Guidelines on Index-Based Pricing for POL Procurement

Legal basis and pricing escalation framework

The guidelines operate under Section 61 of Republic Act No. 9184, which treats awarded bid prices as fixed prices not subject to escalation during contract implementation except under extraordinary circumstances and upon prior approval by the GPPB.
Section 61.2 of IRR-A requires that any request for price escalation under extraordinary circumstances be submitted to NEDA with the endorsement of the procuring entity.
GPPB Resolution No. 07-2004 provides rules for GPPB approval of price escalation requests and establishes legal and technical parameters for objectively determining events causing extraordinary circumstances.
The guidelines incorporate the GPPB Guidelines for Contract Price Escalation, including the framework distinguishing extraordinary circumstances from ordinary fortuitous events.

Policy goals and purpose

The guidelines identify conditions when an index-based pricing scheme may be used for POL procurement.
The guidelines prescribe rules and procedures for using an index-based pricing scheme for procurement of POL requirements.

Covered buyers and transactions

The guidelines govern the use of an index-based pricing scheme under extraordinary circumstances for POL procurement in accordance with Section 61 of Republic Act No. 9184, IRR-A, and the GPPB Guidelines for Contract Price Escalation.
The guidelines apply to POL procurement by the national government, its departments, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions, and local government units when POL is a major operational requirement necessary for the prosecution of their principal mandate.
The guidelines expressly cover POL procurement for major operational requirement situations, provided the procuring entity intends to use these guidelines and notifies the GPPB in writing.
Bulk procurement coverage requires that, based on the totality of POL requirements and sheer volume, procurement necessitates procurement from major suppliers.
Contract duration for the POL requirement covered by these guidelines must not exceed one (1) year.

Key definitions for pricing mechanics

Average Wholesale Posted Price (AWPP) means the average of major POL suppliers’ individual Wholesale Posted Price (WPP) as computed and issued by the Oil Industry Management Bureau (OIMB) of the Department of Energy (DOE).
Bid Price means:
- AWPP less discounts in procurement using the WPP index, or
- MOPS plus the premium imposed in procurement using the MOPS index.
Bulk Procurement means procurement that, by total POL requirements and sheer volume, necessitates procurement from major suppliers.
Total Contract Price means the aggregate amount set by a procuring entity as the ceiling to meet the volume requirement for each POL product, and it shall not exceed the ABC.
Discounts mean total deductions/downward allowances for supplier-controlled costs expressed as a percentage of AWPP, used for comparison of bids and computation of unit contract price.
Extraordinary Circumstance means an event/occurrence (or series) before or during contract implementation that gives rise to price movements in petroleum and derivative products.
Major Suppliers means POL wholesale suppliers that either maintain a refinery in the Philippines or directly import POL from production or trading venues.
Mean of Platts Singapore (MOPS) means the mean of the high and low components of a Platts assessment for oil cargoes loading from Singapore.
Petroleum, Oil and Lubricant Products (POL) means those mentioned in Section 5 of the guidelines.
Premium means the amount of all applicable and reasonable supplier-controlled costs/expenses expressed as a percentage added to MOPS, used for comparison of bids and for computation of unit contract price.
Unit Contract Price means:
- the percentage discount (for WPP index procurements), or
- the percentage premium (for MOPS index procurements),
  applied to the index price rate used on the date of actual order by the procuring entity.
Wholesale Posted Price (WPP) is the reference fuel prices individually set by local refiners and traders subject to periodic changes based on movement in crude oil prices, foreign exchange, and other costs, and the WPP considers all allowances for costs and expenses either ex-refinery or ex-depot.

Index selection and applicable POL items

The Wholesale Posted Price (WPP) index applies to procurement of:
- Premium, Unleaded or Regular Gasoline
- Automotive Diesel Oil
- Jet A-1
- AVGAS
- Lubricants such as AVOIL EE -100, MIL-H5606 (F/G Synthetic), Hydraulic Brake Fluid (DOT-3), 2-Stroke Engine Oils, Ground Oils, ATF Premium, Gear Oil, Grease MP3, and Lube Oils.
The Mean of Platts Singapore index (MOPS) applies to procurement of:
- Industrial Fuel Oil
- Low Sulfur Fuel Oil
- Industrial Diesel Oil.
The list of POL items for WPP or MOPS remains subject to annual review, modification or re-classification by the GPPB, or as often as the GPPB deems necessary.

Bid pricing and contract pricing rules

For WPP index procurements, bid prices are based on AWPP less the discounts given by the bidder, if any.
For MOPS index procurements, bid prices are based on MOPS plus the premiums imposed by the bidder, if any.
Contract prices are determined as the index rate at the actual order date less the percentage discount (WPP index) or plus the percentage premium (MOPS index) based on the bid of the Lowest Calculated Bidder.
The contract must indicate the unit contract price mechanism “as such,” while remaining subject to the rules on actual price payable under Section 9.

Bid evaluation and index reference dates

For bid evaluation/comparison, the Lowest Calculated Bid is:
- the bidder with the highest discount for WPP index procurements, and
- the bidder with the lowest premium for MOPS index procurements.
For determining AWPP or MOPS for bid prices, reference is made to the AWPP or MOPS (as appropriate) thirty (30) calendar days prior to the scheduled bid opening date as advertised.

Actual prices payable and delivery accounting

For POL requirements actually delivered and duly received, the amount payable is the AWPP less the discounts or the MOPS plus the premium—whichever is appropriate—computed at the date the actual order is placed.
For purposes of payment and determination of actual payable price, the discounts given or premiums imposed used during bid evaluation and comparison shall not be changed during contract implementation.
For staggered deliveries, after every order the procuring entity must account for the amount actually payable based on the date of the Purchase Order/Requisition Request, which determines allowable remaining unit/volume that may still be ordered for each POL product.
The procuring entity is allowed to adjust units/volume to be delivered per product to conform to the remaining amount in the total contract price.
For consignment arrangements where payment is based on volume consumed, actual price payable is determined using the weighted average of the applicable index from the date the order is placed up to the cut-off date for payments agreed upon by the parties.
The same weighted-average index rule applies where a major supplier delivers POL products to the procuring entity through its authorized stations and/or distribution centers.
Where contract implementation results in the total contract price being consumed notwithstanding incomplete deliveries in the contemplated units/volume, the procuring entity makes no further order and no further payments.
The statement that it forms part of the bidding documents applies to the rule on stopping further orders/payments once the total contract price is consumed.

Implementation, publication, and effectivity

These guidelines and any amendments take effect fifteen (15) days after publication in the Official Gazette or in a newspaper of general nationwide circulation.
Effectivity also requires filing with the University of the Philippines Law Center of three (3) certified copies of the guidelines.
The GPPB resolution adopting the guidelines takes effect immediately upon adoption on April 1, 2005.