Read part 1 here

When the ever controversial and IMF-pushed ODL was still being deliberated in Congress, its ardent proponents peddled it as the policy that will end the domination of the Big Three oil companies, namely Petron Corporation, Pilipinas Shell, and Chevron Philippines (formerly Caltex), over the local downstream industry. By encouraging “free competition”, deregulation is supposed to promote competitive petroleum prices that will benefit the consumers and the economy. Alas, after 14 years of deregulation, the dominant position of the Big Three remains intact, if not stronger, while consumers are forced to bear exorbitant and steadily soaring oil prices.

Exorbitant oil prices

Instead of competitive prices, the past 14 years saw steep, unabated, and questionable increases in petroleum prices. To illustrate, in February 1998, the month the current ODL was enacted, the pump price of diesel was just P8.33 per liter; unleaded gasoline, P12.62; and LPG, P140 per 11-kilogram tank. Today, diesel is about P46.79 per liter or almost 462% higher than its price when the law was enacted; unleaded gasoline, P56.83 (350% higher); and LPG, almost P800 (about 471%). To have an idea of how steep the increases were, we can compare them to price adjustments during the 14-year period prior to the enactment of the ODL (1984 to 1998). During this period, the pump price of diesel increased by just 36%; gasoline, around 61%; and LPG, about 28 percent.

The impact of these increases on the livelihood of the people is tremendous. A jeepney driver, for instance, used to spend P250 per daily trip for diesel; today, he needs to shell out more than P1,400 (based on the average daily trip consumption of 30 liters) under oil deregulation. A small fisher used to spend less than P117 per fishing trip for gasoline; today, that has gone up to almost P570 (based on the average consumption of 10 liters per fishing trip). A tricycle driver used to spend just P50 per daily trip for gasoline (based on the average consumption of 4 liters per daily trip); today, that amount would not be enough to get even one liter. Aside from the direct impact of oil price hikes on the people’s livelihood, there is also the domino effect that pushes up the overall cost of living.

Deregulation and its provision on automatic price adjustment aggravated the global monopoly pricing imposed by the biggest oil transnational corporations (TNCs) in the US and Europe. The tight control over the global industry of these oil companies which include TNCs that have local units in the Philippines like Royal Dutch Shell, Chevron, and Total makes oil prices artificially high whether oil price hikes are implemented or not.

Speculation in the futures market especially in recent years exacerbates the unjust and exorbitant oil prices in the world and in the Philippines. Speculators, which include investment banks and other financial institutions that do not have any role in the oil industry other than to profit from speculating on prices in futures markets, are behind the steep adjustments in global prices. The rise of oil speculation further detached global oil prices from so-called market fundamentals, and thereby further oppressing the people around the world with exorbitant oil prices. Filipinos directly bear the brunt of speculation and monopoly pricing because of deregulation, which allows oil firms to automatically adjust their prices based on movements in global price benchmarks such as Dubai crude (for crude oil) and Mean of Platts Singapore (MOPS, for refined oil). In 2008, for example, MOPS diesel jumped from $108 per barrel in January to $168 in July then fell to $62 in December. Dubai crude followed a similar trend from $87 per barrel (January) to $131 (July) and $41 (December). Meanwhile, data from the International Energy Agency (IEA) show that the supply and demand balance in 2008 was very stable. In the first quarter of 2008, global demand was 86.9 million barrels per day (mbd) versus available supply of 87.1 mbd. In the second quarter, supply fell to 86.8 mbd but so was demand which declined to 85.7 mbd. Thus, there was an even bigger surplus (supply minus demand) in the second quarter of 1.1 mbd versus 0.2 mbd in the first quarter.

Because the increases are automatic under the Oil Deregulation Law, the excessive and oppressive global prices are fully imposed on the people. Worse, the public has no way of knowing whether the price adjustments are reasonable or not even based on the supposed factors that affect local prices, namely global oil prices and the rate of foreign exchange. The people are forced to take hook, line, and sinker whatever explanation the oil firms and the Department of Energy (DOE) give for the price increases. This setup has paved the way for further abuses by the local oil companies at the expense of the people. One way is by implementing higher price hikes or lower rollbacks relative to global prices and the foreign exchange, or what is called as local overpricing. (Read here)

Global monopoly

Indeed, the biggest flaw of the deregulation policy is that it assumes that there exists a free competition among oil players in the global and local markets. As such, removing state regulation on pricing and other activities in the downstream oil sector is supposed to result to more reasonable prices that are determined by so-called market fundamentals. Automatic price adjustments supposedly quickly reflect the true price of oil based on global and local competition, with the end-consumers ultimately benefiting. But these assumptions are false.

Throughout its history, the global oil industry has always been under the domination of a few American and European transnational corporations that dictate the price of oil. These TNCs have remained in control despite the nationalization of oil supplies, the rise of national oil companies (NOCs), and the establishment of the Organization of Petroleum Exporting Countries (OPEC). They have maintained such control and domination because even though the NOCs hold the largest oil reserves, the TNCs still have the stronger financial muscle and access to capital, the more advanced technological capacity and know-how, and the much wider and more sophisticated infrastructure and network worldwide. In fact, the NOCs are still compelled to partner with the TNCs for their crude oil to be refined and reach the market. To illustrate, Saudi Aramco, the world’s largest NOC and owns the biggest oil reserves at 259.4 billion barrels, have refining and marketing deals with ExxonMobil, the world’s largest oil TNC. State-owned PetroChina also has partnerships with British Petroleum, Total, and Shell. The units and partners of these giant TNCs are also the dominant oil players in the Philippines.

Consequently, removing state regulation on the downstream oil industry actually further strengthened these local units of the oil TNCs. Deregulation gave them more freedom to arbitrarily impose their artificially high global monopoly price on the hapless domestic market. The Philippines is especially vulnerable because while we have one of the most oil intensive economies in the Asia, we are also one of the most import-dependent for petroleum.

Continuing monopoly control

From the onset, such global control and domination by American and European TNCs have been felt in the Philippine oil industry. As early as the 1800s, the US was already exporting petroleum products to the country. In the early 1900s, American oil giants Esso, Mobil, Texaco, and Chevron (Esso and Mobil are today’s ExxonMobil while Texaco is now part of Chevron) as well as the British/Dutch Shell had set up facilities in the Philippines. These foreign companies built the first oil station and depot in 1914 and the first oil refinery in 1951. There were attempts by some Filipino firms to build oil facilities in the late 1950s and 1960s. But these efforts fizzled out due to lack of access to technology and crude oil, which the TNCs control. Aside from the downstream, foreign companies also dominated the upstream oil industry. The first recorded domestic oil exploration was in 1896 by an American company while the first commercial oil field was developed by an Australian firm in 1977.

By the time the first Oil Deregulation Law (RA 8180) was enacted in 1996, three oil firms – all foreign-owned and part of the global network of the world’s largest oil TNCs – are dominating the downstream oil industry. They are Petron Corp., which then was 40%-owned by Saudi Aramco (Before it was nationalized in 1980, Saudi Aramco was owned by ExxonMobil and Chevron. But even after nationalization, it maintained strategic deals on refining and retailing with the oil TNCs.); Pilipinas Shell, local unit of Royal Dutch Shell; and Caltex Philippines, local unit of Chevron. One of the major objectives of deregulation was to dismantle this domination by the so-called Big Three by enticing more investors or new players to participate in the downstream oil industry.

The Oil Deregulation Law did pave the way for the entry of new players in the downstream oil industry. Latest data from the DOE show that there are now around 601 new oil players, of which 506 firms are involved in retail marketing; 66 firms in liquid fuel bulk marketing; 16 in bunkering; 9 in LPG bulk marketing; and 4 in terminalling. In 1998, there were only 22 new players that entered the downstream oil industry. This means that while the share of the Big Three fell from 95.7% in 1998 to 76.4% in 2010 (Petron, 37.8%, Shell, 27.4%; and Chevron, 11.9%) the concentration of their control over the market remained stable given the very large number of new players that account for the remaining 23.6% share. Note also that of the portion of the market controlled by the new players, more than half is accounted for by just three companies – Total (4.1%), PTT (3.5%), and Liquigaz (3.4%).

These leading new players are also some of the world’s largest oil companies – Total Philippines is the local unit of Total of France; Liquigaz is the local unit of SHV Netherlands, which is the largest LPG company in Europe; and PTT is Thailand’s national oil company. Among the new players that are Filipino-owned, the largest in terms of market share are Phoenix (2.1%) and Seaoil (1.9%). This means that 596 new players account for the remaining 7.9% of the downstream market.

Another indicator of the continuing domination of the Big Three is the number of pump stations. DOE data say that as of 2010, there are 4,114 pump stations in the country. Separate reports of the oil companies, meanwhile, show that Petron has more than 1,500 stations; Shell, more than 960; and Chevron, 850. Based on these data, the Big Three controls more than 80% of all pump stations in the Philippines.

Aside from the refilling stations, the big oil firms also control other strategic storage facilities of petroleum products and crude oil. Based on DOE figures, more than 81% of the country’s storage capacity including the depots, import/export terminals, and refineries are controlled by Petron, Shell, and Chevron. Furthermore, two companies – Petron and Shell – control 100% of the country’s refining capacity (about 64 million barrels in 2010).

Clearly, fourteen years of the Oil Deregulation Law is enough. There are pending proposals in Congress to repeal RA 8479 and replace it with a regime of effective state control over the downstream oil industry such as House Bill (HB) 4355 filed by Bayan Muna and other progressive partylist groups. Even lawmakers from various traditional political parties both in the House of Representatives (HoR) and the Senate have filed bills and resolutions calling for the repeal of RA 8479 or at least amend it. More on these proposals later. #