Petron warns of refinery shutdown ‘very soon’

Ramon S. Ang (File photo by LEO M. SABANGAN II / Philippine Daily Inquirer)

At least 3,500 people are in danger of losing their jobs as a continually lopsided tax regime puts Petron Corp.’s refinery in Bataan at a disadvantage compared to importers of refined petroleum products and pushes the facility toward shutdown “very soon,” according to company president Ramon Ang.

Data from Petron showed that the Bataan refinery employs 1,000 workers directly. There are also more than 2,500 workers employed in at least 25 third-party service providers that Petron engages.

Ang told reporters on Tuesday the Philippines’ only remaining crude oil refinery might do an abrupt about face from planned expansion to permanent shutdown if business conditions do not improve.

Ang, who is president as well of Petron’s parent San Miguel Corp., said the oil refiner has to pay taxes—value-added and excise—upon landing of imported crude oil.

On the other hand, importers of refined fuels pay up only when they make sales.

The lag between landing of imported cargoes and transactions of sale, Ang said, meant a difference of about 70 days for a refiner of crude oil and less than a week for an importer of refined fuel.

Aside from VAT and excise tax, both refiners and importers also shoulder real property tax, income tax and a 1-percent creditable withholding tax (CWT).

Ang added that there was a tax imbalance in that a refiner would not be able to recover the total input VAT paid on crude oil importation, considering that refining yields range only between 90 and 93 percent by volume. This means that not all the crude oil is converted to finished products.

On the other hand, oil importers can pass on VAT and excise taxes on total volume imported to their customers.

In terms of real property, capital-intensive refinery assets are taxed significantly higher compared to the storage facilities used by importers of refined fuels.

Additionally, an oil refiner—being classified as a large taxpayer—pays advance income tax in the form of the CWT.

According to Petron, the continuous deduction of CWT would result in the accumulation of the excess CWT tying up funds, especially when a refiner incurs losses .

Thus, overall, taxes imposed on a refiner’s operation ultimately end up as unrecovered indirect and advance taxes that are also recurring.

“We need a level playing field, but that requires a new law or an executive order from Malacañang,” Ang said, adding that the first would take a very long time while the second posed political risks such as being branded as a crony of the President.

“If the situation does not change, we (Petron’s refinery) will also not last,” Ang said, alluding to the recent permanent shutdown of Shell’s refinery in Batangas. “We are going the same direction [and] very, very soon.”

Ang said these issues were not new and have been discussed with relevant authorities—including those at the Department of Energy, bureaus of Internal Revenue and of Customs as early as during the Arroyo administration. INQ