 |
|
Death
knell for Philippine refineries This year, the country’s first and oldest crude oil refinery – after almost 50 years of cranking out oil products for Philippine consumers – will be mothballed. To many in the industry, the Caltex move was no big surprise. With more modern and underutilized refineries in other countries in the region, it makes good business sense for Caltex to shut down the ancient, depreciated and fully milked refinery operations in the Philippines. In its press releases, Caltex (Philippines), Inc. chose to couch the unpalatable fact with more positive words: it announced that the oil company would be converting its 72,000 barrels per day refinery into a "world-class finished product import terminal" with a planned investment of $13.6 million. The Caltex move is a typical of American management decisiveness. When the going is not good, they get out as quickly as they can. To placate feelings, they will make promises and keep the door slightly open should they in future need additional goodies. Nonetheless, the undeniable fact is that we lost another manufacturing (refining) capability, and hundreds of employees and contractors dependent on the refinery will lose their means of livelihood. As consolation, we will instead have a large depot with valves that will be turned on and off by handful of semi-skilled lowly rated Filipino workers. We are left with tons of metals with no opportunity for Philippine labor to add value. And the sad part, we did it to ourselves. Caltex, as a refiner, just responded to an unfavorable business situation in the Philippines One By One They Fall Caltex refinery is not the first one to close shop. In 2002, Shell’s baseoil refinery in Pililia, Rizal quietly closed down. When the baseoil refinery started operations in 1974, it was hailed as a pioneering effort and a vital step towards an economy not dependent on imported oil products. Similarly, when the Shell baseoil refinery closed, hundreds of technically trained employees and contractors involved in the operations found themselves without jobs. An entire community, just like the Caltex Batangas refinery site, was economically dislocated. As we scrambled to get accepted in the international trading community and join the bandwagon of trade liberalization, we overlooked the need to sustain operations of existing assets in strategic areas like crude oil refining. If we maintained our refineries, the country would not be dependent on importations and would not be vulnerable to the vagaries of regional product pricing. With government’s overzealousness to comply with its trading commitments, the strategic value of refineries was once again ignored. The death of the pioneering baseoil refinery, for instance, was hastened when government eagerly reduced our tariff levels for imported baseoil before our neighboring countries in the region did. Thailand’s baseoil products, for example, could enter the local market at lower tariffs, while the Pililia plant could not overcome the higher tariff barriers set by other countries. With the local market flooded by imports, and the prospects for exports dimming (since other countries were protecting their own baseoil refineries), death came to the Shell Pililia plant. Slowly but surely. Isn’t the story similar to other sectors in the economy negatively affected by our WTO commitments? Oil Deregulation Enticed Traders When the Oil Deregulation Act of 1998 set tariffs on imported crude oil and imported refined petroleum products on equal footing, the handwriting on the wall for Philippine refineries was as clear as day. The floodgates were opened for the entry of refined product imports, to the detriment of local refinery viability. Since there is no longer a competitive advantage for establishing and maintaining refinery operations, there is no incentive to make these investments in the country. The law eventually just enticed traders with minimal capital investments, and made companies like Caltex and Shell question the continuance of operating a local refinery. And Then The Clean Air Act Boo-Boos More woes from the Clean Air Act (CAA) that provided for product specifications that, funny enough, were more stringent than those set for more developed and advanced countries in the region. Investing in local refinery upgrading to comply with these product specifications was not economically justifiable. It was, therefore, easier to just import these products from refineries abroad. Another fatal blow to local refineries. One More To Go? Given all the above factors, it will be a matter of time before one more refinery falls by the wayside. More conservative (not necessarily less decisive) than its American competitor, Shell is taking its time in re-evaluating and re-assessing its refinery operations in the country. Considering that Singapore Shell has the largest refinery complex in the region built for the export market, the probability is quite high that Shell’s conclusion will eventually be similar to that of Caltex. Logically, Shell should also bail out of an unviable business situation. And then, there will be just one. Or am I just being hopeful?
| |||
|