Shell to firm up decision on refinery expansion by yearend

The Royal Dutch Shell Group is likely to firm up its decision to expand its refinery in the Philippine before the end of this year or by early next year, a top energy official said.

In a press conference after a nine-day investment mission with President Arroyo to Europe, Lotilla said this optimism came after many European investors expressed interests to take part in the planned Shell capacity expansion.

"They are very keen on the planned expansion of the Shell refinery," he said, although he did not identify the interested parties.

He said President Arroyo expressed elation on the possible expansion of Shell refinery capacity as this will ensure security of supply in the country.

"If we are to attain more security, we should refine more in the country," he said.

He noted that Shell has been in the country for 90 years and the expansion would signal the continued interest of the Shell Group in doing business in the Philippines.

Lotilla also recognized the need to provide incentives in these kinds of expansion projects as these require huge capital.

"Refinery investment is very huge. They may spend a minimum of $1 billion to $1.5 billion. Construction will involve more than 2,000 people," he said.

Shell earlier indicated that it is conducting a study of whether to shut down or expand its operation in the Philippines.

The oil company was wary about the future of doing business in the Philippines with the government’s continuing inability to resolve some of its major concerns including the issue on tariff differential between finished and refined petroleum products.

But recent development apparently prompted Shell to reconsider its position in favor of expanding its refinery.

It was learned that the company may consider similar expansion program carried out by Petron Corp. which will allow the oil company to produce Clean Air Act (CAA)-compliant fuel.

Petron has invested about $100 million for its CAA-related modernization and expansion project.

One issue raised by Shell in considering its expansion is the dilemma over the 70 percent cap based on the expanded value-added tax (VAT) law.

The government is trying to make the environment in the oil sector as investor-friendly as possible to ensure the continued flow of investment into the oil industry and sustained energy security.

"The key is to make sure that the profits that they get from the country are reinvested in terms of expansion of their refineries, because this is going to contribute towards more energy security, because then we would have the needed inventory that we need. We want them to have higher inventories so that in case there are problems in delivering supply it need not post any immediate danger or threat to the country," a Shell official said.

The official said that the government is willing to come up with a policy that would strike a balance between an oil firm’s ability to make profits and expand its operations while at the same time, enforce the revenue raising measures like VAT and tariff laws.