The government agency will source low-priced petroleum products particularly diesel to mitigate the impact of volatile oil prices, the Department of Energy (DoE) said on Thursday.
The trading function of the Philippine National Oil Co-Exploration Co (PNOC-EC) acquired last year to generate additional income for the government will be used in sourcing low-priced fuel through state deals.
The PNOC-EC board chaired by DoE Secretary Alfonso Cusi is drafting the trading procedure and policy safeguards for the public on the proposed importation.
The importation of low-priced products will provide price relief mainly for public utility vehicles to ease the plight of motorists and commuters, according to the DoE.
President Duterte said the government plans to import oil and byproducts from countries outside of the Organization of Petroleum Exporting Countries (OPEC) which are expected to be cheaper than those coming from traditional oil producers.
Cusi earlier said it will be the PNOC which is going into the trading business as part of a major reorganization “aimed to transform it from an idle company into a performing and earning government-owned or controlled corporation (GOCC)” starting next year.
The DoE is now saying that it will be PNOC-EC which will handle the trading business in the public energy sector.
The DoE said fuel products bought at a special price will be made available to dealers, operators and independent petroleum players under a memorandum of agreement.
“The initiative shall be in place as directed by the DoE or until the price of crude stabilizes or until the level of prices for diesel fuel reaches P38 per liter,” Candido Magsombol, PNOC-EC vice president for downstream division, said.
Euro-II compliant diesel
A memorandum order also seeks to require oil companies to provide Euro-II compliant automotive diesel oil which will use biofuel thus reducing the dependence on oil imports.
“Pursuant to existing Philippine National Standards on Diesel Fuel Quality and in accordance with the provisions of Republic Act 8479, otherwise known as the Downstream Oil Deregulation Law and Republic Act 8749 otherwise known as the Philippine Clean Air Act, and for the purpose of reducing the impact of rising petroleum prices in the world market, all industry players are hereby directed to provide at the retail level as a fuel option for the transport and industrial customers,” the DoE order said.
It also directed oil companies offering Euro-II compliant diesel to submit a monthly compliance report, indicating the list of participating retail outlets.
The DoE said it will monitor the sale of the diesel.
The Memorandum Order shall take effect immediately until further orders.
An economist said rising world crude prices is a major contributor to the slowing economic growth.
High crude costs a threat
IHS Markit Asia Pacific Chief Economist Rajiv Biswas said a key risk to the near-term outlook is from the risk of further rises in world oil prices, which could push inflation higher and force more Bangko Sentral ng Pilipinas (BSP) rate hikes in the second half and next year.
Early this week, government data showed the inflation rate hitting a five-year high at 5.7 percent in July.
The higher global oil prices coupled with the weaker peso contributed to price pressures in the domestic market.
To counter the price pressure, the BSP is expected to raise key policy rates.
With the 5.7-percent inflation in July, Tokyo-based investment house Nomura projected the BSP to announce another 100 basis points rate hike within the remaining months of the year.
Last month, Deutsche Bank stated that it forecasted the central bank to hike interest rates by 100 basis points for the second half and another 50 basis points in 2019.
“Aside from the increasing oil prices and inflation pressures, another downside risk to economic growth in the near-term is the escalating trade war between the United States and China that have some negative impact on Philippines manufacturing exports,” according to Biswas.
Study on tariffs plan urged
Senators also wanted a further study on government proposals to lower tariffs on imported fish and meat as an anti-dote to the high inflation rate stressing the need to protect local farmers and fisher folks against the influx of imported goods.
Senate President Vicente Sotto III urged authorities, particularly the Department of Agriculture (DA), to present possible effects of the proposal to local industries before proceeding.
“I suggest that we have firstly a matrix on what the effect would be on our local industries of products mentioned,” said Sotto.
Senate Minority Floor Leader Franklin Drilon said if the move was meant to address the effect of rising prices, he does not see any problem.
“If it results in the objective –which is to help arresting inflation, yes we support that,” said Drilon.
He cautioned, however, the government of the ill effects of the plan to local farmers.
“They should be very careful because it will affect the farmers. The income of the farmers will be affected,” Drilon said.
Sen. Sonny Angara cited bills pending in the Senate that could help address the effects of the inflation spike such as the health care and the rice tariffication bills.
“Some bills can help reduce family expenses,” said Angara.
For his part, Sen. Panfilo Lacson said that while flooding local markets with imported fish and meat, local farmers and fishermen will surely suffer.