New law to save Petron refinery

Published March 29, 2021, 7:00 AM

by Myrna M. Velasco

A provision in the newly-signed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law or Republic Act 11534 will save the 180,000 barrels per stream day refinery of Petron Corporation from feared shutdown, because the new law will correct the “tax enforcement inequities” earlier complained by the remaining oil refinery in the country.

Under Section 295 (G) of the law, it was prescribed that “crude oil that is intended to be refined at a local refinery, including the volumes that are lost and not converted to petroleum products when the crude oil actually undergoes the refining process, shall be exempt from payment of applicable duties and taxes upon importation.”

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The refinery was on temporary shutdown since February this year and will be back on-line after four months or between June to July this year.

It is worth noting that Petron previously raised to the government the “inequitable tax regime” being enforced upon oil refiners compared to product importers had triggered the company’s financial hemorrhage especially during last year’s toughest hit of the coronavirus pandemic.

Petron President Ramon S. Ang indicated that the company registered mammoth inventory losses because when its crude imports arrive in the country, these are already getting taxed while the finished product importers were just being levied at point of sale.

Ang explained that the lag time incurred during the refining process has triggered financial losses for Petron– as crude imports could be bought at higher prices and already taxed at that level, but after refining the resulting price in the market may already turn out lower and there are also volumes lost in the refining process that had already been covered in the earlier imposition of taxes.

Petron had gone up to the extent of communicating to the government that it seriously contemplated to close its oil refinery facility in Limay, Bataan – notwithstanding the fact that it is now the only oil refining facility in the country.

The company has also to consider the appeal of its more than 1,000 employees at the refinery. This prompted Petron to seek a registration with the Authority of the Freeport Area of Bataan (AFAB) so it can avail of incentives being granted to locators at special economic zones – that essentially will ease off its grumble on unequal tax enforcements.

But Ang said that while AFAB accreditation can help, it cannot overcome all the problems with him emphasizing of compounding factors like “the low consumption of fuel and the overcapacity of refining in the world.”

He also said that even if the industry’s targeted rebound is still clouded with uncertainties, Petron is still keen on re-opening its refining facility once all the applications lodged with AFAB and the various government agencies would already secure approvals. Senate Committee on Energy Chairman Sherwin T. Gatchalian said the plan of the oil company to recommence the operation of its Bataan refinery “sends a positive signal to the oil and gas industry as it will ensure the continuous employment of workers and contribute to supply stability which may result in lower fuel prices in the country.”

He further stressed “saving jobs when there’s spike in new Covid-19 cases is very crucial while we continue to grapple with the impact of this pandemic.”