ANGELES CITY — Listening to a situation report of Petron Corp. on fuel prices and profitability, you might weep if you were one of the 200,000 small shareholders of this giant that controls 40 percent of the market.

On gross revenues of P147 billion last year, Petron realized a net profit P3.4 billion. That may look like a fat profit, but it is actually a lean 2.3-percent return on sale. The return will even be lower, I suppose, if compared to total investments poured in.

While excited small investors paid around P9 per share in 1994 when they took advantage of the privatization of the country’s biggest oil company, each of their shares now fetches only P3.15-something in the stock market.

To make matters worse for Petron and the only other remaining refiner (Pilipinas Shell Petroleum Corp.), the global price of crude oil in peso terms has been climbing since 1999 while the exchange rate of the peso keeps spilling over the P55:$1 levee.

Do not be surprised if you hear Petron executives complain that their salaries are no longer competitive when ranged against the compensation of executives of similar ranks of other giant firms.

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EXPORT BOOST: This bleak market scenario was disclosed here yesterday by Ms Virginia A. Ruivivar, Petron public affairs manager who was guest at the weekly Kampus Kapihan at the Angeles University Foundation where oil and fuel prices were discussed.

Elaborating on their P3.4-billion net income last year, Ruivivar said that their 2.3-percent return on sales meant that Petron earned only 2 centavos for every peso sale. She said this was “well below the returns that other industries enjoy.”

How come Petron is still making money? She said Petron has been cashing in on its exports. “Of our total 2004 income, 40 percent or P1.38 billion came from our export sales,” she said.

For the last two years, she added, Petron’s export of mixed xylene, which is used as a petrochemical or as a solvent, have benefited from high prices in Asia. With this trend, Petron is planning to upgrade its refinery to produce more petrochemicals.

Petron gave out last year less cash dividends to its stockholders. Of the P937 million given out, 40 percent went to the Philippine National Oil Co. which holds the remaining government shares. In comparison, cash dividends in 2003 amounted to P1.87 billion.

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UNBUNDLED PRICE: Unbundling fuel pump prices might clarify where all that money spent on gasoline goes.

Citing last month’s figures of the Department of Energy, Ruivivar said that for every liter of gasoline sold, the oil company’s take (which includes cost of refining) is only 9 percent.

That means that the oil company gets roughly P2.97 for the P33 paid for every liter of gasoline.

The bulk (72 percent) of the pump price goes to the cost of crude oil (for refiners), while 17 percent is gobbled up by the government in duties and taxes. Some 3 percent goes to the dealer/hauler.

Petron has a network of 1,100 service stations all over the country offering gasoline, diesel, greases, tires, batteries, accessories and automotive services. In 32 of these locations, it operates a network of 32 convenience stores named “Treats.”

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DEREGULATION EFFECTS: Has the deregulation of the oil industry been good or bad for the market?

For part of the answer, we turn to an Independent Review Committee appointed by the energy department in 2005. The group, consisting of representatives of various sectors, submitted its report last July.

The members are: Carlos R. Alindada, former SGV chairman and ex-commissioner of the Energy Regulatory Commission; Peter Lee U, dean of the college of economics, University of Asia & the Pacific; Jose P. Leviste Jr., chairman, Economist Corporate Network; Alberto H. Suansing, president, National Federation of Land Transport Organizations; Cedric Bagtas, deputy director-general, Trade Union Congress of the Philippines; and Merceditas A. Garcia, president, Federation of Gasoline Station Dealers Associations.

The IRC found that if it calculated a theoretical price of gasoline based on the increases in crude cost from the start of deregulation until around June, that price should be almost P36 per liter. But at that time, the actual pump price was P31.18 a liter.

For diesel, the IRC found that the theoretical price should be P29.30 per liter. The actual price at that time was only P27.31.

The IRC concluded that local price increases were not due to deregulation but to the devaluation of the peso and the increase in the world price of Dubai crude.

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UPS & DOWNS: Asked why oil companies have been quick to raise prices when world crude prices go up but very slow to reduce them when world prices go down, Ruivivar explained:

“This is because we phase our price adjustments to mitigate the impact of high international oil prices. Instead of a large, one-time increase, we have been adjusting local pump prices gradually in smaller increments.

“On the other hand, if oil prices fall on a sustained basis, we are compelled to respond to market forces immediately. For example, even as our crude costs increased in April, we had to roll back our gasoline prices in May as competition reflected the drop in imported gasoline prices.”

It seems that to some extent, the new small players who import their stock have had an influence on the market (minimally, according to those who insist that oil deregulation has not achieved its goal of stabilizing prices).

There are 363 new players in the oil industry. They are in bulk marketing (46 players), retail marketing (289), liquefied petroleum gas marketing (6), terminalling (3), and bunkering (19).

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DELIVERY GAP: In reply to another question on delivery time gaps, Ruivivar said that after crude oil is bought, it takes around 30 days to move it from its source abroad to the Petron refinery in Bataan.

The oil depot in Pandacan, she added, is the biggest in the country. Its stock, which is 40 percent of the national supply, is good for six days.

Petron’s refinery can process 180,000 barrels of oil daily, compared to the Shell refinery in Batangas whose capacity has been reduced to some 100,000 barrels. Caltex Philippines Inc. has dismantled its refinery, also in Batangas, and is now importing the bulk of its stock.

To improve operating efficiency and optimize costs, Ruivivar said, Petron commissioned last May its $100-million Clean Air facilities, namely a Gas Oil Hydrotreater and an Isomerization unit. It is now the only local oil company producing compliant fuels.

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RULE OF THUMB: Setting aside calculations for profits, there is a retail pricing rule-of-thumb based on the price of crude and the peso-dollar exchange rate. Using it, the behavior of prices can be calculated.

For every peso increase in the peso exchange rate, at a crude price of $55 per barrel, the pump price increase should be 40 centavos per liter.

For every one-dollar increase in the price of crude, at an exchange rate of P56 to the US dollar, the increase in the pump price should be 38 centavos per liter.

Using this rule of thumb, the cumulative increase in product prices per liter up to the first week of September should have been P9.10. Excluding September, the actual increase was P8.64.

The recent creeping adjustments of 50 centavos per liter every now and then have added up to P6 for gasoline and P8 for diesel.

Industry sources said that the cost of importing stock has been going up, adding pressure to the new players who had planned on importing their inventory.

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VAT EFFECTS: How would prices be affected if the Supreme Court sustains the imposition of the Value-Added Tax on oil-based fuel?

The full impact of the 10-percent VAT will not be felt, because of the counter-plan of the Arroyo administration to simultaneously reduce import tariff on oil.

Ruivivar calculated that for diesel, the removal of the specific tax of P1.63 would limit the additional cost to less than 2 percent.

The expected changes in Petron products give a hint of how prices may move across the board. These are the expected price increases when VAT is imposed: Xtra Unleaded, 8.6 percent; Blaze, 8.6 percent; XCS Plus, 8.6 percent; Regular Gasoline, 6.82 percent; Kerosene, 5.9 percent; Diesel, 1.88 percent, and Gasul (11-kg), 7.7 percent.

The impact of the price increases is expected to be felt down the line among goods and services that are dependent of fuel. That is virtually all of them.