The proliferation of smuggling activities in the domestic oil industry is emerging as the major factor to deter investment flows henceforward because it distorts the playing field in what has been envisaged as a competitive market.

In an exclusive interview, Total Philippines president and managing director Ernst Wanten forthrightly stated that the problem in the country’s oil industry is with illegal imports.

“The smuggling is a real problem because that will set a trend that you don’t have a level playing field, it completely destroys the market. So in the end, for people like us who fully operate within the bounds of the law and comply with all the rules and regulations, you start seeing that it is very difficult to earn any money,” the oil firm executive stressed.

Wanten pointed out a very evident data mismatch, when he cited that despite the growing economy and increasing number of vehicles on the road, it appears that official government figures on oil demand volumes have been declining.

Industry studies noted that diesel appears to be the most vulnerable product for both technical and outright smuggling activities, followed by kerosene which are generally declared as dual-purpose kero (DPK), but will eventually be consumed as aviation turbo (Avturbo) fuel.

The Total executive then stressed that illegal importation must be examined closely by policymakers and government planners, given the fact that the entry of smuggled products into the country will also entail revenue losses for the State coffers.

“The correlation is well-known between the GDP (gross domestic product) growth and oil consumption, and that is tested around the world, it’s almost the same. So if you look at how the market does, you can easily calculate what’s missing. You know what is happening, and this is a real problem,” he pointed out.

For oil companies which intended to invest long-term in the Philippine oil industry, it does not come gratifying that with Total’s investment of P4.0 billion in the last 10 years, the accumulated result on its bottom line has been negative P2.0 billion.

Based on data, it was shown that the level of petroleum demand in the country in 2008 (net of power requirements), has declined to 97 million barrels as compared to 12 years ago at 111 million barrels.

The perceived worsening cases of oil smuggling are also seen weighing down on government revenue collections. Based on estimates, it was indicated that revenue losses from smuggling last year may have hovered between P28.7 billion to P32.6 billion.

The foregone revenues from smuggled oil account for roughly half of the estimated P60 billion to P65 billion losses set by government for all smuggled goods entering the country.