No hope for fair prices under oil deregulation

First published by Bulatlat.com (Vol. IX No. 5)

Following fresh charges of overpricing, oil firms have implemented a series of oil price rollbacks last week. The retail price of liquefied petroleum gas (LPG) was slashed by a total of P44 per 11-kilogram (kg) cylinder tank. The pump price of diesel was also cut by P1 per liter (one firm, Seaoil Phil., cut its diesel price by P3).

Multisectoral group Bagong Alyansang Makabayan (Bayan) earlier said that as of mid-February, oil products are still hugely overpriced. LPG is overpriced by as much as P125.35 per 11-kg tank, Bayan said. Diesel, based on the group’s computations, is overpriced by P2.94 a liter; kerosene, P6.42 and; unleaded gasoline, P2.31.

Some lawmakers have revived calls to junk Republic Act (RA) 8479 or the Oil Deregulation Law. Bayan noted that Congress must treat such move as urgent as it warned that global oil prices are again on an uptrend and will be exploited by abusive oil firms. Since December, the spot price of Dubai crude has already jumped by more than 9 percent.

But apparently, Malacañang – despite its noise about probing the oil firms – is not inclined to heed this call, dashing consumers’ hope for reasonable oil prices amid deteriorating economic conditions.

Puzzled

Judge Silvino Pampilo Jr. of the Manila regional trial court Branch 26 said he was puzzled that Justice Secretary Raul Gonzales ordered a task force to probe the oil industry’s Big Three for alleged cartel activities. Pampilo wondered whether Gonzales has “forgotten” that the same task force released a report only last month clearing the oil firms of the said charges. “There’s a conflict now,” the Philippine Daily Inquirer quoted the judge as saying.

Pampilo is presiding over a case accusing Petron Corporation, Pilipinas Shell, and Chevron Philippines of monopoly, cartelization, and predatory pricing. He asked the task force, created under RA 8479, to investigate and submit a report. People from the Department of Energy (DOE) and Department of Justice (DOJ) make up the task force.

Was it a simple case of memory lapse by the aging Justice Secretary? Maybe. But this oversight bares a far more important point. Despite repeated warnings and press statements, government does not intend to go after the oil cartel. Under public pressure, DOE Secretary Angelo Reyes was forced to question the small oil price rollbacks last year. At one point, former Press Secretary Jesus Dureza even warned that government will use its “iron fist” as Gonzales pushed for an “independent” audit.

But all these are hogwash. The policy bias of the Arroyo administration remains on deregulation and free market. Administration officials may issue sound bites somewhat hostile to the oil firms to douse critical public opinion. If they will back their words with concrete actions is another matter. In many instances, in fact, their actions contradict their words. The recent booboo by Gonzales is a case in point.

Reviewing RA 8479

In her 2008 State of the Nation Address (SONA), Mrs. Gloria Arroyo had this to say on oil deregulation:

“The government has persevered, without flip-flops, in its much-criticized but irreplaceable policies, including oil and power VAT and oil deregulation.” (Emphasis added)

But recent events in the oil industry have bolstered the case against Arroyo’s “irreplaceable” deregulation policy. The huge increases in global prices in the first half of 2008 pushed up local pump prices to record levels. This was followed in the second half with steep cuts in world prices that were not reflected in the refilling stations. Oil prices remained high and onerous, and the public blamed the greedy oil companies and lack of state regulation.

Then this year, the reported “shortage” in liquefied petroleum gas (LPG) broke out and probed by the lower House. In the hearings, Reyes all but declared that the DOE is helpless in curbing abuses in the oil industry like hoarding and overpricing. Reyes said:

“We need to review the price act … There’s a listing of commodities there and petroleum products are not included. Now if we want closer monitoring of the LPG industry, let us include it there. And if we really want more government action, let us regulate the industry”. (Emphasis added)

But Reyes later backtracked and instead pushed for an amendment of RA 8479, which is the official Malacañang line. The DOE now wants additional powers to check abuses but still within a deregulated regime. Malacañang said that it will support moves to put RA 8479 under review.

Note that it was only in 2005 that the DOE last reviewed RA 8479. The independent panel set up by government concluded then that “deregulation has the tendency to reduce oil prices”. It also said that “deregulation has increased competition in the downstream oil industry”.

The so-called independent review was staged to justify the continued implementation of RA 8479. In fact, the panel chairperson picked by the DOE was the former head of accounting giant SGV. Its clients include the Big Three and other oil companies. Thus, there is little hope that a review of RA 8479 today, as initiated by Malacañang or its allies in Congress, will lead to an honest review of deregulation. It will only be used as a platform to uphold deregulation and at best introduce token changes.

Pro-cartel, by design

The DOE and self-proclaimed consumer advocate Raul Concepcion argue that effective monitoring will make deregulation work. Concepcion even insists that government is just remiss in implementing RA 8479. According to him, the simple solution is for the DOE-DOJ task force to do its job.

But at the heart of deregulation is free market, where state intervention is taboo. It is where so-called market forces decide everything. But the basic problem is that free market in the oil industry is a myth. Since its birth, the global oil industry has always been under a cartel. This cartel rules in the Philippines through the Big Three.

When the first deregulation law in 1996 was passed, it set the stage for the oil cartel to further dominate. Automatic price adjustments allowed for more overpricing and profiteering.

The “proper” implementation of RA 8479 or even amendments will not address the problem. It does not have any provision on overpricing because deregulation assumes that the market will set the “fair” price. Government could not penalize the oil firms for overpricing because they do not violate any law.

Thus, when Secretary Ralph Recto of the National Economic and Development Authority (NEDA) said last October that diesel should be only around P35 a liter instead of the prevailing price then of P47, Reyes had to warn him not to create “false expectations”.

RA 8479 did create the DOE-DOJ task force to look into “any report of an unreasonable rise in the prices of petroleum products”. But how can it determine an excessive oil price hike? Which yardstick will it use when the only standard on pricing recognized under deregulation are the “business decisions” of “competing” oil firms?

Worse, the public is not even entitled to know the factors behind these “business decisions”. RA 8479 prevents government from disclosing “any trade secret or any commercial or financial information which is privileged and confidential”. Additional powers for the task force will not correct this basic defect. Unless such extra powers will include imposing a standardized pricing formula, it will not be able to curb overpricing.

But then again, it will contradict the very spirit of deregulation. (END)

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