Smart moves to hurdle COVID-19 impact

And we’re back to general community quarantine (GCQ) again. President Rodrigo Duterte upheld the recommendation of the Inter-Agency Task Force on the Management of Emerging and Infectious Diseases (IATF-MEID) to restore the GCQ status of the national capital region (NCR). Also back to the GCQ status are the provinces of Bulacan, Cavite, Laguna and Rizal effective today until the end of this month.

The IATF supported the stand of Metro Manila mayors and the local government units (LGUs) on the need to gradually but safely re-open their respective areas, especially to economic activities even while still trying to fight the spread of the 2019 coronavirus disease (COVID-19) pandemic. President Duterte previously reverted to stringent lockdown rules in response to the “time-out” calls made by health care workers who have been the COVID-19 frontliners.

During the two-week “time-out,” however, the latest economic indicators came out showing the country’s gross domestic product (GDP) plunged to minus 16.7% for the second quarter of this year. Economic managers of President Duterte sounded the alarm that the Philippines is now suffering “technical recession,” or a situation where there are two successive quarters of GDP decline.

The two declines notably came from January to June this year when the COVID-19 infection spread out in the Philippines and the rest of the world. According to the Philippine Statistics Authority (PSA), transportations and storage were the biggest “losers” among the country’s economic sectors monitored for GDP growth.

The sector of accommodation and food services (tourism) plummeted to minus 16.4% in the first quarter to as deep as minus 68% in the succeeding quarter. The transportations and storage sector came second, posting minus 11.4% growth from January to March and by a hefty minus 59.2% in April-to-June this year.

While there is less traffic on the roads during hard lockdowns, the country’s transport sector, however, becomes undeniably the hardest hit sector, most especially daily income-earning drivers of public utility buses and jeepneys among them. The bigger economic picture looks much dimmer.

Incidentally, one of the so-called “big three” companies in the oil industry is not spared from the COVID-19 lockdown backlash. The Pilipinas Shell Petroleum Corp. announced last week it has stopped operating their Tabangao refinery in Batangas City. Actually, Shell has decided to convert its Tabangao Refinery into a world-class full import terminal instead.  The refinery stopped since May this year at the height of the Luzon-wide lockdown.

The end of operations of Tabangao refinery leaves the 180,000 barrel-per-day Bataan facility – owned by Petron Corp. – as the only refinery left in the country. Petron shut down its refinery in Bataan last May 5 for maintenance activities and has not resumed operations as of yet. The Shell Tabangao refinery used to produce 110,000-barrels-per-day (bpd).

Around the world, oil refiners have either cut production or temporarily stopped production.

The demand for fuels and other refined petroleum products – like other industry sectors – has simply been the impact of government-enforced lockdowns. Restrictions in the movement of people and goods were meant to keep them stay at home and prevent further spread of the COVID-19. Data from the Department of Energy showed petroleum demand declined by 20 to 30% in March and by as much as 60 to 70% in April during the enhanced community quarantine.

The Shell management cited the significant drop in refining margins and poor local fuels demand as a result of the community quarantines. Fortunately, the company noted, it was able to switch to the import of petroleum products into the country without affecting its ability to meet supply commitments here in the Philippines.

The management of Pilipinas Shell obviously isn’t waiting for things to get better. In the midst of the pandemic, the company has made the tough but strategic decision. Not only does the refinery-turned import terminal complement the company’s successful import facility located in Mindanao in assuring fuel supply for the country, it could very well strengthen Shell’s financial position to weather the economic downturn as a result of COVID-19.

Being part of the Royal Dutch Shell Group, Pilipinas Shell can access quality refined petroleum products from larger refineries in the region through its global trading network. Said refineries are very complex, heavy economies of scale and are export oriented. Once in the country, these refined products are “additivated” – as they call it – into the superior and differentiated Shell fuels known to Filipino motorists and businesses.

Throughout this transformation, Pilipinas Shell will retain its presence in Batangas City where it has been operating for the past 58 years. I heard a tele-radio interview on Pilipinas Shell vice president for external and government relations Serge Bernal about their plans for the 200 or so workers in the Tabangao refinery will be absorbed to their other subsidiaries.

This will enable the company to continue projects started last year, like the construction of an Integrated Energy System in Tabangao to harness both solar and natural gas, and store energy through a battery system. Once completed, the project is likened to having planted half a million trees, thereby reducing the company’s carbon footprint. Bernal also assuaged Shell gasoline and diesel users there would be “no supply disruptions” even with the shutdown of their refinery.

The shift towards importation is a smart move it would seem for Shell. In an interview over ANC in May, EastWest Bank senior vice president Rob Ramos could not agree more. He argued: “If it’s more efficient to import (oil) than refining, which is not as profitable, what do I do? Rather than bleed, I will close shop. It makes good business sense.”

Tough times call for tough decisions. Smart moves – not magic formula – can help companies to hurdle the harsh economic impact of the COVID-19 pandemic.