The OPSF and Malacañang’s efforts to blunt calls to regulate the oil industry

Cartoon by Salvador Jorque/Ibon Foundation

A think tank based at the House of Representatives (HoR), the Congressional Planning and Budget Department (CPBD), on Tuesday released a report upholding Republic Act (RA) 8479 or the Downstream Oil Industry Deregulation Act of 1998. The report, written by CPBD director general Rodolfo Vicerra, warned that without RA 8479, the domestic oil market would need price intervention and taxpayers would have to bear the burden of keeping oil prices stable. The CPBD report argued that scrapping the oil deregulation law “would require reviving the Oil Price Stabilization (OPSF) to be funded again by the taxpayers”.

On the same day that the CPBD report was released to the media, the Big Three (Petron Corp, Pilipinas Shell, and Chevron Philippines) has again hiked their gasoline prices by P1 a liter, and kerosene and diesel by 50 centavos. The price increases followed a 30 centavo-hike in diesel prices implemented by the same firms four days earlier, citing increasing prices in the global oil market.

The recent rounds of oil price hikes further amplified persistent calls to repeal or at least amend RA 8479. At the HoR, its Oversight committee chaired by Representative Danilo Suarez (Quezon province, 3rd district, KAMPI) is pushing for an amendment of RA 8479. Suarez said he and House energy committee chairman Rep. Mikey Arroyo (Pampanga, 2nd district, LAKAS-CMD) are crafting a bill that will “partially” regulate the downstream oil industry. The bill, according to Rep. Suarez, would focus on regulating pump prices, controlling oil imports and limiting industry participants.

The details of Suarez’s bill remain sketchy at this point, and we are not certain what he exactly means by partial regulation. Nonetheless, some quarters have expressed opposition to moves to entirely scrap RA 8479 and have instead pushed for amendments to supposedly plug its loopholes and prevent excessive and predatory pricing. This is the official position of the Department of Energy (DOE), and by extension of Malacañang, and which explains the initiatives on the oil industry of Reps. Suarez and Arroyo. These developments should make consumers wary because they blunt the calls to junk RA 8479 and establish an entirely new set of measures to effectively regulate the downstream oil industry.

A misleading and often recycled argument against proposals to regulate the country’s downstream oil industry is the discredited OPSF. Aside from the CPBD, the DOE has also raised the OPSF as an issue to thwart calls for regulation. The department’s Oil Industry Management Bureau (OIMB) chief Zenaida Monsada said that government “should be cautious about reverting to a regulated system as it could not afford reviving the OPSF” which “cost the country a lot of money”. In 2005, the DOE formed an “independent” body to review RA 8479 and among its findings was that “subsidizing oil prices (through the OPSF) is not feasible in a regime of rising crude prices due to lack of government resources”.

While a buffer fund will be needed in a regime of regulated oil prices, such fund is entirely different from the flawed OPSF. It must be emphasized that it is possible to establish a buffer fund without passing on the burden to the taxpayers and consumers. One way of doing it is for the buffer fund to be financed by government earnings and savings from its increased participation in a regulated downstream oil industry.

Under this proposal, the government will become the exclusive importer of crude oil and petroleum products. As such, the country can expand potential oil sources and shop for the cheapest available oil. Bilateral agreements with state-owned companies from oil exporting countries may be pursued under special arrangements, including commodity swaps, which can provide the country considerable discounts. Savings and earnings from these transactions can be used to finance the buffer fund. Such system of centralized procurement also addresses the concern that a buffer fund will not work because of rising global oil prices.

The national government should also participate in storing, refining and retailing oil products in the country and use whatever earnings it will generate from these activities to finance the proposed buffer fund. Initially, the buffer fund can be financed through allocating a portion of the national budget and when un-utilized within the fiscal year should be carried over to the next fiscal year. Uncollected taxes from the oil companies, such as the P21 billion in unpaid custom duties of Shell, can also serve as seed money for the buffer fund.

Remember that the OPSF failed because it was not used strictly as a buffer fund but was designed to protect the profits of the Big Three during oil price shocks. Established under Presidential Decree (PD) 1956 on Oct 10, 1984, oil firms replenished the OPSF when their pump prices were higher than world prices and withdrew from it when the reverse happened. To prevent the OPSF from drying up, government delayed rolling back the pump price even if world prices fell thus imposing the burden to refill the OPSF on hapless consumers while protecting the profits of the Big Three.

A strict set of guidelines must be drawn up on when the government can tap into the buffer fund to prevent unwarranted utilization and corruption. A trigger price may be computed by the Department of Energy (DOE) that will determine when the buffer fund should be used to mitigate sudden and huge increases in oil prices.

The point is there are alternatives to the Oil Deregulation Law and a concrete set of measures to implement them are available if only the legislators will seriously study these proposals. We must engage the lawmakers, government agencies, and their technocrats in a debate on these issues so as to prevent questionable policy proposals like the planned bill of Reps. Suarez and Arroyo from hijacking the people’s demand to scrap RA 8479 through their so-called partial regulation. Of course, they will have an advantage if we limit the engagement in congressional hearings alone. These efforts must be complemented by continued public pressure through protest actions, etc. and broadening public support for oil industry regulation.

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