DOE unearths 10%-20% profit margin of oil firms

Published March 5, 2019, 12:00 AM

by manilabulletin_admin

By Myrna M. Velasco

On the cost unbundling proposal for the deregulated petroleum industry, the Department of Energy (DOE) is fleshing out the various pricing components being passed on to consumers at the pumps – and with particular focus on what the agency unearthed as 10 to 20-percent take of the industry players.

Department of Energy (DOE) logo
Department of Energy (DOE) logo

Based on the initial findings of the DOE, Undersecretary Felix William B. Fuentebella indicated that the margins of the oil companies range from 10 to 20-percent; but he said those with higher take could not just be thrown with allegations of “profiteering” or “excessive pricing” because intense competition is really manifest in the industry.

When asked by the media if the department has uncovered any acts of excessive margins or profiteering, the energy official qualified “that’s hard to say because the industry is deregulated and there’s really intense pricing competition going on.”

Fuentebella noted the intent of the fuel price unbundling is not to demonize the industry, but that policy proposition is rooted more on the desire of the department to apprise the consumers as to what they are really paying for in that liter of gasoline or diesel being purchased.

The energy department emphasized that if compared to the regulated power firms in the electricity sector – the overall take of the distribution utilities had been at the scale of 30 to 35-percent; and their net margin is at 10 to 15-percent as anchored on their regulator-approved weighted average cost of capital or WACC, which is employed as the main determinant of their profitability.

For fuel products, the cost components that will be itemized shall cover importation costs of the commodities (crude for refiners or diesel and gasoline finished products for the independent players); logistics costs; biofuels component and taxes, among others.

Fuentebella said the “fuel cost unbundling policy” will definitely be implemented by the department, although he admitted that opposition is still fierce from segments of industry players.

The policy enforcement, he added, is an intense “subject of debate” among various stakeholders, but the energy official said the department will have to take up the cudgels for the consumers’ rights to be informed as well as to empower them on their choices.

“The way for us really is affording the consumers that power of choice – that they would be able to compare prices and know the extent of services that the oil companies could offer them – and one way to do that is giving them enough information,” Fuentebella expounded.

On segregating the cost components, the energy official opined that consumers in the process could be apprised with the developments affecting pump prices – including the swing of prices in the world market; plus the price movement also of biofuels – like the coco methyl ester or ethanol that are being blended into diesel and gasoline products, respectively.

Fuentebella is anticipating that the Circular mandating fuel costs itemization will likely be firmed up and be subsequently signed by Energy Secretary Alfonso G. Cusi by the end of the month until early part of April.