Proposed oil exchange must be privately owned - new players

The country's new players are open to the creation of a national oil exchange as long as it is private and is prepared to compete in the open market.

"They should join the free market and establish their storage, distribution and marketing facilities like we did," they said. "Why should anyone at this moment have a distinctive edge when the industry was already deregulated.?"

New players control nearly 10 percent of the industry after a little over two years since the country's oil industry was deregulated. The remaining 90 percent remains in the hands of the three majors, Petron Corp., Pilipinas Shell Petroleum Corp., and Caltex Philippines Inc.

New players pointed out that millions of pesos were invested by each of them in establishing their business mainly in the downstream industry, which would almost surely be negated by a government-endorsed exchange.

They said they buy crude oil and refined products from various international sources to get the best competitive price. They said this is critical in lieu of the existing advantages of the three majors in the existing market.

They argued that if all the players would source their petroleum products from a single local source, then the new players would again be at a disadvantage versus the majors.

"We might as well revert to being petroleum traders," one of the players who has several service stations in Metro Manila said.

They said the proposed oil exchange will discourage new investments. Existing players would rather be mere traders or negotiators than make investments, which will only compete with the monopolistic exchange under government protection.

The exchange favors small-time traders who have no significant investments to recover. It does not encourage major domestic or foreign investments as an environment conducive to taking business risks would not exist.

Under the present system, all the industry players can source crude oil or refined petroleum products anywhere in the world market allowing for flexibility and competitive pricing.

Crude oil would naturally be purchased by the three major refiners, who will convert the raw material into various finished petroleum products like fuel oil, diesel, unleaded gasoline, premium gasoline, and liquefied petroleum gas (LPG). The new players who do not have refining capacities purchase finished products.

The industry players would then sell their products to bulk consumers and through their respective service stations.

Under an oil exchange environment, the new players will be able to buy refined petroleum products from external sources like the Dubai or Oman spot market. The refiners on the other hand will be allowed to purchase only crude oil which when refined will be sold to the exchange.

The refined products will then be bid out to the local oil industry (new players and majors included) under limited supply situations. That means that for example the major buy out the entire supply, the new players will have to wait for the next public auction.

Earlier, industry leader Petron Corp. challenged proponents of the national oil exchange Corp. (NOEC) bill or House Bill (HB) 8710 to join the oil industry as a private entity "enjoying the same privileges as everyone else."

"They do not need the law to establish the NOEC so long as they operate under the same rules of the game," said Petron chairman and chief executive officer Jose Syjuco Jr.

Syjuco argued that NOEA should not take over major depots and storage facilities as proposed by the bill. They should buy it and use it to their advantge but not confiscate it since the industry has already been deregulated, he added.