Rising fuel prices

With global oil supply still tight amid the still raging war between Russia and Ukraine, we are not going to see the end in terms of rising fuel pump prices in the next few months.

In fact, the Department of Energy’s Oil Industry Management Bureau expects another round of fuel price increases on Tuesday of between P2 to P2.30 per liter for diesel and 20 to 50 centavos per liter for gasoline.

Just this week, local oil companies raised gasoline prices by P2.15 per liter, diesel by P4.30 per liter, and kerosene by P4.85 per liter. And based on DOE monitoring, these recent increases resulted in year-to-date net increases of P28.70 per liter for gasoline, P41.15 per liter for diesel, and P37.95 per liter for kerosene.

Filipinos are hurting badly. Fuel subsidies are not enough to allow public utility vehicle and transport network service vehicle owners and drivers to take home enough money for their families. Trucks, boats, trains, and barges use diesel to transport goods. The higher diesel prices are unfortunately passed on to the owners and sellers of these goods who, in turn, are forced to raise their selling prices to the detriment of the consumers.

To quote Bob McNally, president of Rapidan Energy Group: “Diesel is really the economic fuel. It is the lifeblood of the economy, transportation, power in some cases… so it really is embedded in economic activity and it is filtered through so many goods and services.”

Russia’s invasion of Ukraine also happened at a time when economies were just starting to recover from the devastating impact of the pandemic.

What has our government done to help its citizens weather this storm?

According to the Land Transportation Franchising and Regulatory Board, it has distributed P1.17 billion worth of fuel subsidies to 68 percent of its beneficiaries. The LTFRB aimed for a second payout of fuel subsidies for drivers and operators of PUVs struggling with rising fuel prices next month.

The LTFRB has also approved a provisional P1 fare hike petitioned by groups representing jeepney drivers, which means that jeepney fares will increase to a minimum of P10.

But a number of jeepney groups are complaining about the slow pace of subsidy releases as a result of which some have stopped plying their routes.

Meanwhile, the government has rejected calls for a suspension on the imposition of excise taxes on fuel products. Around P131.4 billion in excise taxes is expected to be collected, according to the Department of Finance. The current excise tax rate is P10 per liter for gasoline, P6 per liter for diesel, P5 per liter for kerosene and P3 per liter for LPG.

The DOF says suspending excise taxes on fuel products would just force government to borrow more money.

How about suspending the implementation of the Biofuels Act?

Republic Act 9367 or the Biofuels Act of 2006 aims to reduce the country’s dependence on imported fuels by mandating the blending of bioethanol on all gasoline products sold throughout the country. At present, the required blend is 10 percent bioethanol.

Unfortunately, domestic ethanol production is not enough to meet the oil companies’ blending needs, resulting in the latter importing fuel-grade ethanol.

Requiring oil companies to blend ethanol with gasoline only helps foreign farmers. On the downside, it increases the cost of gasoline and can cause irreparable harm to gasoline-fueled internal combustion engines.

According to some reports, ethanol is corrosive when in contact with certain materials in fuel storage and delivery systems, including some rubber compounds and the zinc and aluminum alloys used in carburetors. Because it is alcohol, ethanol dries out the rubber components in a fuel system, leading to cracking and brittle fuel lines, floats, seals and diaphragms. Once in gasoline, ethanol forms a chemical mix that causes corrosion of internal parts. It also acts as solvent in older engines, dissolving the varnish and other deposits in tanks and lines which are carried to the carburetor or injection system where they can clog the small orifices involved.

The International Energy Agency expects the Philippines to join the top five importers of biofuels by 2026 because local sugarcane production is shrinking. Sugarcane is the source of domestic ethanol. While the law prohibits the importation of biofuels, the DOE has allowed it due to a short supply of indigenous ethanol.

A report from the US Department of Agriculture showed that locally produced ethanol remains significantly more expensive than imported ethanol. In 2020, the average cost of imported ethanol was P18.87, or less than one third of local ethanol at P58.93 per liter.

The price of imported ethanol is also volatile. Foreign sugar farmers often have to choose between sugar production or ethanol production. If sugar prices are high, then they make more sugar for food. When ethanol prices are high, then they devote more sugar for ethanol.

This is also true for local sugar farmers. If the price of sugar for food is high, then why sell to ethanol producers?

Importing ethanol is simply a waste of foreign exchange.

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