Despite Claims of Losses, ‘Big 3′ Rake in Billions in Oil Profits

While the Big Three oil firms in the Philippines claim losses due to under-recoveries, their mother companies abroad continue to report record billions in profits, according to independent think-tank IBON Foundation.

BY IBON FOUNDATION

While the Big Three oil firms in the Philippines claim losses due to under-recoveries, their mother companies abroad continue to report record billions in profits, according to independent-think tank IBON Foundation.

Royal Dutch Shell, the mother company of Pilipinas Shell, posted a net income of $27.6 billion in 2007, making it the second most profitable company in the world next to oil giant Exxon Mobil. During the same year, Pilipinas Shell recorded profits of P4.12 billion ($90,232,150 at an exchange rate of $1=P45.660).

On the other hand, Chevron, mother unit of Chevron Philippines (formerly Caltex), reported a net income of $18.7 billion in 2007, 9 percent higher than in 2006 and enough to rank it the eighth most profitable company in the world. Its local unit in the country reported P2.75 billion ($60,227,770) in profits in 2007.

Petron, which is co-owned by the government and by Saudi Aramco, recorded profits of P5.94 billion ($10,091,984) in 2007. Its net income has been progressively increasing in the last three years, posting P5.76 billion ($126,149,802) in 2006 and P3.42 billion ($74,901,445) in 2005. Aramco, unlike Shell and Chevron, is an unlisted company that is not obliged to report its financials, but its profits in 2007 are likely about $15 billion.

Domestic profits do not even genuinely reflect the oil monopolies’ overall profits because the transnational oil firms’ local subsidiaries are merely booking their profits abroad through the deceitful practice of transfer pricing to deflect criticisms of their massive windfall profits.

At any rate, the Big Three oil firms are clearly still making billions of pesos in profits, and thus any claim of so-called under-recoveries does not mean that they are taking any losses.

The monopoly oil transnational firms abroad normally already inflate the price of their oil to get their super-profits. This overpricing has even been extremely bloated since last year by increasing speculation in world oil markets. “Transfer pricing” however refers to oil firms’ practice of further padding the price of oil they sell to their subsidiaries to shift recording of profits from subsidiaries to mother corporations. The net result of this transfer pricing is the seemingly lower profits of the subsidiaries, because of higher costs of oil imports, which are actually off-set by the higher profits of mother companies.

Oil transnational firms are able to engage in transfer pricing because of their vast control over the different stages of oil production and distribution. In the Philippines, around 90 percent of oil in the market passes through the Big Three. They use lower reported domestic profits to disguise the massive global profits they are making and to deflate public anger against them.

Those mega-profits earned by exploiting unchecked monopoly control and covered up through unscrupulous practices, even as ordinary Filipinos reel from the harsh impact of escalating fuel prices, highlight the urgent need for government regulation and control over the local oil sector to help ensure transparency in pricing.

IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.