Philippines prepares to start phase out of oil import tariff

Singapore (Platts)--4May2006

The Philippines is set to start phasing out its across-the-board 3%
import tariff on crude oil and refined oil products within the next two weeks,
several local newspapers reported in their online versions Thursday.

The phase-out would come as the government seeks to lighten the impact of
soaring international oil prices on domestic consumers. Though it has two oil
refineries of its own with a total capacity of 335,000 b/day, it has minimal
crude oil production of its own. As a result, the Philippines imports almost
all of its annual consumption of around 360,000 b/day.

The Enquirer and Manila Times both reported that a proposal by the
government to start reducing the tariff, with an eye to cutting it completely,
passed through a hearing of the Philippines Tariff Commission with no
opposition on Wednesday.

It had been expected that the Philippines treasury, which stands to lose
out on potential revenues from the cut, might intervene to speak out against
the decision.

Both newspapers quoted Zenaida Monsada, director of the Department of
Energy's oil industry management bureau, as saying that a plan to cut tariffs
on oil imports was set to be put in place by President Gloria Arroyo shortly,
probably before the Philippines Congress resumes on May 15.

A detailed plan to cut the tariff would then be defined by the DoE, the
Department of Finance and the National Economic and Development Authority
together. The tariff is expected to drop by one percentage point every time a
benchmark oil price passes through a predefined ceiling. With high enough oil
prices, it could drop to zero.

A cut in the general oil import tariff would be the latest and biggest
blow to the Philippines treasury in collecting energy revenues. The
Philippines slashed import tariffs on ethanol from 10% to 1% to in August 2005
to encourage demand for the gasoline blendstock, and lower expensive oil
imports.

It cut import tariffs on LPG completely on November 1 last year, at the
same time that it reduced the general import tariff from 5% to 3%.

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