PETRON EXPANSION IS PUT ON HOLD | Marvin Germo

PETRON EXPANSION IS PUT ON HOLD

By: Marvin Germo | July 10, 2019

 

Stability of Oil Price

The global crude oil price is not as stable as you think it is and this leads Petron Corporation to hold its expansion plans here in the Philippines. The oil company disclosed that it is currently spending about $1 billion for the improvement of its refinery and for the expansion of its retail network within the next three years. $600 million of this amount is being spent for the expansion of its refinery in Limay, Bataan. Despite the challenge to face the unstable prices of global crude oil, the firm is still on the right track in terms of its plans to get a bigger network. Although the succeeding expansion projects will be placed on the back burner, let’s all hope for the stability of the global market.

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Fluctuation Is Getting Bigger

Saying the oil price is unstable seems like a pretty simple statement. It becomes complicated when we hear the word “fluctuation” as this term signifies a real challenge in the global market. For Petron, its business is getting worse because the fluctuation in crude oil prices is increasing. And it’s not just Petron that gets affected because of these large fluctuations but as well as other companies in the industry. Lower prices among independent players make an ultimatum for big oil firms now that 37% of the total industry volume are small players offering oil at low prices. To add, smuggling may be another reason why competition among oil companies is getting stiffer.

Is Smuggling Affecting The Business?

Fluctuation is already a big thing. What more if there are other issues in the economy that are out of hands of oil companies? While challenges arise from unstable oil prices and stiff competition, oil firms also see smuggling as something serious that’s affecting their business. This activity has been rampant in the Philippines because of the implementation of excise taxes on oil and fuel products. Excise taxes on these products become P12 or double the amount of the previous tax law when the Tax Reform For Acceleration and Inclusion Law was put into effect last 2018. It seems like this new tax provision allowed the growth of oil smugglers in our economy.

Focusing On Other Businesses

Since the expansion is put on hold, Petron’s game plan is to focus more on other businesses. The firm sees small growth on earnings because of this and expecting to generate P8-9 billion this year, a little higher than the P7.1 billion it reported in 2018. Looking back, this number is 50% lower than what it made in 2017, which was P14 billion. Imagine how big is the effect of fluctuation to Petron. Addition to this, the oil firm noted that the P8-9 billion figure is already significant considering the worsening oil prices. Most of the possible earnings will come from Malaysia, as what the company expects, since 40% of its business is there.

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