POSTSCRIPT / July 15, 2008 / Tuesday


Philippine STAR Columnist

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Giant oil firms raking in billions, not losing them

CONSPIRACY?: The main excuse of the oil companies for continually raising the price of gasoline and other petroleum products is that they have been incurring huge losses that they now want to recover.

Despite the deregulation of the downstream oil industry, the government has adequate powers to monitor its operations. It should be able to say right away if the claimed losses are true, to what extent, and why. But it is not saying a word, as if in a conspiracy of silence.

Since the government is unable or unwilling to level with the people, Postscript falls back on data from IBON Foundation Inc., an independent institution providing research and information work on socio-economic issues.

And the IBON figures show that the Big Three oil firms in the Philippines have been raking in billions, contrary to the lie that they have been losing heavily.

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MEGAPROFITS: While the Big Three here claim huge losses due to alleged under-recoveries, their mother companies abroad have been reporting record billions in net profits, according to the IBON think tank.

It added that Royal Dutch Shell, the mother company of Pilipinas Shell, posted a net income of $27.6 billion in 2007, making it the second most profitable company in the world next to oil giant Exxon Mobil.

In the same year, Pilipinas Shell recorded profits of P4.12 billion, not losses.

Chevron, mother firm of Chevron Philippines (formerly Caltex), reported in 2007 a net income of $18.7 billion, nine percent higher than in 2006. It is the eighth most profitable company in the world.

Caltex, Chevron’s unit in the Philippines, reported P2.75 billion in profits in 2007, not losses.

Last year, Petron — co-owned by the Philippine government and Saudi Aramco — also recorded profits of P5.94 billion, not losses. Its net income has been progressively rising in the last three years, earning P5.76 billion in 2006 and P3.42 billion in 2005.

Unlike Shell and Chevron, Aramco is not a publicly listed company and may have no obligation to report its financial condition. But IBON estimated the Saudi firm’s profits in 2007 to be in the area of $15 billion.

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TRANSFER PRICING: The IBON think tank said that the reported profits of the oil firms in their Philippine operations “do not even genuinely reflect the oil monopolies’ overall profits.”

Explanation given: “The transnational oil firms’ local subsidiaries are merely booking their profits abroad through the deceitful practice of ‘transfer pricing’ to deflect criticisms of their massive windfall profits.”

IBON added: “Normally, the monopoly oil transnational firms abroad already inflate the price of their oil to get their super-profits. This overpricing has even been extremely bloated since last year by increasing speculation in world oil markets.”

“Transfer pricing” refers to oil firms’ practice of further padding the price of the oil they sell to their subsidiaries to shift recording of profits from subsidiaries to the mother corporations.

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PROFITS DISGUISED: The net result of “transfer pricing,” according to IBON, is that the seemingly lower profits of the local subsidiaries, because of higher costs of oil imports, are actually offset by higher profits of the mother companies.

“The oil transnational firms are able to engage in ‘transfer pricing,’ because of their vast control of the different stages of oil production and distribution,” IBON said.

Around 90 percent of oil in the Philippine market passes through the Big Three. They allegedly “use lower reported domestic profits to disguise the massive global profits they are making and to deflate public anger against them.”

This situation, among other factors, point to an urgent need to review the oil deregulation law. Was it wise for the government in the first place to have abandoned or surrendered its oversight function over the oiligopoly?

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RAILWAY HANGS: Before it says another word on the multibillion-peso North Rail Project, the Arroyo administration should gather its thoughts and find out if the Chinese have abandoned the project or just suspended work, and what the next step should be.

Senate Minority Leader Aquilino “Nene” Pimentel Jr. said the ill-starred NRP is “faltering” because the government awarded the project to a Chinese contractor without public bidding in violation of the Government Procurement Reform Act.

Trade and Industry Secretary Peter Favila has said that the contractor, China National Machineries and Equipment Group (CNMEG), wants the government to put in an additional $290 million for the 32-kilometer first-stage stretch from Caloocan to Malolos.

An initial $503 million was allocated for the project when launched four years ago. This consisted of a $400-million loan from China’s Export-Import Bank and a $103-million counterpart from the Philippines. But actual construction of the railway has not even started.

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WORKERS PULL OUT: Edgardo Pamintuan, the new North Rail Corp. president, said days ago that the Chinese had pulled out. Later, he clarified that the CNMEG only suspended work after some 150 workers went back to China.

“The Executive seems confused about the status of the project,” Pimentel noted. “But one thing is sure, the fate of the railway project is now in limbo, with work at a standstill because the Chinese contractor is asking for additional funding.”

As the project hangs, the government continues to pay around P1 million in interest charges every day for the two loans for the rail project linking Caloocan to Malolos and then on to Clark Field in Pampanga.

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(First published in the Philippine STAR of July 15, 2008)

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