What to do with Petron
April 22nd, 2008 by Site Administrator
WHEN there was a great clamor from the public, including the Senate, for transparency in oil pricing, the Department of Energy committed itself to examine the books of oil companies to find out if the increases in domestic prices of petroleum products were based on increases in the prices of their suppliers, as they claimed.
That was last year when it enlisted the support of SGV & Co. and the University of Asia and the Pacific to open the oil companies’ books and make a report.
At the time, the price of regular gasoline was hovering above P35 a liter. And now it’s getting close to P50 a liter, and we have yet to receive that report.
I can’t understand the delay. I don’t even know if the oil companies’ books were actually opened—given the Energy department’s claim that it has the authority to investigate domestic oil pricing.
The current high oil prices and the issue of transparency add significance to the sale of the 40 percent of Petron Corp. held by Aramco Overseas Co. (Saudi Aramco) to the Ashmore Group Ltd. of the United Kingdom.
Aramco was a welcome investor in Petron because it implied an assurance of oil supplies from the Middle East. The prospective new owner is an investment group, whose primary interest is making money, not producing oil. Nothing wrong with that, but we’re talking of energy security here, especially in the face of a global energy crisis.
Several ideas have been floating around since the news about Aramco’s divestment—for reasons undisclosed—about what the government, through the Philippine National Oil Co. (PNOC), should do.
When PNOC sold 40 percent of its stake in Petron to Aramco in 1994, it retained the right of first refusal. That is, it has the first crack at buying Aramco’s holdings in case the latter decides to get out of Petron.
Ashmore offered $550 million for the shares of Aramco, which the latter accepted. Can the PNOC match that? At an exchange rate of P41 to the dollar, the $550 million is equivalent to P25.55 billion. That’s big bucks any way you look at it.
But there’s logic in getting back control of Petron, which accounts for 38 percent of the retail petroleum market. The sale of more than half of Petron (40 percent to Aramco and 20 percent to the public through an initial public offering) was in line with the twin policies of privatization and deregulation that the government has been pursuing in the past two decades primarily to attract investments.
For the oil industry, privatization and deregulation were meant to achieve market-related pricing of petroleum products, but not to allow the few players to operate like a cartel, which seems to be happening as they raise and lower prices almost in unison. (Until they open their books, they will have to accept that perception.)
At this point, I am inclined to support the idea of the government getting back control of Petron, especially with the increasing prospects of further rise in oil prices. But I don’t think we should buy and keep Aramco’s 40 percent. We don’t need 80 percent to have effective control of Petron.
What the government can do is buy Aramco’s 40 percent, and then sell most of it, say, 29 percent, while the PNOC retains 11 percent. With its existing 40 percent, the 11 percent will give PNOC a 51-percent interest. That’s enough for the government, through the PNOC, to control Petron, without sacrificing professional management of the company.
As a business entity, Petron should be allowed to continue operating for profit. Right now, it is not only the leader in the oil industry, but also the most profitable. Its expansion into petrochemicals as well as high-value petroleum products, and its pioneering efforts in the development of biofuels, must be backed up by good financials.
At the same time, the government, as majority owner, can use Petron to promote transparency in the domestic oil industry, at least in retail pricing.
I believe we would not have this problem about opening the books of oil companies if the government controls Petron. Once it opens its books, the other industry players will have no recourse but to follow.
Petron does not have to sell diesel or gasoline at a loss, even with the government holding majority control. We don’t want more losses than we are incurring now from subsidizing government corporations like the National Food Authority.
But Petron can be used to make sure that domestic prices of petroleum products really reflect prices in the world market, and that oil companies are now allowed to use increases in world oil prices to widen their profit margins. As it is, they are already among the most profitable companies in the country.
And so, we should take effective control of Petron without spending too much, we exercise some control over oil pricing and we continue with the twin policies of privatization and deregulation.
This way, we are able to protect the interest of our people and, at the same time, continue to attract investments.
The Business Mirror