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The Philippines Fight On Inflation: Sell Dirtier, Cheaper Oil

Fuel pump

The Philippines is trying to curb its inflation running at five-year highs by ordering the companies to make available for sale cheaper but dirtier fuel, backtracking on a ban on such dirty fuels introduced two years ago and aimed at improving air quality.

The Philippines’ Energy Secretary Alfonso Cusi is taking steps to address slowing economic growth and high commodity prices by telling companies to sell low-cost fuels, and the government-owned Philippine National Oil Company-Exploration Corporation (PNOC-EC) to import low-priced fuel, the energy ministry says.

“For the purpose of reducing the impact of rising petroleum prices in the world market, all industry players are hereby directed to provide at the retail level Euro-II compliant automotive diesel oil as a fuel option for the transport and industrial customers,” says the order.

The Philippines switched to Euro-IV compliant fuels in January 2016, replacing the Euro-II standard, which allowed for much higher sulfur content in diesel.

Euro-IV compliant fuels have sulfur content of 50 parts per million (ppm), compared to 500 ppm for Euro-II fuels.

The energy ministry’s plan, however, now needs to be approved by the environment department.

Related: U.S. Drillers Add Double Digit Oil, Gas Rigs

“We’re studying it right now, giving consideration to their plan to cushion inflation. We’re also looking at the implications for emissions,” Jonas Leones, Undersecretary at the Environment and Natural Resources department, told Reuters on Friday.

On Thursday, the Philippines’s central bank raised again the key interest rate, by 50 basis points to 4 percent—the third such increase this year following rate hikes in May and in June. The August rate decision was widely expected, with all 19 analysts polled by Reuters forecasting a rate hike. Inflation in the Philippines jumped to an annual rate of 5.7 percent in July, up from 5.2 percent in June. Economic growth, on the other hand, slowed down to 6.0 percent in the second quarter—nearly a three-year-low and below analyst expectations of 6.7-percent growth.

By Tsvetana Paraskova for Oilprice.com

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