Pilipinas Shell Petroleum Corp., the country’s second biggest fuel provider, identified two ways of smuggling petroleum products into the country aside from bringing them in through special economic zones and selling them tax-free outside the zones.

“There are also schemes where volume and value are grossly understated resulting in very small tax payments,” Edgar Chua, country manager of Pilipinas Shell, said on Tuesday.

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Chua said another scheme “is to have a large ship floating some distance out at sea and smaller ships withdrawing from the mother ship for direct delivery to various customers or small storage facilities.”

No documents are used so no taxes are levied, he said.

“The common smuggling schemes are the entry of finished products in special economic zones like those in Subic, Bataan and Phividec (which operates a 3,000-hectare complex in Misamis Oriental),” Chua added.

They are brought in tax-free and then they are withdrawn tax-free using fake documents supposedly for export, but in reality are sold in the local market.”

Pilipinas Shell itself has been charged by the Bureau of Customs (BOC) with “intentional misdeclaration” of its premium gasoline. (See list of firms sued by the BOC on this page.)

Chua affirmed Petron Corp. chair and CEO Ramon S. Ang’s estimate of some P30 billion in forgone government revenue every year from fuel smuggling.

Ang said one in every three liters of gasoline or diesel sold in the country was smuggled.

The Petron chief noted that smuggled oil products accounted for at least a third of the total volume sold in the market.

“(Our) retail or service station volumes have remained flat despite the fact that registered vehicles increased from 5.5 million to 7.1 million over the period from 2007 to 2011,” Ang said.

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Petron and Pilipinas Shell are the country’s oil refiners.

39.3M barrels smuggled

Citing data from the Department of Energy, Finance Secretary Cesar V. Purisima said in a statement that the demand for petroleum products amounted to 106.9 million barrels in 2011.

But Bureau of Customs data for the same year showed that 67.6 million barrels were officially brought in, suggesting that the remaining 39.3 million barrels were smuggled into the country.

Plunder

Chua said oil smuggling amounted to plunder because of the massive damage to government and private capital investments.

“Smuggling should be considered plunder given the huge amounts involved and the damage to the economy it causes, sucking the lifeblood out of government revenue that should have been used for social services to benefit the public, especially the poor,” he said.

“The ‘savings’ that end users enjoy due to the lower price of smuggled products are nothing compared with the benefits like schools, hospitals, farm-to-market roads and housing that would have been built if the government was able to collect the taxes due,” said Chua.

Investor interest dampened

He said the government’s failure to stem fuel smuggling had dampened investor interest in expanding their production capacity in the country.

“Oil smuggling constrains the expansion plans of legitimate oil companies. The country’s two oil refineries (Petron and Shell) can only supply 60 percent of the country’s finished product requirements. So, theoretically, investments in additional refining capacity can be justified.

“But rampant oil smuggling prevents oil companies from expanding manufacturing capacity,” said Chua.

Pilipinas Shell, an Anglo-Dutch firm, has been in the Philippines for the last 99 years.

Since deregulation in ’98

Oil smuggling has flourished in the country since the deregulation of the industry in 1998, Chua told the Inquirer. The deregulation allowed small companies to sell petroleum products to the public, ending the oligopoly earlier enjoyed by Petron, Shell and Caltex (now Chevron).

Petron accounted for 35.9 percent of the market as of June 2012; Shell, 22.5 percent; and Chevron, 9.6 percent. Other firms like Phoenix, Total, Liquigaz, Unioil, Seaoil and Jetti held 29.7 percent of the market.

Rice, vehicle smuggling

Chua said the oil industry’s problems were typical of the smuggling woes faced by other industries such as rice, vegetables and vehicles.

While Chua acknowledged that the government had made efforts to curb smuggling, the prospects of windfall profits were too big to ignore.

“There is big money involved, around P20 billion to P30 billion per year. It is not easy to curb this disease,” he said. With a report from Ronnel W. Domingo

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