DOE to oil firms: Explain paltry price rollbacks

MANILA, Philippines — Something doesn’t add up in the price reductions that oil companies implemented on Monday after fuel prices surged in the wake of the attacks on oil refineries in Saudi Arabia, according to the Department of Energy (DOE).

A member of the House of Representatives, who happens to be an economist, sees something more to the pricing movements of oil products in the country.

“The DOE pricing formula and policies relating to [price increases] may be facilitating tacit collusion,” said Marikina Rep. Stella Luz Quimbo, a commissioner of the Philippine Competition Commission before she became a lawmaker.

The DOE has asked the oil companies to explain their price reductions that the department considers inadequate, based on its own computation, Assistant Secretary Bodie Pulido said on Wednesday.

Pulido said a similar show-cause order was issued to liquefied petroleum gas (LPG) retailers because the price increase they implemented was higher than the price movement in the international world market.

DOE pricing formula

The DOE issued the show-cause orders as Quimbo urged the House to investigate the energy department’s oil pricing formula.

In a resolution, Quimbo asked the House to direct its committee on energy to look into the “sudden” increase of fuel prices in September, allegedly imposed “simultaneously” by the oil companies.

“The DOE pricing formula and policies relating to [the price increases] may be facilitating tacit collusion or parallel pricing, thereby unnecessarily increasing prices to the detriment of consumers,” she said.

Speaking at a Malacañang press briefing, Pulido said the price reduction for gasoline was short by 22 centavos per liter, while the rollback for diesel was short by .06 centavos.

“We’re not saying they’re wrong, but we want to give them the opportunity to explain to us why it was like that,” he said.

LPG price increase

As for LPG, the price hike should be lower by 25 centavos per kilogram, based on the DOE computation, he said.

This was a significant amount since one LPG cylinder is about 11 kilograms, he added.

The oil companies slashed on Oct. 1 pump prices of gasoline by P1.45 to P1.55 per liter and of diesel by 50 to 60 centavos per liter.

At the same time, LPG prices were raised by P3.98 to P4.50 per kilo.

Pulido said the oil companies and LPG retailers were given three days to submit their explanation.

Surprising discrepancy

The DOE was surprised by the discrepancy because historically, its computations would match with those of the oil companies and retailers, according to Pulido.

“That’s the reason that prompted us really to ask them to explain, because it’s the first time that all of these companies’ computations did not match with ours over the last three years,” he said.

Pulido also said that while the oil industry was deregulated,  the DOE could take action on anticompetitive practices.

The oil companies could face administrative or criminal sanctions, he said.

Successive increases

“So, if we believe that either the rollback or the increase—rollback for gasoline and diesel and increase in LPG—is unreasonable, then we will refer it to the DOE–DOJ (Department of Justice) Task Force to study the possibility of filing either administrative or criminal cases against these companies,” he said.

The oil price reductions took place after successive increases in the wake of the drone and missile attack on oil plants in Saudi Arabia.

In her resolution, Quimbo expressed concern over the fuel price increases on Sept. 23, the highest so far in 2019—P2.35 per liter for gasoline; P1.80 per liter for  diesel; and P1.75 per liter for kerosene.

Before that, on Sept. 17, the oil companies raised pump prices of gasoline and diesel by P1.85 and 85 centavos per liter, respectively.

They  blamed the increases on the Sept. 14 attack on two oil plants in Saudi Arabia, which supposedly knocked out nearly 60 percent of its oil capacity.

Inventory requirement

Quimbo said the oil companies raised prices despite the pronouncement of DOE officials before the Senate committee on energy that the country had enough fuel supply in the event that tensions further rise in the Middle East.

The companies may also readily buy refined and crude oil from other countries, the officials said.

Quimbo questioned the oil price increase nine days after the attacks in Saudi Arabia, despite the mandatory requirement for the industry to maintain a certain level of inventory.

“Given that the requisite stock of refiners is at least 30 days per department circular, the stock being sold right now should be insulated from the supply problem brought about by the Saudi Arabia crisis,” Quuimbo said.

She said Congress should review DOE policies and pricing formula, as these may be abetting collusion among the oil companies to manipulate oil prices.

Citing Republic Act No. 8479, or the Downstream Oil Industry Deregulation Act of 1998, Quimbo said the DOE was mandated to maintain a periodic schedule of total industry inventory equivalent to 15 days’ supply of oil products.

The law also requires the submission of unbundled costs by the oil companies.

Quimbo said the oil companies were required to report their unbundled price adjustments that contribute to the changes in retail prices.

—With a report from Inquire Research