closure scenario would impact pricing, as well as the country’s energy security,” he added.

The DoE will respect whatever decision Petron will come up soon, the official said. — with Beatrice M. Laforga