Wednesday, Sep 24, 2003

ChevronTexaco's Caltex subsidiary is shutting down its 50-year-old refinery in the Philippines due to excess refining capacity in Asia and the Middle East that is depressing the US oil group's operating margins.

Timothy Leveille, the Caltex country manager, said the company would immediately start importing petroleum instead and would spend Dollars 13.6m to build a depot with a storage capacity of 2.7m barrels to serve its network of more than 200 gas stations throughout the archipelago.

The Caltex refinery, built in 1954, was the Philippines' first crude oil processing plant.

"The move to adopt an import strategy was driven by the competitive conditions in the Philippines marketplace," Caltex said in a statement. "These conditions require cost efficiencies only available in refineries with greater scale and modern technology." The Philippines has deregulated retail fuel prices and brought down import tariffs on finished petroleum products to levels equalling those on crude oil. The policy cut profit margins on local oil refining and encouraged more gasoline distributors to enter the industry.

A former energy regulator, Rex Tantiongco, said Caltex's refinery troubles were caused by its inability to compete with new oil companies which were just serving the motor gasoline, liquefied petroleum gas, and other high-margin segments of the market.

A big portion of Caltex's output was fuel oil, for which there is declining demand because of sluggish economic growth in recent years.

Fuel oil consumption fell by almost a half from 51,400 barrels in 1997 to only 30,800 barrels in 2001, according to the government department of energy. Caltex accounts for only a fifth of the market, down from more than 30 per cent before deregulation.

The Philippine energy secretary, Vincent Perez, said Caltex's decision to stop refinery operations "does not at all imply that the Philippines is an unviable place to invest in". Another oil company, Petron, is expanding its oil processing capacity. Petron is jointly owned by Saudi Aramco and the Philippines government.

By ROEL LANDINGIN

Copyright The Financial Times Ltd 2003. Privacy policy.