Forced purchase of local ethanol set
September 7, 2011
Forced purchase of local ethanol set
The Department of Energy is set to come out with a circular ordering all oil companies to source locally a portion of the ethanol blended into gasoline products, prompting oil companies to warn of higher pump prices.
Rose Marie Gumera, head of the Sugar Regulatory Commission’s planning department, told Malaya Business Insight the DOE wants to finalize the circular by the middle of next week.
Last month, the provision of the Biofuels Act of 2006 mandating that local gasoline have a 10 percent ethanol content took effect.
According to the law, oil companies must source all their requirements from local ethanol producers, but since local production is less than the requirement, this provision cannot be implemented.
To make up for the domestic ethanol industry’s inability to meet demand, the government is planning to set a policy mandating oil firms to prioritize locally produced ethanol over imports.
"The issue is where to buy locally produced ethanol. Kaunti lang ang supply," Gumera said.
The proposed solution is in laying down a minimum percentage of locally sourced ethanol. Determining the minimum level is what is holding up the issuance of the DOE order.
The circular will also put in place a pricing mechanism.
Gumera said stakeholders have yet to agree on the index to be use for the pricing mechanism, which could be based on either production cost, the price of gasoline, or the price of ethanol in the world market.
Fernando Martinez, chairman of the Independent Philippine Petroleum Companies Association and chief executive officer of Eastern Petroleum, said putting up a benchmark price for ethanol will raise pump prices since the rates being asked by ethanol producers are higher than market prices.
Martinez said that there are already so much added costs to imported ethanol such as the 12 percent value-added tax, the 1 percent tariff and transportation costs, giving locally produced ethanol a price advantage.
He said it is best to let rates be dictated by market forces.
"Why are you forcing the (oil) industry to buy at a price that ethanol producers would dictate? There is no open market," Martinez told Malaya Business Insight.
Martinez said putting up a mechanism which would mandate all oil companies to source domestically a portion of the ethanol they are using is also unnecessary.
He said since domestic production is low, big oil companies could source a portion of their requirements from the entire local producers, without the need to have other players haggle for a share.
The Biofuels Act mandates that all gasoline products should have at least 5 percent bioethanol blend by volume by 2009, with the blend to be increased to 10 percent by 2011.
The law also mandates that by 2011, all ethanol that would be blended with gasoline should be locally sourced.
Based on the latest Philippine Energy Plan, the expected demand for ethanol last year was about 219 million liters, with demand doubling to 438 million liters in 2011.
by John Lourenze Poquiz, Malaya Business Insight