Category Archives: Oil deregulation

Economy, Oil deregulation, Privatization

“Red October” Day 1: What’s destabilizing the Duterte regime?

(Photo from AP/Bullit Marquez/The Philippine Star)

It’s “Red October” Day 1. Who or what is destabilizing the Duterte government today?

The oil companies. Oil firms announced that they will be implementing another round of oil price hikes starting Oct 1. Pilipinas Shell is hiking its LPG (liquefied petroleum gas) price by about Php2.36 per kilogram (kg) while Petron Corp. will also increase by Php2.35. These translate to an increase of almost Php26 for an 11-kg cylinder tank usually used by households. Including the previous increases since Pres. Duterte took over, LPG prices have already ballooned by an estimated Php216 to Php246. Further, starting Oct 2, oil firms will also implement a big-time price hike for diesel, gasoline and kerosene. Oil companies already announced that they will hike the price of diesel by Php1.35 per liter; gasoline, Php1.00; and kerosene, Php1.10. This will be the eighth straight week of unabated oil price hikes and would be the 28th overall for the year. Since Duterte became President, the price of diesel has already soared by more than Php20 per liter (Php13.50 this year alone) and gasoline by more than Php19 per liter (Php13.37 this year). (Read more on the latest oil price hikes here.)

The private water concessionaires of the MWSS (Metropolitan Waterworks and Sewerage System). Starting Oct 1, Maynilad Water Services Inc. will be billing its customers an additional Php0.90 per cubic meter for its basic charge under its rebased rates approved by the MWSS-Regulatory Office. This is on top of the Php0.11 per cubic meter increase due to the quarterly foreign currency differential adjustment (FCDA). Manila Water Corp.’s basic rates will likewise increase by Php1.46 per cubic meter due to rate rebasing while it will charge an extra Php0.02 per cubic meter due to the FCDA. Both rate rebasing and FCDA are mechanisms created under the privatization of MWSS that allow the private water concessionaires to adjust rates in order to pass on to the consumers all the costs of running the water services system and at the same time guarantee their profits. The rate hikes this “Red October” under the rate rebasing are just the first in four installments of increases with the three others to be implemented in Jan 2020, Jan 2021 and Jan 2022 – the second half of the Duterte presidency (that is if he is still in power).

Earlier, the Department of Economic Research of the Bangko Sentral ng Pilipinas (BSP) has estimated that inflation for September could reach 6.8%, with a range of 6.3% and as high as 7.1 percent. If the central bank’s forecast happens, this would be the ninth straight month of accelerated inflation and will be the highest in nine years. Pres. Duterte’s economic managers have repeatedly assured the public that inflation will ease in the latter part of 2018. But with the continued climb in oil prices, water rates, food prices (made worse by the impact of typhoon Ompong that destroyed almost Php27 billion worth of crops) and other basic goods and services, this appears to be a very optimistic forecast.

Rising prices and the inability or outright refusal of the Duterte administration to reverse current policies that allow unabated price hikes such as oil deregulation and water privatization, as well as its continued insistence on additional taxes under the TRAIN (Tax Reform for Acceleration and Inclusion) that further bloat prices are fueling social unrest and instability. The latest Pulse Asia survey showed that rising prices are the most urgent concern of Filipinos along with other economic concerns such as increasing workers’ pay, reducing poverty and creating more jobs.

As it hunts for “Red October”, the Duterte administration should look at itself instead, and not at the communists and their supposed co-plotters. Apparently, its own economic policies – together with its repressive schemes – are the ones destabilizing and isolating the regime. ###

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Fiscal issues, Oil deregulation

Oil prices under Duterte

As we face another round of oil price hikes this week, here’s a look at how oil prices have skyrocketed so far under the Duterte administration. Before Duterte took over, the common price of diesel in Metro Manila was Php27.95 per liter while gasoline (RON95) was pegged at Php41.15. Today, these have jumped to Php42.85 and Php58.07 per liter, respectively. In some gas stations in Metro Manila, diesel is being retailed by up to almost Php48 per liter, and gasoline by almost Php61. Prices in other regions are even higher.

Prior to this week’s oil price adjustments, the TRAIN law accounts for 28% of the total price hikes in diesel, and 31% for gasoline. When gas stations implemented the TRAIN in mid-January this year, the common price of gasoline and diesel in Metro Manila immediately jumped by more than Php4 to almost Php6 per liter. Thus, while it is true that the TRAIN law is not the sole reason behind the recent spike in oil prices and consequently of faster inflation rate, it is certainly a major contributor.

Deregulation, which allows automatic oil price adjustments based on supposed global oil price movement and forex fluctuations, accounts for the rest. But is it true that government is helpless as its economic managers like to claim? Remember that like the TRAIN law, deregulation is a government policy. As such, it can be changed if only the Duterte administration has the political will to protect the public interest, especially the poor but also even the middle class who are reeling as well from escalating prices. Sadly, this is not the case. #

(Read more on how TRAIN law and oil deregulation are oppressing the people here – https://goo.gl/AMcgz8)

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Oil deregulation

Oil firms profiteering thru excessive price hikes

(Photo from INQUIRER.net)

The Tax Reform for Acceleration and Inclusion (TRAIN) law is supposed to accelerate inclusive growth. But its immediate impact has been to accelerate the rate of movement of prices of basic goods and services in the country.

Since the implementation of TRAIN, the country’s inflation rate has continued to climb. Latest figures say that in April, inflation reached another five-year high at 4.5 percent. For the first quarter of the year, inflation averaged 3.8%, the fastest quarterly average since 2014.

Due to its domino effect on the costs of other basic commodities and services, the biggest driver of accelerated inflation rate it appears is oil. For one, TRAIN has significantly raised the pump prices of petroleum products. Inclusive of the 12% value added tax (VAT), the new petroleum excise taxes under TRAIN increased the pump price of gasoline by Php2.97 per liter; diesel, Php2.80; and kerosene, Php3.30 this year.

But TRAIN is just one, small part of the story behind high oil prices. For more than two decades now, oil price adjustments in the Philippines have been deregulated, thanks to the neoliberal policy impositions of the International Monetary Fund (IMF) in the 1990s.

Deregulation means that oil companies could automatically adjust prices at the pump. This year alone, there have been already 15 rounds of oil price hikes, as of mid-May. The weekly price adjustments increased the pump price of gasoline by Php5.10 per liter; diesel, Php6.15; and kerosene, Php5.85.

Table 1 summarizes the impact of the TRAIN law and the weekly oil price adjustments under deregulation on petroleum pump prices so far this year.

Tab 1 OPH 2018

These price increases in petroleum products – and the consequent direct and domino impact on inflation – are in fact even more burdensome and abusive for the public than they already are. Taking advantage of deregulation, it appears that oil companies continue their practice of implementing oil price hikes that are bigger than what the world market supposedly warrants. This allows them to pocket extra profits on top of their regular net income, as the government also reaps windfall tax revenues at the expense of consumers.

Looking at local oil price movement from the start of the year up to May 15, the price adjustments in diesel may have been “excessive” by about Php1.03 per liter and gasoline by Php1.34 centavos per liter. This resulted in about Php53.74 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, Php6.45 million daily go to the Duterte government’s oil VAT collections (on top of its additional revenues from the TRAIN law’s oil excise taxes).

The Department of Energy (DOE) and the oil companies explain that domestic price adjustments merely reflect the movement in global oil prices plus the fluctuations in the foreign exchange (forex). For the Philippines, the international benchmark for refined petroleum products is the Mean of Platts Singapore (MOPS).

But based on the weekly MOPS adjustments and forex fluctuations as posted in the DOE website, the total price adjustments in diesel for the year should have only been around Php4.12 per liter (as of May 15, excluding the week of March 26-30 which the DOE did not post MOPS and forex data on) while the actual net price hike reached Php5.15 during the same period (excluding the weekly adjustment after the March 26-30 period to allow comparison). The same thing is true for gasoline which posted a net increase of Php4.20 per liter when the total adjustments should have only been about Php2.86 per liter.

The process of estimating the price adjustment is pretty straightforward. Oil companies claim that price adjustments for the present week is determined by MOPS price adjustments (expressed in US dollars per barrel) and the average forex in the past week. For instance, if last week the MOPS diesel increased by US$2 per barrel with the forex pegged at Php50 per dollar, how much should the price hike be in local diesel prices for the current week?

Step 1 is to convert the MOPS price adjustment into peso per barrel. So, US$2 x Php50 = Php100 per barrel.

Step 2 is to convert the MOPS price adjustment into pesos per liter. One barrel has 158.99 liters. So, Php100 / 158.99 = Php0.63 per liter.

Step 3 is to include the 12% VAT to get the final estimated adjustment. So, Php0.63 x 1.12 = Php0.70 per liter.

Thus, a US$2-per barrel increase in MOPS diesel at Php50 forex rate in the previous week translates to a 70-centavo price hike in the domestic price of diesel in the current week. Anything above 70 centavos is supposedly unjustified or excessive, based on this price adjustment model.

It is important to stress that determining whether price adjustments are justified or not based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly justified amounts by so-called international benchmarks such as the MOPS.

With the Philippines being one of the world’s most oil intensive economies, even the several centavos that oil companies overcharge through questionable price adjustments already translate to massive extra profits for the oil industry.

Using 2017 domestic consumption data from the DOE, oil firms are earning (excluding the VAT, which goes to the government) an estimated Php27.23 million daily in extra profits from diesel and Php20.06 million daily from gasoline. These are derived at by multiplying the Php1.03 per liter in estimated excess price adjustment in diesel by the diesel consumption of about 29.94 million liters daily; and the Php1.34 per liter in estimated excess price adjustment in gasoline by the gasoline consumption of around 17.03 million liters daily.

Based on 2017 market share (per DOE report), the Big Three which continues to dominate the local market after more than two decades of deregulation, cornered 55% of the estimated daily extra profits of the oil firms – Petron, Php13.05 million a day; Shell Php9.46 million; and Chevron Php3.31 million.

Table 2 summarizes the estimated extra earnings of the oil companies and the government from excessive price hikes in diesel and gasoline.

Tab 2 Extra income OPH

Again, these guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry – from the vast oil fields in the Middle East all the way to the thousands of gas stations nationwide, and all the technology and infrastructure that keep this massive network together – retail petroleum at prices many times their actual production costs.

To illustrate, the Philippines imports 79% of its crude oil from just three countries – Saudi Arabia, 35%; UAE, 28%; and Kuwait, 16% (as of first half 2017, according to the DOE). The production costs of crude oil in these countries, based on 2015 data (as cited by CNN Money), are just US$9.90 per barrel for Saudi Arabia; US$12.30 for UAE; and US$8.50 for Kuwait.

Yet, in 2015, Philippine domestic prices were based on the posted price of around US$51.23 per barrel (2015 average posted price of Dubai crude, based on International Monetary Fund or IMF monitoring). This means that oil firms in the Philippines pegged pump prices at crude oil prices that are about four to six times of the actual production costs.

Under deregulation, the government has abandoned its responsibility to determine if domestic oil prices – whether in terms of price adjustments based on global prices or more importantly, in terms of reasonable prices based on production costs – are justified or not. The public’s burden is aggravated more by price speculation in the global oil market that further artificially drives up local prices which consumers fully bear because of deregulation. #

(First published by Bulatlat.com, this article is an updated version of an earlier blog post.)

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Oil deregulation

Oil firms, government earn almost PHP10 M daily extra income from unjustified price hikes

(Photo from Inquirer.net)

Taking advantage of deregulation, it appears that oil companies continue their abusive practice of implementing oil price hikes that are bigger than what the world market supposedly warrants. This allows them to pocket extra profits on top of their regular net income, as the government also reaps windfall tax revenues at the expense of consumers.

Looking at local oil price movement from the start of the year up to the third week of March, the price adjustments in diesel may have been overpriced by 24 centavos per liter and gasoline by 15 centavos per liter. This resulted in about PHP9.67 million additional collections every day from diesel and gasoline products for the oil companies. Of this amount, PHP1.16 million daily go to the Duterte government’s value-added tax (VAT) collections. (Note that the administration has also been collecting additional excise taxes from oil products this year under the Tax Reform for Acceleration and Inclusion or TRAIN law.)

The Department of Energy (DOE) and the oil companies explain that domestic price adjustments merely reflect the movement in global oil prices plus the fluctuations in the foreign exchange (forex). For the Philippines, the international benchmark for refined petroleum products is the Mean of Platts Singapore (MOPS). Since the country’s oil industry was deregulated more than two decades ago, these adjustments have been automatic.

But based on the weekly MOPS adjustments and forex fluctuations as posted in the DOE website, the price adjustment in diesel for the year should have only been around PHP1.31 per liter (as of March 20) while the actual net price hike reached PHP1.55 during the period. The same thing is true for gasoline which posted a net increase of PHP1.05 per liter when the adjustment should have only been about 90 centavos per liter.

The process of estimating the price adjustment is pretty straightforward. Oil companies claim that price adjustments for the present week is determined by MOPS price adjustments (expressed in US dollars per barrel) and the average forex in the past week. For instance, if last week the MOPS diesel increased by US$2 per barrel with the forex pegged at PHP50 per dollar, how much should the price hike be in local diesel prices for the current week?

Step 1 is to convert the MOPS price adjustment into PHP per barrel. So, US$2 x PHP50 = PHP100 per barrel.

Step 2 is to convert the MOPS price adjustment into PHP per liter. One barrel has 158.99 liters. So, PHP100 / 158.99 = PHP0.63 per liter.

Step 3 is to include the 12% VAT to get the final estimated adjustment. So, PHP0.63 x 1.12 = PHP0.70 per liter.

Thus, a US$2-per barrel increase in MOPS diesel at PHP50 forex rate in the previous week translates to a 70-centavo price hike in the domestic price of diesel in the current week. Anything above 70 centavos is “overpricing”.

It is important to stress that the “overpricing” based on the MOPS and forex movements does not in any way represent the true extent of how much prices are artificially bloated due to the monopoly control of big oil companies in the global and local markets. It just illustrates how deregulation can be easily abused by the oil firms operating in the country through implementing adjustments that are beyond the supposedly “justified” amounts by so-called international benchmarks such as the MOPS.

With the Philippines being one of the world’s most oil intensive economies, even the several centavos that oil companies overcharge through questionable price adjustments already translate to massive extra profits for the oil industry.

Using domestic consumption data as of the first half of 2017 from the DOE, oil firms are earning (excluding the VAT, which goes to the government) an estimated PHP6.25 million daily in extra profits from diesel and PHP2.26 million daily from gasoline. These are derived at by multiplying the 24-centavo estimated overpricing in diesel by the diesel consumption of about 29.34 million liters daily; and the 15-centavo estimated overpricing in gasoline by the gasoline consumption of around 16.66 million liters daily.

Based on market share (as of first half 2017, based on DOE report), the Big Three which continues to dominate the local market after more than two decades of deregulation, cornered 56% of the estimated daily extra profits of the oil firms – Petron, PHP2.43 million daily; Shell PHP1.76 million; and Chevron PHP0.56 million.

Again, these guesstimates merely scratch the surface by comparing local and international price changes. In reality, with or without price adjustments, big oil companies that run and control the global oil industry – from the vast oil fields in the Middle East all the way to your neighborhood gas stations, and all the technology and infrastructure that keep this massive network together – retail petroleum at prices many times their actual production costs.

To illustrate, the Philippines imports 79% of its crude oil from just three countries – Saudi Arabia, 35%; UAE, 28%; and Kuwait, 16% (as of first half 2017, according to the DOE). The production costs of crude oil in these countries, based on 2015 data (as cited by CNN Money), are just US$9.90 per barrel for Saudi Arabia; US$12.30 for UAE; and US$8.50 for Kuwait.

Yet, in 2015, Philippine domestic prices were based on the posted price of around US$51.23 per barrel (2015 average posted price of Dubai crude, based on International Monetary Fund or IMF monitoring). This means that oil firms in the Philippines pegged pump prices at crude oil prices that are about four to six times the actual production costs.

Under deregulation, the government has abandoned its responsibility to determine if domestic oil prices – whether in terms of price adjustments based on global prices or more importantly, in terms of reasonable prices based on production costs – are justified or not. The public’s burden is aggravated more by price speculation in the global oil market that further artificially drives up local prices which consumers fully bear because of deregulation. #

 

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Fiscal issues, Oil deregulation, Poverty

Bangis ng buwis sa langis

Alam ba ninyong mula nang i-deregulate ang industriya ng langis sa bansa at patawan ng mga dagdag na buwis, apat hanggang limang ulit na mas mabilis ang pagtaas ng presyo ng diesel at gasolina kumpara sa bilis ng pagtaas ng minimum wage ng mga manggagawa?

Pero para kay President Duterte at mga alipores n’yang neoliberal, hindi pa sapat ang kalbaryong ito ng mamamayan.

Dobleng-dagok pa ang hinaharap natin ngayong linggo sa taas-presyo ng mga produktong petrolyo.

Unang dagok – muling nagtaas ng presyo ang mga kumpanya ng langis dahil pa rin daw sa galaw ng presyo sa world market. Sa lumabas na report sa media, nasa 80 centavos per liter ang OPH (oil price hike) sa gasolina, 55 centavos sa diesel, at 55 centavos sa kerosene.

Deregulated ang industriya ng langis sa bansa. Awtomatiko ang pagbabago sa presyo linggo-linggo sa mga gasolinahan para raw i-reflect ang galaw ng presyo sa world market. Ito ang ikatlong sunod na linggo ng OPH sa pagsisimula ng “ma-Digong bagong” taon natin.

Pangalawang dagok – inaasahang ipatutupad na ngayong linggo ang excise tax sa langis sa ilalim ng TRAIN (Tax Reform for Acceleration and Inclusion). Sa naunang pahayag ng DOE (Department of Energy), nasa Php2.97 per liter ang OPH sa gasolina, Php2.80 sa diesel, at Php3.30 sa kerosene – kasama ang 12% VAT (value-added tax).

Ibig sabihin, aabot ang big time OPH sa Php3.77 per liter sa gasolina; Php3.35 sa diesel; at Php3.85 sa kerosene sa pinagsamang impact ng TRAIN at deregulasyon.

Kung tutuusin, doble ang kubra ng gobyerno sa langis dahil sa TRAIN. Pasok sa kwenta ng VAT sa presyo ng langis ang excise tax (at iba pang buwis) sa iniimport na petrolyo. Dahil itataas ng TRAIN ang excise tax, tataas din ang koleksyon mula sa VAT sa langis. Syempre pa, lahat ng ito ay papasanin ng publiko.

Napakabigat nito lalo na para sa mahihirap nating kababayan na direktang tatamaan ang kabuhayan. Halimbawa, sa isang iglap, ang gastos sa langis ng isang tsuper ng jeep ay lolobo nang lampas Php100 sa maghapong pasada (batay sa konsumo na 30 liters ng diesel). Ang gastos ng mangingisda sa balikang byahe sa laot ay tataas nang halos Php38 (sa konsumo na 10 liters ng gasolina).

Pambili na sana ito ng isa hanggang tatlong kilo ng bigas (Php27 per kilo na regular NFA rice o Php37 na regular commercial rice) pero kukunin pa ng gobyerno sa mga pamilyang hindi na nga halos makahinga sa pagsisikip ng sinturon.

Pero ang bad news pa, karugtong ng OPH ang pagtaas ng iba pang bayarin. Sa leeg na yata ng mahihirap gustong ilagay ng pamahalaan ang pinahigpit na sinturon. Samantala, ang mga super yaman, may discount pa para sa kanilang luho sa ilalim ng TRAIN.

Bago pa ang TRAIN ni Digong, matagal na tayong pinahihirapan ng deregulasyon at ng buwis sa langis. Nagsimula ang deregulasyon noong 1996. Kung ikukumpara ang kanilang real prices (adjusted for inflation) ngayon at noong simula ng deregulasyon, lampas-doble na ang presyo ng gasolina at diesel.

Ang estimated increase ng real price ng diesel sa pagitan ng 1996 at 2018 ay nasa 131% habang sa gasolina naman ay 118 percent. Sa parehong panahon, ang real wage ng mga minimum na sahurang manggagawa sa Metro Manila ay lumaki lamang ng 27 percent.

Pumatong sa halos lingguhang OPH sa deregulasyon ang mga pabigat na buwis gaya ng naunang excise tax na ipinataw sa mga produktong petrolyo noong 1996; ang 12% VAT (value-added tax) noong 2005; at ngayong taon, itong dagdag na excise tax dahil sa TRAIN. (Tingnan ang chart sa taas)

Sabi dati, “matira matibay”. Pero sa ilalim ni Digong at ng kanyang mabangis na buwis sa langis, “matira mayaman”. #

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Consumer issues, Oil deregulation, Power industry

Heartless, greedy Meralco thrives under privatized, deregulated regime

meralco ganid

With the country still reeling from the devastation wrought by Yolanda, the people are facing yet another disaster – the calamity of soaring prices. People ask: Are the oil companies and Meralco (Manila Electric Co.) that heartless and greedy?

Alas, this is the cruel reality of neoliberal economics, of deregulation and privatization. The market is regarded as greater than the people, and government allows the heartless and greedy to reign.

Price hikes

Starting December, oil firms implemented a record-high increase in LPG prices. Petron hiked its LPG price by P14.30 per kilogram (kg); Liquigaz, P13; and Solane, P11. These translate to an increase of P121 to P157 for an 11-kg LPG tank commonly used by households.

Then the oil companies jacked up the price of other petroleum products. Diesel rose by P1.35 per liter; kerosene, P1.20; and gasoline, P0.35. This week, oil firms implemented another round of oil price hikes with diesel rising by 30 centavos. Prior to the latest increases, the price of diesel has already jumped by P4.08 per liter this year and gasoline by P2.04, based on the Department of Energy’s (DOE) monitoring.

And of course, Meralco said that it will implement a hefty increase in power rates this month. The distribution utility said that the hike in its generation charge could reach P3.44 per kilowatt-hour (kWh) but it will be implemented in installments to mitigate the impact.

The Energy Regulatory Commissioned (ERC) allowed Meralco to collect the increase in three tranches. That would be P2 in December, P1 in February and P0.44 in March.

But generation is just one component of the electricity bill that will rise. Also increasing is the transmission charge, which will go up by P0.04 per kWh. Taxes (value-added tax and local franchise tax), system loss charge, lifeline rate subsidy and others, which are a percentage of generation and transmission costs, will also add another P0.67 per kWh in the Meralco bill.

Thus, the actual rate hike to be felt by consumers would be P2.41 per kWh in December, P1.21 in February and P0.54 in March.

However, while the sudden impact of a one-time huge rate hike will be mitigated, consumers will end up paying more. According to the ERC, Meralco may charge its customers an interest on the entire deferred amount or the so-called carrying cost.

And even at a staggered basis, the rate hike would still be tremendous. A 200-kWh household, for instance, will see its Meralco bill jump by P482 this month.

The increase in power bill creates a domino effect on the prices of other basic goods and commodities. Contrary to propaganda of government and big business, wages are not the main driver of price hikes but electricity cost. The Employers Confederation of the Philippines (Ecop) said that power accounts for as much as 40% of production cost.  With the big Meralco rate hike, Ecop also warned of higher prices.

‘What can we do?’

The official who is supposed to be in charge over the oil and power sectors – Energy Secretary Jericho Petilla – had this to say to the restless public: “Kung nagkasabay-sabay silang lahat, hindi yan pinlano, it just happened. What can we do…? Don’t buy, kung namamahalan kayo!”

Of course, Meralco’s customers could not choose not to buy electricity from Meralco. They have no choice. Petilla’s remarks sum up government’s indifference to the plight of consumers, which the Aquino administration has repeatedly displayed in its almost four years in power.

By themselves, the record increases in petroleum prices and electricity bills are already oppressive. But what makes them doubly onerous is that the country is still recovering from Yolanda’s onslaught. Government has not even fully accounted the total number of dead, which now stands at 5,796, according to the latest official count.

Note that this is not the first time that these same companies displayed total disregard of public interest and welfare. Last year, amid the torrential, Ondoy-like rains that poured over Metro Manila, oil companies and Meralco also increased prices.

Price control

Ironically, the country is supposed to be under a state of national calamity as declared by President Benigno Aquino III through Proclamation No. 682. But the string of record price hikes shows that big business can act with impunity.

The reason is that the price control aspect of the proclamation is limited by law and the overall deregulation policy of government. Under Republic Act (RA) 10623 (which amended RA 7581 or the Price Act), the price of LPG may be controlled under a state of calamity but only for 15 days. The price of LPG and other petroleum products is deregulated under RA 8479 or the Oil Deregulation Law.

Electricity rates are also not included among the basic necessities that government may control during a state of calamity. Through RA 9136 or the Electric Power Industry Reform Act (Epira), government deregulated the setting of the generation charge of Meralco and other distribution utilities. Epira also deregulated rate-setting through the wholesale electricity spot market (Wesm).

To pave the way for the deregulation of the oil and power industries, government privatized Petron Corp. and the National Power Corp. (Napocor).

The Oil Deregulation Law and Epira trump the Price Act and any proclamation of a state of calamity. Apparently for government, not even the strongest typhoon ever recorded could change that. Both policies were imposed on the country by foreign creditors led by the World Bank and the Asian Development Bank (ADB).

Artificial tightness

The huge Meralco rate hike is a perfect example of how privatization, deregulation and lack of state control over key sectors burden the consumers. Had government not relinquished effective control over energy development to profit-oriented private business, the public would have been spared from the impending hefty increase in power rates.

The supposed tight energy supply is only artificial. It could have been prevented if the maintenance shutdown of the country’s energy sources and power plants were effectively controlled by government. But because it relies too heavily on private business, government has no handle in determining the maintenance schedule of power plants in a way that ensures energy security and public interest.

For instance, the maintenance shutdown of Malampaya started on Nov. 11, the same date that President Aquino put the country under a state of calamity. Energy officials already knew then that it will trigger a big spike in power rates. At that time, energy supply in Luzon was already tight due to a series of maintenance shutdowns of major power plants.

Plant shutdowns

Meralco, in fact, already implemented a large increase in power rates in November when it jacked up its rates by P1.24 per kWh. The utility giant said that the maintenance shutdown of several big power plants was the main factor behind the rate hike. These were Unit 2 of Malaya power plant in Rizal (Dec. 2012 to Oct.); Unit 2 of Pagbilao plant in Quezon (Aug. to Nov.); Unit 1 of Sual plant in Pangasinan (Sep. to Oct.); and Sta. Rita Module 20 (Oct. 23-28).

In addition, a number of power plants were also on forced outage. These were San Lorenzo Module 60 (May to Mar. 16, 2014); Unit 1 of Masinloc plant in Zambales (Sep. 25-28); Unit 2 of Calaca plant in Batangas (Sep. 29 to Oct. 1); Quezon Power (Oct. 5-6); and Unit 1 of Sual plant in Pangasinan (Oct. 22-26).

Monopoly and manipulation

But instead of ensuring that Malampaya will remain online, especially after Yolanda, government stood idly as the source of 40% of Luzon’s power needs was cut off. The shutdown of Malampaya and of the other power plants, said Meralco, forced its suppliers Sta. Rita and San Lorenzo power plants to use more expensive fuel.

The utility giant claimed that it was also compelled to buy more from the Wesm where electricity is being sold at a higher price. Meralco said that its exposure to Wesm will increase from less than 5% to 12% due to the Malampaya shutdown.

Note, however, that the private investors who control Meralco are the same investors that control the power plants as well as the traders in the Wesm. The 1,000-megawatt (MW) Sta. Rita and the 500-MW San Lorenzo plants are owned by the Lopez group, which also has a 3.9%-stake in Meralco. Power plants associated with the Lopez group also account for around 18% of the capacity registered at Wesm.

Illegitimacy of rate hikes

The concentration of ownership over power generation and distribution, and even over the spot market, raises a valid question on the legitimacy of the power rate hikes. The same thing can be said in the case of the oil industry wherein basically just four companies lord over more than 80% of the industry.

Thus, the move of the House of Representatives to investigate Meralco’s rate hike is a welcome development. Officials of the distribution utility, the power plants, and also the DOE should explain the circumstances behind the huge increase.

There is certainly a need to closely look at the shutdown of Malampaya and the power plants as well to determine if the big power investors are abusing the public through their unhampered control over the energy sector.

But more importantly, policy makers must reconsider government’s energy development program that is hinged on deregulation and privatization. Even without a super-calamity like Yolanda, neoliberal policies like Epira and the Oil Deregulation Law are already greatly oppressing the public. ###

Read more about Epira and the Philippine power industry here and Oil Deregulation Law here

 

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Consumer issues, Oil deregulation

Who cares about smuggled oil?

oil stickerPetron Corporation, the country’s largest oil company, has alleged that about one out of every three liters of gasoline or diesel sold in the Philippines is smuggled. For the government that translates to P30-40 billion in lost revenues a year, said Petron boss Ramon S. Ang. For the company it means fewer profits because smuggled oil can be sold at extremely low prices and undermine Petron’s market share.

But why should ordinary Filipinos, who have been forever abused by Petron and other big oil firms, care? Jeepney, taxi and tricycle drivers, the small fishers and farmers do not mind buying smuggled oil if that’s the only way they can boost their meager income eroded by ever rising fuel costs. They simply can’t empathize with Petron’s predicament of seeing its profits fall to “just P2.3 billion” last year. They can’t appreciate the lost government revenues either since social services are hardly felt anyway. Just ask Kristel Tejada’s parents.

If there is one issue that matters to ordinary folks in the allegation of Ang is the huge tax burden imposed by government on a commodity as socially sensitive as oil. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12% value-added tax (VAT) and the excise tax. This allows some retailers to sell cheap oil.

How much do government taxes add to the retail price of petroleum products?

As of April 2, 2013, the retail price of gasoline in Metro Manila ranges from P48.65 to P54.64 per liter, based on the monitoring of the Department of Energy (DOE). The VAT is about P5.84 to P6.56 per liter (12% of the retail price). The excise tax, on the other hand, is fixed at P4.35 per liter. Thus, the VAT and the excise tax comprise around 20 to 21 percent of the current retail price of gasoline.

Compare it to the percentage of government taxes to the pump price of gasoline in the US which is just about 12% (more details here). The Philippines, in fact, has one of the largest taxes as a percentage of gasoline retail price in the world, together with Hong Kong, Thailand, New Zealand, Cambodia and Singapore (read more here). The same thing is true for diesel, which is has zero excise tax but is also imposed with the 12% VAT.

The country’s oil products carry high government taxes despite the elimination of the 3% import duty on crude oil and refined petroleum by the Arroyo administration in 2010. Refusing to scrap the VAT and the Oil Deregulation Law, it was government’s attempt to mitigate the impact of soaring global oil prices.

But it was a futile move. Pump prices remained high and continued to increase exorbitantly in a regime of deregulated prices. The basic problem of monopoly control, overpricing and speculation remained, which even the so-called Independent Oil Price Review Committee (IOPRC) acknowledged. And compounding the consumers’ predicament is the oppressive 12% VAT on oil, in which government revenues increase as oil prices skyrocket.

Consumers need lower oil prices. Government must find ways to reduce them. One immediately doable step is to scrap the VAT. Government may retain the excise tax or re-impose the 3% tariff (except for the most socially sensitive oil products like diesel, kerosene and LPG) but the VAT should go. Government should also devise tax measures that will make oil firms, especially the biggest and most profitable ones, shoulder more tax burden.

As for smuggling, it must be addressed within the framework of deep reforms in the industry and with the aim of dismantling the oil monopoly and curbing price abuses. The problem of rampant smuggling can only be solved if the downstream oil industry is strictly regulated by government.

One possible measure is a system of centralized procurement wherein the Philippine National Oil Company (PNOC) or any relevant state agency will be the exclusive importer of crude and refined petroleum. Under this system, it will be easier to track or identify smuggled oil, e.g. anything not imported by the PNOC is automatically considered smuggled. It will also help minimize the overpricing of oil companies. (End)

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Oil deregulation

No overpricing? Oil review, as usual

Economists Benjamin Diokno (right) and Victor Abola, stalwarts of academic institutions that are known bastions of neoliberalism, led the latest oil price review commissioned by the DOE (Photo from bulatlat.com)

As expected, the Independent Oil Price Review Committee (IOPRC) set up by the Department of Energy (DOE) has cleared the oil companies of overpricing and accumulating excessive profits. DOE officials, of course, were very happy with the findings as they affirmed the position of the department that local pump prices simply reflect global prices. While I haven’t read or heard a reaction from the industry, I’m pretty sure that they’re as happy as the DOE officials.

The main findings of the panel are not at all surprising especially to those who are familiar with similar efforts in the past by the DOE of asking so-called independent experts to review the Oil Deregulation Law (ODL) and pricing practices of oil companies. The IOPRC study is now the third such review in the last seven years commissioned by the DOE to help it justify the unpopular and contentious ODL, and rationalize the high and increasing pump prices. You may download these past reviews, as well as the 2012 IOPRC’s summary of findings, from the following links:

So-called independent oil reviews have been part of the propaganda arsenal of the DOE to temper increasing public discontent due to rising oil prices. It has been the case in the 2005, 2008 and 2012 reviews. Government is using academic institutions like the School of Economics of the University of Asia and Pacific (UA&P) and the University of the Philippines (UP) to create a semblance of objectivity. But the truth is these academic institutions are known bastions of neoliberalism, producing technocrats who design policies like market deregulation and thus, are never neutral.

The 2012 full report has not yet been made public, only the summary of findings that IOPRC head Benjamin Diokno presented to the media last August 5. From what I understand, the full report will be released on August 10 in a public presentation at the UP School of Economics (UPSE), where Diokno is professor emeritus. Thus, a detailed critique of the study may not be possible at this time. But based on what has been shared by Diokno in the media as well as our discussions with the IOPRC during the public consultations, we can already point out some basic defects of the study.

Determining overpricing

During the public consultations, one of the main points raised was how to determine overpricing and excessive profits. Diokno explained that the panel will study price movements in the domestic market and compare them with global prices. We argued that while such approach is useful in determining reasonable price adjustments, it does not answer the question of what is the actual cost of oil as bought from the world market. Determining the actual cost is important because if diesel is imported at, say, ₱25 per liter and retailed here at ₱45 per liter, then the oil companies will have to justify why the ₱20-markup is not overpricing and profiteering.

Thus, we were really insistent that the IOPRC closely scrutinize the supply contracts of the oil firms, especially the four biggest – Petron, Shell, Chevron and Total – which have deep links with the world’s oil giants. Our contention was that the posted spot price of oil such as the Mean of Platts Singapore (Mops) and Dubai crude, which the oil firms claim they use in computing pump prices and which the IOPRC also used in its study, are way too bloated than the actual cost of oil. Our argument was that the biggest oil firms which have ties with the global oil giants buy oil at much cheaper prices than published Mops or Dubai prices. Add to this the impact of massive speculation that further artificially bloats the price of Mops and Dubai crude. Alas, these points, along with pretty much everything we raised during the so-called consultations, were dismissed by the IOPRC.

There was no illusion, of course, that Diokno and his panel will heed our proposals. Nonetheless, its refusal to look at the global supply contracts underscored the biggest flaw of the IOPRC – its faulty neoliberal assumption that free market forces set the global price of oil which will be directly and easily translated to competitive and fair pump prices under a regime of deregulation. This basic flaw had also characterized previous DOE-commissioned studies that arrived at the very same conclusions of the IOPRC. More on this later.

Anyway, we have been pointing out that the global oil industry, in its more than a century of existence, has never enjoyed free competition and has always been under the monopoly control of American and European oil giants, including Shell, Chevron, etc. Despite the rise of the Organization of Petroleum Exporting Countries (Opec), these oil giants have maintained their dominant position through their monopoly over technology, capital, infrastructure, etc., and through the protection of the superior military power of their governments. (See PowerPoint presentation on imperialism and the global oil industry)

The impact on prices of global monopoly control and speculation is mind-boggling. In our updated estimates, as of July 2012, global monopoly pricing and speculation account for some 59% to 73% of global crude oil prices. The basic data came from the US’s Energy Information Administration (EIA) that a barrel of crude oil can be produced with a cost of just $26.63 to $40.46 per barrel (including royalties of around 14% of the spot price), which are way below the posted global price of Dubai crude, the country’s benchmark for crude oil, of $99.22 per barrel, as of July. (See illustration below) The difference of $58.76 to $72.59 per barrel between the estimated production cost and the posted price roughly represents the impact of global speculation and monopoly pricing. Such super-bloated global prices are directly passed on to Filipino consumers because of deregulation.

Meanwhile, the claim of the IOPRC that oil firms are faithfully reflecting global price movements in their local pump stations should also be still re-examined. Based on our own monitoring of the impact of monthly fluctuations in global prices and foreign exchange rate, diesel is overpriced by around ₱10.26 per liter, as of July. This estimate is based on the monthly movement of Dubai crude prices and foreign exchange rates and their estimated impact on local pump prices from 1999 to the present, or the whole period under the current deregulation law (Republic Act 8479). From January to July 2012 alone, diesel has been overpriced by ₱1.64 per liter. (Read Notes on overpricing, which explains the methodology; just be aware that the figures being cited in the Notes are not updated) It must be clarified that the said figures represent local overpricing only – or simply the disparity between monthly changes in global crude prices and domestic pump prices – and thus, do not yet capture the much bigger impact of speculation and monopoly pricing by giant foreign oil companies on petroleum prices as discussed earlier.

A counter-argument that will certainly be made by the IOPRC and the DOE is that they are using Mops prices as benchmark and no longer the traditional Dubai crude in computing domestic pump prices. The only reason for this is that supposedly, the country is importing more finished petroleum products than raw crude oil and thus using the Mops is supposedly more accurate. Also, of the more than 600 players in the downstream oil industry, only two – Petron and Shell – are refiners and import crude oil. But Petron and Shell together account for 58.4% of the market while crude oil imports comprise more than 53% of the country’s total volume of imported oil. Thus, it is erroneous to dismiss Dubai crude and rely exclusively on Mops when estimating domestic pump price adjustments.

Lack of fresh perspective and independence

Why was it so easy for the IOPRC and past review panels to absolve the oil firms? One issue that should be raised with these supposedly independent studies is that the members who conducted the review lack a fresh insight or alternative perspective on the issue of the oil industry. All studies on the ODL and oil prices commissioned by the DOE were carried out by academics and technocrats with the same bias for neoliberal free market and for corporations. Another concern is independence, as it appears that the panel members of these review committees are in one way or another have ties with the oil industry and government.

In 2005, the DOE formed a review body headed by Carlos R. Alindada, retired chairman of giant accounting firm Sycip, Gorres, Velayo (SGV) and a former commissioner of the Energy Regulatory Commission (ERC). In 2008, the DOE tapped the SGV and the University of Asia and the Pacific (UA&P) to conduct a study on the reasonableness of oil prices in the country. It was headed by UA&P’s Dr. Peter U Lee, who incidentally, was also a member of the 2005 Alindada oil review panel.

SGV has among its clients some of the leading oil companies in the country. The UA&P, on the other hand, has always been an advocate of neoliberalism. Described as a private research university, the UA&P was founded as the Center for Research and Communication (CRC) in 1967 by economists Bernardo Villegas and Jesus Estanislao. Villegas and Estanislao were both key economic advisers of the Aquino and Ramos administrations, which implemented the most far-reaching neoliberal restructuring of the economy in the late 1980s and 1990s including the privatization and deregulation of the energy sector and downstream oil industry. Estanislao, who was a former Department of Finance (DoF) and National Economic and Development Authority (Neda) secretary of the late President Cory Aquino, was a member as well of the Diokno-led IOPRC together with UA&P Program Director for Strategic Business Economics economist Victor Abola. The UA&P has recently tied up with Pilipinas Shell in launching the First Shell Sustainable Development in Action Youth Congress, which has become a venue to promote the deregulation of the oil extraction sector, where Shell has a stake through the Malampaya natural gas project.

As UPSE stalwart Diokno, who was also the former secretary of the Department of Budget and Management (DBM) under the Estrada administration, has been a leading proponent of neoliberalism in the country. In fact, he has been a vocal supporter of the ODL and in 2008, when oil prices were escalating to record levels, declared that reviewing the deregulation policy will not solve the problem of high oil prices. During the public consultations held by the IOPRC, he made it clear that there’s no alternative to deregulation, and nationalization is the worst thing that could ever happen to the oil industry. (This, of course, is not true, as there are alternative proposals currently pending in Congress, including a comprehensive oil regulation bill filed by Bayan Muna.) With such thinking, the IOPRC head has apparently already made up his mind even before the “probe” started.

In an attempt to give a semblance of encouraging the participation of marginalized stakeholders, the DOE included in the review panel representatives of the public transport sector and consumers. But like bogus partylist groups and representatives, public transport was not represented by a jeepney or a bus driver but by the lawyer of President Aquino’s Hacienda Luisita Inc., Vigor Mendoza, who chairs the 1-United Transport Alliance (1-Utak), while consumers, on the other hand, were represented by a businessman, Raul Concepcion.

What can we expect from such a line-up of reviewers? Well, aside from absolving the oil firms of overpricing and raking in excessive profits, the IOPRC, again as expected, also revived the proposal of past oil review panels to deregulate the public transport sector to complement the deregulated oil prices. This means more exploitation and is a surefire formula for chaos as it pits commuters and jeepney drivers against each other, when in fact, they are both victims of greedy oil companies and of the deeply flawed deregulation policy. #

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Oil deregulation, Power industry

Greed amid calamity

Bayan and its member groups and allies have launched efforts to generate relief goods for flood victims. See table below for a partial list of drop-off centers.

The country’s largest and most profitable firms are oblivious to the devastation being wrought by torrential rains on Metro Manila and various provinces in Luzon. Displaying barefaced greed, oil companies led by Petron Corp. hiked their pump prices, the fifth round in as many weeks since July. Then, the Manila Electric Co. (Meralco) announced a new increase in its generation charge this month. Also, the Business Process Outsourcing Association of the Philippines (BPAP) asked for an exemption from the work suspension order issued by Malacañang.

All these even as hundreds of thousands of mostly poor people are still struggling to survive the worst downpour since tropical storm Ondoy hit the country in 2009. According to the latest update (as of Aug.7, 5 p.m.) from the National Disaster Risk Reduction and Management Council (NDRRMC), the heavy rains spawned by the southwest monsoon have submerged 46 cities and municipalities in Metro Manila and Regions I, III and IV-A, affecting more than 541,000 people. Sixteen have been reported dead.

Such display of cold-blooded corporate greed amid a grave natural disaster is most unconscionable. We have yet to cope with this latest tragedy (and still reeling from the impact of typhoon Gener that preceded the heavy monsoon rains), and already we are being battered by increases in oil prices and electricity rates. Many families have yet to be rescued and still call center firms are requiring their employees to report for work.

But we must not forget that these profit-gluttonous companies have the temerity to do what they do because government allows them. They abuse and oppress the people with impunity because they know that government policies favor them, because they know that they are Aquino’s real bosses.

Petron, owned by presidential uncle Danding Cojuangco, and other oil firms increased their pump prices despite the calamity because the Oil Deregulation Law, which President Aquino has staunchly defended amid criticisms and allegations of overpricing, gives them the right to automatically hike their prices without a public hearing.

Meralco, also owned by Danding and known presidential allies Manny Pangilinan and the Lopez family, increased its generation charge despite the calamity because the Electric Power Industry Reform Act (Epira), whose full implementation is being pushed by Aquino despite strong opposition from Mindanao and other sectors, allows it to automatically increase its generation rates without a public hearing.

BPAP, meanwhile, knows that the BPO industry is one of the few supposedly growth areas prioritized by Aquino in his medium-term Philippine Development Plan (PDP) 2011-2016 for government promotion. I’m not sure if the administration has granted BPAP’s request. But Executive Secretary Jojo Ochoa said that call centers and other private firms that will require their employees to report for work should just “ensure personnel safety and give premium pay”. Para saan pa ang suspension order?

These intolerable acts of greed by the oil companies, Meralco and BPO firms bolster our argument for government to rethink and undo its current policies and programs. Especially during times of calamities, Aquino could not claim helplessness to stop oil price and power rate hikes because his predecessors, as dictated by foreign creditors, chose to deregulate the setting of pump prices and generation charge.

Government must revise its economic plan and stop relying on externally-driven growth sources like the BPO that is so detached from our own development needs, and in this particular case, from our domestic realities. BPO serves American and other foreign clients. Ano bang malay nila kung binabagyo na tayo at nalulunod na sa baha ang mga Pilipinong call center agents?

Unfortunately, Aquino has shown time and again that he is incapable and unwilling to implement the fundamental policy reforms we need.

For an in-depth discussion of these issues, click here (oil), here (power) and here (government’s development plan).

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The Bagong Alyansang Makabayan (Bayan) and its member groups and allies have launched efforts to generate relief goods for flood victims. Please refer to the table below for a partial list of these initiatives and see which drop-off center for relief goods is nearest to you. Some of the groups have also provided bank accounts where you can deposit cash donations.

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Oil deregulation

Oil overpricing continues despite rollbacks

For the fourth straight week, oil companies rolled back the price of petroleum products. Flying V led the latest round of price cuts, reducing the price of diesel by P0.30 a liter and gasoline by P0.50. Other oil players are expected to follow suit. The Department of Energy (DOE) said that the rollback is due to the stronger peso which offset the increase in global oil prices.

Compared to their end-2011 levels, pump prices this year are still higher by P1.84 per liter for diesel and by P4.40 for gasoline due to the series of price hikes until mid-April.

Local overpricing

But more notably, oil products are still overpriced despite the rollbacks. As of March 2012, diesel is overpriced by around P7.86 per liter and gasoline by P16.18 per liter.

These are based on the monthly movement of Dubai crude and foreign exchange (forex) rate and their estimated impact on the pump price based on a rule of thumb being used by one of the major oil firms.

The estimated impact on the pump price, using the said rule of thumb, varies depending on the respective levels of Dubai and forex in a given month. For instance, in March, Dubai averaged $122.36 per barrel while the forex was pegged at P42.86 per dollar which translates to an estimated impact of P1.20 per liter on local prices for every one dollar increase in Dubai price and for every one peso increase in the forex rate. (See Table 1)

The estimated impact is then compared to the actual adjustments in the pump price. The difference (i.e. when the actual adjustment is bigger than the estimated impact) is considered the “overpricing”. There is “underpricing” when the estimated impact is bigger than the actual adjustment.

The P7.86 per liter for diesel and P16.18 for gasoline represent the accumulated overpricing from January 1999 to March 2012, or the whole period under the 1998 Oil Deregulation Law (ODL). (See Table 2)

Other estimates

Other estimates also show that oil firms are overpricing their products as they take advantage of automatic price adjustments under the ODL. Think tank IBON Foundation, for instance, estimated that diesel prices are increasing 20-22% faster than Dubai crude prices since 1999. Former National Economic Development Authority (NEDA) chief and now Senator Ralph Recto also testified before a Manila court that overpricing could reach P8 per liter.

Global monopoly pricing and speculation

These (local) overpricing estimates simply illustrate that local pump prices increase higher than what movements in global oil price and forex warrant (or smaller in case of rollbacks). They do not represent yet the effect of global monopoly pricing and speculation.

Of the $122.36 per barrel March average of Dubai crude, $78.66 to $92.49 represents monopoly profits and speculation. These estimates are based on US Energy Information Administration (EIA) data that the finding cost of crude oil is only $6.99 to 18.31 a barrel, the lifting cost is only $5.75 to 8.26 a barrel, and royalty is 14% of the posted price ($17.13 based on the March average of Dubai). Thus, to produce a barrel of Dubai crude, the total cost is just $29.87 to 43.70 a barrel.

Review body

The so-called Independent Oil Price Review Committee (IOPRC) set up by the DOE should be looking into these claims. This body is supposed to “study the alleged accumulation of excessive profits by oil companies resulting in grossly unfair pricing”.

It has been conducting “consultations” with people’s organizations to better carry out its mandate, so they say. But its last meeting with members of the Coalition Against Oil Price Increases (CAOPI) ended up as a debate for the most part. The IOPRC headed by staunch neoliberal economist Benjamin Diokno insisted on the parameters imposed on it by the ODL. Diokno, for instance, refused proposals to probe supply contracts and other documents that are key to the determination of excessive profits and overpricing.

Direct action

The lone point raised by CAOPI seemingly agreed to by the IOPRC in that meeting was the change in venue. If the review body is independent, it should use a neutral venue and not the premises of the DOE whose officials are often accused of speaking in behalf of the oil firms. Alas, even that very minor point apparently has not been heeded as consultations tomorrow (May 7) will still be held inside the DOE compound.

Then again, it would be wrong to pin our all our hopes on the IOPRC, whose members have displayed strong bias to the heartless market. Even as groups like CAOPI engage the IOPRC as well as Congress, the best prospects to end overpricing and the abuses of the oil firms and the ODL that perpetuate them still lie in the people’s direct political action. (end)

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