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17 January 2010

Tax dispute: Oil giant threatens to shut down Philippine plant

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Pilipinas Shell Petroleum Corp. warned that the Bureau of Customs’ plan to seize its raw materials and product imports will force it to shut down its Batangas refinery, leading to a fuel shortage, the Manila Times reported.

Citing Section 1508 of the Tariff and Customs Code, the Customs said it is authorized to seize all shipments of Shell arriving in February 2010 to May 2010 amounting to 43 billion peso (1$=45 peso) to answer for the alleged deficiency in tax assessments covering its importation of Catalytic Cracked Gasoline (CCG) and Light Catalytic Cracked Gasoline (LCCG) from 2004 to 2009.

Shell is disputing the tax assessments before the Court of Tax Appeals (CTA) where it contends that the CCG and LCCG imports are merely raw materials used to produce unleaded gasoline.

It said the excise taxes are supposed to be levied only on finished products for consumption and sale in the domestic market. 

Shell told the special tax court that the seizure of the company’s imported raw materials, additives and finished products will result in serious disruption of fuel supply in the market, which may not only lead to revenue losses to Shell but also to massive fuel shortages.

“The void created by the lack of supply from Shell cannot be filled by supply from its competitors. The domestic storage facilities of Shell’s competitors are limited and in the event that Shell is unable to service its customers, this void cannot be filled by its competitors who do not have enough supply to fill this massive shortage,” the company’s supply planning and scheduling manager Garry Galvez said.

Shell currently has a 27.7-percent share in the local fuel retail market.

The company official added that should Customs implement the seizures, Shell would be unable to produce and sell petroleum products like jet or aviation fuel, kerosene, liquefied petroleum gas, diesel, variants of unleaded gasoline, variants of fuel oil used for marine vessels, power plants and other general industries. 

Shell also warned of the possible closure of its Batangas refinery as a result of the confiscation. This means that 823 workers in the refinery alone would be out of work while the company expects to lose 11 billion peso a month. 

With no products to sell, the seizures would eventually lead to the shut down of Shell’s 959 retail dealer stations. The company’s retail stations service road transport vehicles and account for about 34 percent of the market as of June 2009.

These stations employ nearly 17,000 daily wage earners who would also lose their jobs if Customs proceeds with the plan.

Besides servicing its retail customers, Shell also supplies 33 percent of the total demand of power plants, including that of the National Power Corp.; around 17.2 percent of the entire aviation fuels market; 24.6 percent of the marine transport market; and 70.2 percent of the demand for bitumen by contractors engaged in road works.

On December 9, 2009 the CTA issued a 60-day temporary restraining order that barred the Customs from seizing Shell’s shipments.  On January 14, the tax court denied Customs’ motion to lift the order because its filing was late and already beyond the period allowed by the rules.

The CTA continues to hear Shell’s application for a suspension order as the temporary restraining order is set to expire on February 9.  


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