Fitch: Shell’s closure of Batangas refinery to have serious repercussions on PH economy

Pilipinas Shell Petroleum’s decision to permanently shut down its refinery in Tabangao, Batangas will have a substantial impact on the Philippine economy, according to Fitch Solutions.

By Eileen Mencias

Fitch likewise cited the possibility of Petron Corp. closing down its Bataan refinery due to challenging operating conditions and the uncompetitive tax regime.

While Shell’s refinery was already suffering even before COVID-19 hit the country, higher taxes and rising inflation was already taking the toll on domestic demand and smuggling was making things worse.

Fitch said the closure of the Bataan plant would leave the Philippines fully dependent on imports for its fuel needs.

“The economic repercussions could prove to be substantial. The Philippines’ import bill has risen every year since 2016 as demand rose,” Fitch said.

“If not a single refinery is left, the Philippines will need to spend $600,000 to $900,000 more each year on fuel imports on top of what it now spends and greater dependence on energy imports will leave the Philippines vulnerable to fluctuations in global energy prices, Fitch said.

Fitch said this would also weigh on the trade balance and create pressures on its external financing position when local demand for energy rises.

“This creates several risks, including putting an extra burden on the Philippines’ foreign exchange reserves or the ability to attract investors inflows—a highly negative prospect as the country is still deficient in many key infrastructures in and outside of oil and gas and creating depreciatory pressures for the peso,” Fitch said.

Fitch likewise warned of higher inflation on imported goods.

While the Philippines foreign exchange reserves are enough to pay for over seven months worth of imports and remittance inflows can offset higher import costs, policy makers will need to manage risks, Fitch said.

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