FINANCE Secretary Carlos G. Dominguez III said refinery closures in the Philippines are not a response to the tax regime but rather are a global phenomenon triggered by changing oil-industry economics.
“Another refinery closing — it’s not about the fiscal environment but rather the ability to compete with larger integrated end-to-end refineries with petrochemical complexes,” Mr. Dominguez III told reporters via Viber over the weekend.
He cited the recent move of Royal Dutch Shell to close down its refinery in Convent, Louisiana as an example of industry migration out of the refining business due to weak oil demand.
“The economics of oil refining are drastically changing,” he added.
According to Reuters, the Shell refinery in Convent is the largest such facility in the US and is due to shut down this month, after the company failed to find a buyer.
The Philippines’ remaining oil refinery, run by Petron Corp., announced late last month a planned closure due to heavy losses and the unfavorable tax regime.
House Ways and Means Chairman and Albay Representative Jose Ma. Clemente S. Salceda said that demand remains the industry’s main problem, but added that legislators are willing to review the tax regime to address concerns raised by the refining industry.
“I am open to the idea of looking into whether there are inequities in the tax system in favor of importers as opposed to local refiners. The Committee is guided by the principle of pari passu (on an equal footing) in taxation, so we try not to make distinctions unless they are supremely justified by the common good,” Mr. Salceda said in a Viber message Sunday.
He said he supports the continued operations of refiners for energy security reasons, but said the various issues faced by the industry need to be worked out.
“I’m open to hearing more about this problem. I can make a call when I see the numbers from both DoF (Department of Finance) and concerned private sector parties. If there is a violation of pari passu, and the economic impacts far outweigh potential revenue losses, we can perhaps figure out a solution,” he added.
Petron President and CEO Ramon S. Ang has said the group might close the refinery “very soon” if the tax playing field is not leveled between refiners and importers.
Oil refiners are subject to 12% input value-added tax (VAT) on crude oil imports, which they refine and sell on as refined products. Refined products are also subject to 12% output VAT and excise tax.
Importers only need to pay VAT once as well as excise tax on their shipments of refined products.
Mr. Dominguez has said there is no need to change the tax laws because the closure of the refineries has more to do with the industry’s exposure to adverse oil price movements.
“We note that in the refinery business, there may be market and timing issues — such as importing crude at a high price, then after refining, world crude prices might be lower, thus, refining margins could be lower. On the other hand, an importer, who imports finished products can sell these products right away, making him less vulnerable to oil price movements. It’s actually a supply chain issue rather than a tax issue,” he said late last month.
“We don’t need to change our tax laws on this. It’s happening worldwide, refinery margins are getting squeezed,” he added.
Petron’s refinery closure poses a setback to energy security, according to Fernando L. Martinez, chairman and CEO of Eastern Petroleum, in a text message last week.
“However, the existing and projected world oil surplus will keep both the supply and price situation in check to the benefit of consumers thereby neutralizing any possible supply gap for the country,” Mr. Martinez added.
In August, Pilipinas Shell Petroleum Corp. said it will shut down its refinery in Batangas province due to worsening conditions in the industry due to the decline in fuel demand due to the pandemic.
Pilipinas Shell will instead convert its facility into an import terminal so it can continue to supply the local market.
Petron is also considering turning its refinery into an import terminal. — Beatrice M. Laforga with Angelica Y. Yang