Philippines sets $50 million in fuel subsidies: how it works

Manila. Fuel subsidies worth Php2.5-billion ($50 million) had been earmarked to support sectors affected by the recent spike in fuel prices, the country’s economic managers said.

The fuel discount voucher scheme, known as Pantawid Pasada Program (PPP), is set to kick in as local fuel retailers unleashed another round of oil price hike — the seventh in as many weeks — on the heels of crude price increase globally triggered by supply shock fears in the midst of rising geopolitical tensions.

Who will benefit?

Beneficiaries include some 377,000 qualified public utility vehicle (PUV) drivers operating different modes of transportation across the country.

These include drivers operating the following:

Who decides how much and to whom will the fuel subsidies be given?

The fuel subsidy is released through the Department of Transportation (DOTr), according to the inter-agency Development Budget Coordinating Committee (DBCC).

Allocation of the subsidies is subject to guidelines issued by the DOTr, Department of Energy (DOE) and Department of Budget and Management (DBM).

When does the subsidy kick in?

As a rule, the fuel subsidy kicks in “when the average Dubai crude oil price based on Mean of Platts Singapore (MOPS) for three months reaches or exceeds $80 per barrel,” the committee told the Philippine News Agency (PNA) Thursday.

MOPS is a pricing basis for many refined products in southeast Asia. It refers to the average price reported by the price assessment agency Platts for a product in the Singapore trading hub.

As of February 17, the Bangko Sentral ng Pilipinas (BSP) forecast Dubai crude oil price for this year to average at $83.3 per barrel, though prices were “expected to decelerate to $79.0 by the end of this year based on the latest oil futures.”

At 3.30 pm Manila time on Friday (February 25, 2022), Dubai crude stood at $91.84 per barrel while WTI Crude stood at at $94.53/barrel. Brent went down by $101.5/barrel on Friday, after hitting $105 on Thursday on geopolitical tensions following Russia's attack on Ukraine.

Fuel discounts for farmers, fisherfolk

Filipino farmers and fisherfolk are also included among the beneficiaries of the fuel discount program. As part of the “holistic value chain approach” to mitigate the knock-on effects of high pump prices, a Php500 million (about $10 million) has been allocated for fuel discounts to farmers and fisherfolk. The Department of Agriculture (DA) manages this fund.

It is meant for farmers and fishermen who either individually own and operate agricultural and fishery machinery or operate through a farmers organisation or cooperative.

How will the fuel subsidy help consumers?

The subsidy is aimed to mitigate the impact of high fuel prices on production and transport costs of farm and fishery products. It is hoped to ensure an adequate and affordable food supply amidst the rising oil prices.

Currently, there are several measures proposed in Congress to help ease possible domestic supply constraints and prevent second-round effects on prices. The measures include Senate Bill No. 139 or the Philippine Livestock Development Industry Act, and Senate Bill No. 2176.

What is PPP?

Pantawid Pasada Program (PPP) is a direct cash subsidy given to public utility operators to cushion soaring fuel costs.

How much is the subsidy?

The Land Transport and Franchising Regulatory Board (LTFRB) said they will distribute a Php6,500 ($126) subsidy to franchise grantees under the Fuel Subsidy Program.

“The P6,500 subsidy that will be given to franchise grantees will be under the Fuel Subsidy Program. The payment will be coursed through the Pantawid Pasada Program (PPP) cash cards for use in gas (petrol) stations,” the agency told local media.

In 2021, transport operators received a fuel subsidy card worth Php7,200 per unit.

How is the fuel subsidy given?

Through e-Wallet. On Friday, Senator Sherwin Gatchalian, chairman of the Senate committee on energy, called on the executive branch to immediately implement PPP for public utility drivers to dispense fuel subsidies through e-wallets for easy and instant credit to beneficiaries.

The PPP should also be extended to food transporters, said Senator Gatchalian.

Will the Philippines suspend excise taxes on fuel?

It is not clear at this point. There are growing calls for it and moves are afoot in Congress to curb fuel excise tax, and several legislators expressed support for tax suspension. “We may need to suspend excise taxes as the last resort,” Gatchalian said.

As economies open due to the decline of COVID-19 cases, a higher demand for oil could five pump prices an upward pressure.

On Friday, Department of Energy (DOE) Assistant Director Rodela Romero also suggested during a public briefing the temporary suspension of fuel excise tax. The tax now under review by Congress.

What is the solution in case of supply disruptions?

Senator Gatchalian urged the Department of Energy to formulate contingency plans in case of crude supply disruptions.

“There is no overnight solution to reduce oil prices in our country,” Gatchalian pointed out. “The only way to do that is to reduce our dependence on imported oil by exploring more domestic sources of oil and gas and transition in electric vehicles in the years to come,” he said.