If the Philippines will enter into an oil importation agreement with Russia, the government will have to push for “preferential pricing” to lower fuel costs, according to the Department of Energy (DOE).

Atty. Rino Abad, director of the DOE’s Oil Industry Management Bureau (DOE-OIMB), said that they are “expecting that Russia will give us preferential price because what’s being talked about is a government-to-government deal, so most likely, it will not follow the commercially-traded prices.”

Abad explained that the “preferential pricing” to be negotiated between governments will typically be lower-cost deals to help soften prices for the consumers.

Abad stated though that an important party to be included in the Philippine-Russia talks for the propounded oil supply deal will be Petron Corporation because it is the only player in the country that has a refinery.

As part of the negotiation process with Russia, he emphasized that there must be price reduction to be agreed upon and that Petron will be able to reflect that once the petroleum products are sold at the pumps.

“Petron has to be included in the discussion because in the technical sense, the crude oil (from Russia) has to undergo testing if it is compatible with the specifications of crudes being processed at Petron refinery,” said Abad.

Presently, Petron is sourcing substantial volume of its crude oil requirements from the Middle East and the commodities are being lifted at commercially-traded prices. The specification for its crude purchases had been mainly of the Arab Light blend.

For the offered Russian oil, the energy official conveyed that the Petron refinery has to test the crude first then from that process, it can be subsequently pinpointed where the crude commodity will be sourced whether that will be from the Sakhalin, Volga or Siberia oil production regions of Russia.

Abad indicated the other critical concern that must be resolved will be the use of petrodollar in the oil trading deal to be entered by the Philippine government. That is mainly because the ban on Russian oil had been enforced by the European Union-countries with a strong support from the United States.

Taking off from that precept then, he expounded that the Philippine government has to clarify if the use of US dollar on oil purchases from Russia will have implications on the country’s diplomatic ties with America.

Petrodollar refers to the notional currency that is used by oil-producing countries in the export of their oil commodities.

“There’ s a bit of difficulty there, because the US normally has control and restrictions on the use of its currency – and the currency for payment we’re using is US dollars. And if we have to use the US currency, we will need to follow their rules; and part of that rules on the use of US currency is restriction on negotiating with Russia,” he stressed.