Oil deregulation

Fuel stockpile plan boosts oil regulation argument

The Aquino administration faces growing peoples protests against the Oil Deregulation Law and the 12% oil VAT as fuel prices continue to escalate

On Tuesday (Apr. 19), Shell implemented another round of oil price hikes that increased the pump price of gasoline by 60 centavos per liter and diesel by 25 centavos. The kalbaryo (suffering) of the people does not seem to end. Starting Wednesday (Apr. 20), households should expect to pay P11 more for an 11-kilogram LPG tank, according to the LPG Marketers’ Association (LPGMA).

Meanwhile, reeling from growing criticisms that his administration is not doing enough to address the issue of high and escalating oil prices, President Benigno S. Aquino III announced last week the government’s plan to stockpile fuel. Aquino ordered the Philippine National Oil Co. – Exploration Corp. (PNOC-EC) to build up a strategic diesel reserve with the first shipment of 50 million liters expected to arrive next month.

To be sure, stockpiling still does not address the more urgent problem of unabated oil price hikes and exorbitant pump prices. But it does provide a glimpse of the possibilities that a fully regulated oil industry can give to the consumers and the economy. The PNOC-EC, for instance, expects to get a discount from the estimated P2.1-billion cost of its first shipment since it is buying in bulk. This will allow the government to sell its diesel at a lower price than the prevailing pump price being offered by the oil companies. The discount can be as much as P3 a liter based on PNOC-EC’s reckoning.

Imagine if the PNOC-EC is the exclusive importer of oil under a system of centralized procurement. The oil companies will have to buy from the government and they have to sell it a price based on the PNOC-EC’s cost of importation, which is cheaper. The government can also further bring down the cost of importation by exploring bilateral agreements with oil exporting governments such as engaging in commodity swaps or using the local currency to pay for oil imports thus eliminating the impact of foreign exchange fluctuations on the pump price. In addition, the government can easily determine if the oil firms are profiteering or selling at a price that is outrageously higher than the cost of buying from the PNOC-EC.

Unfortunately, this policy option is not available at present because of Republic Act (RA) 8479 or the Oil Deregulation Law. The PNOC-EC clarified that it does not intend to compete with the oil companies. The strategic oil reserve, according to the President, will only be utilized “in times of extraordinary need”. But for a backward country where wages are depressed and unemployment and poverty are chronic, for a country that is too dependent on a global oil market where monopoly and speculative pricing reign, the times of extraordinary need are ever-present. Petroleum is too strategic a commodity to be entrusted in the hands of profit-hungry oil companies.

What will replace RA 8479? We have long been pushing for a piece of legislation that will regulate the downstream oil industry in the Philippines. At the current Congress, that is House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. In 2005, independent think tank IBON Foundation also released a policy paper detailing how a regulated oil industry can be implemented. We do have concrete and doable proposals to bring down the cost of oil and ensure the country’s energy security.

More on the Pantawid Pasada

While fuel costs continue to escalate, the Department of Energy (DOE) is scrambling to implement President Aquino’s Executive Order (EO) 32 or the much publicized P450-million Pantawid Pasada program, hoping to mitigate the impact of the oil price hikes. I have talked to Director Zenaida Monsada of the DOE’s Oil Industry Management Bureau (OIMB) last week. She admitted that implementing the Pantawid Pasada has been a very difficult task. They have to verify that each of the 214,596 jeepney units is first, registered at the Land Transportation Office (LTO) and second, has a valid franchise from the Land Transportation Franchising and Regulatory Board (LTFRB). As for the tricycle units, the verification of almost one million Pantawid Pasada beneficiaries has been delegated to the Department of Interior and Local Government (DILG).

Once the complicated process of identifying the units qualified for the program, the next tricky job for the DOE is ensuring that the smart cards will actually be given to the drivers. I asked Monsada how they plan to do this considering that they identified the beneficiaries based on the franchisee or operator. Monsada said that the operators have to claim the cards with their drivers. But the franchise holder can bring any one with a driver’s license, I said. Monsada replied that they will coordinate with the transport groups to ensure that the drivers will get their smart cards. What will happen to the smart cards after the actual distribution to the drivers is uncertain because the DOE has no mechanism to monitor. But certainly, the effective control will be in the hands of the franchise holders since that’s how the Pantawid Pasada has been designed.

In a previous post, I argued that even as a form of economic relief, the Pantawid Pasada is grossly insufficient. With the recent round of increases in pump prices, the already scant amount that jeepney and tricycle drivers will get from the Pantawid Pasada by next month has been eroded again. Since the fuel subsidy program was announced by Malacañang last March 31, the pump price of diesel has already jumped by P1.75 per liter and gasoline, by P2.35. The P35 per day in diesel subsidy that jeepney drivers will get under the Pantawid Pasada has already been eaten up by the huge P52.50-increase in their daily fuel cost (based on their average daily consumption of 30 liters of diesel) in the past three weeks. Similarly, tricycle drivers saw their daily fuel cost jump by P9.40 a liter (based on their average daily consumption of 4 liters of gasoline), or almost double the P5-subsidy that they will get from the government. There is one more week before the targeted May 2 distribution of the Pantawid Pasada smart cards and the public transport sector may have to endure another round of oil price hikes before they can avail of Aquino’s fuel subsidy.

What is the better and more effective form of relief from the spate of oil price hikes? In terms of amount of price reduction and scope of beneficiaries, not to mention how very easily it can be implemented, the cancellation of the 12 percent value-added tax (VAT) on oil is the only relief that can really make a difference. (Read more here and here)


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