How much is a substantial, one-time oil price rollback? At least P7 for diesel

Since August, media reports listed about nine rounds of oil price rollbacks that have pulled down pump prices of gasoline products by P10.50 per liter and kerosene and diesel prices by P8.50. Prior to the series of oil price rollbacks since August, the last monitored round of price reduction was reported on July 21, a week before the annual State of the Nation Address (SONA) of Ms. Gloria Arroyo.

But the rollback covered only the price of diesel and was implemented three days after oil companies implemented a P3 per liter increase, the single biggest fuel price hike recorded. (See Table)

What has caught public attention in the latest rounds of rollbacks is the noticeably larger reductions that small player Unioil has implemented. While its competitors, including the Big Three, have reduced their pump prices by a total of P3 per liter last Sep 11 and 18, Unioil implemented a total rollback of P6 per liter for its gasoline products and P4 for its diesel and kerosene.

The oil firm explained that it “will always reflect true prices based on market forces, supply and world oil prices for the ultimate benefit of the consuming public”. Unioil also said that higher price reductions will also significantly boost its sales.

There is a general consensus that the rollbacks in local pump prices have not been proportionate to the rapid decline in world oil prices with the Big Three taking the brunt of public criticism. Malacañang has not only publicly questioned the obvious gap in global and local price movements but even called for an “independent” audit of the Big Three through the Department of Justice (DOJ).

The audit team shall be headed by the dean of the College of Accountancy of the University of the Philippines (UP) with certified public accountants from the DOJ, Department of Energy (DOE) and Department of Trade and Industry (DTI) as members.

Meanwhile, Senate majority floor leader Francis Pangilinan has asked the public to boycott the Big Three as “one way of sending a message to the big companies to be sensitive to the plight of consumers” and for “their ‘obvious collusion’ to delay the lowering of oil prices”.

However, calling for an independent audit of the oil firms may prove futile. This is not the first time that the government has ordered an audit of the oil companies by an “independent” body. The most recent was a DOE-commissioned study done by Peter Lee U, economics dean of the University of Asia and the Pacific (UA&P).

The audit covered Petron and Shell, which together control some 70% of the local market and was verified by the SGV Co. Conducted amid the weekly oil price hikes in the second quarter of the year, it found out that supposedly “the oil firms have been reasonable in their increases”.

The basic problem with the government-initiated audits of oil firms is that they fail to look at the more important aspects of the industry that could help determine whether oil price levels and adjustments are reasonable or not. This is not simply because the audit teams may be incompetent but because under deregulation, oil firms could not be compelled to disclose certain aspects of their business operation in the spirit of “confidentiality and competition”.

The demand for a substantial rollback that will truly reflect rapidly declining global prices, on the other hand, enjoys wide public support including from the mainstream media. The obviously big disparity in the price levels of local pump prices relative to global prices have put the oil companies on the defensive. As of September 26, the monthly average of Dubai crude is pegged at $96.49 per barrel, which is about the same level of its March average of $96.76.

Meanwhile, as of September 26, the average pump price of unleaded gasoline is about P52.21 per liter while that of diesel is around P51.19. In March, their respective averages were P45.33 and P38.31 or a difference of more than P9 per liter for unleaded gasoline and almost P15 for diesel. But note also that the peso has lost P3.87 of its value against the US dollar between March and September.

Thus, factoring in both the estimated impact of Dubai crude and foreign exchange (forex) adjustments during in March and September, prices should still be rolled back by about P3.10 per liter for unleaded gasoline and P9.10 for diesel for September prices to approximate the price levels in March. (See Table)

However, such approach still does not consider the monthly changes in Dubai crude and foreign exchange in other months from January to September. Oil firms may use this as a justification for their pricing behavior because they may claim under-recoveries in certain months which they say the need to recoup.

Thus, computing the estimated net effect of the monthly movement in Dubai crude and forex on pump prices could be the more accurate approach in estimating the ideal oil price rollback. Simulating the “rule of thumb” used by Petron in determining the impact of monthly changes in Dubai crude and forex on local pump prices and comparing them with the actual price adjustments per month as reported by the DOE, it appears that diesel prices are “overpriced” by P7.21 per liter; kerosene, P8.25; and gasoline products by P2.21 to 2.23.

Based on these estimates, it also appears that oil firms have collected most of their “overpricing” in July and August that offset their “under-recoveries” from February to May. (See Table)

This means that oil companies have implemented oil price hikes than what the adjustments in Dubai crude and forex warrant from January to September. A major limitation of this estimate is that it does not factor in the impact of speculation and monopoly pricing by the oil TNCs and in fact assume that global spot prices reflect the true cost of oil (which in reality is not the case).

Another limitation is that it uses only Dubai crude as benchmark, while oil firms claim that they also use the MOPS as benchmark in computing pump prices for their imported finished petroleum products.

While it does not use the MOPS, it can still be argued that the pump prices of imported finished products is nonetheless traceable to the price of crude oil.

It is unlikely that oil companies will implement another round of rollbacks in September which means that diesel will be overpriced by about P7.21 a liter, etc as of September. (Note that these amounts may vary a little once the full-September average of Dubai crude and forex become available.)

They should be compelled to rollback prices by these amounts if only to offset their “overpricing” from January to September, on top of whatever price adjustments that they will implement in October and beyond.


  1. “Unioil cuts fuel prices by P2-3/L” by Abigail L. Ho, Philippine Daily Inquirer, September 19, 2008
  2. “DOJ pushes independent audit of oil firms” by Tetch Torres,, September 9, 2008
  3. “Pangilinan backs calls to boycott 3 big oil firms” by Edson C. Tandoc Jr., Philippine Daily Inquirer, September 4, 2008; “Boycott of ‘Big 3’ oil firms urged” by Maila Ager,, September 18, 2008
  4. “Audit finds nothing wrong in oil firms’ fuel price hikes”, Business World, June 5, 2008

Speculation continues to dictate oil price movement

Since August, oil prices have been steadily falling after reaching peak prices in June and July. The monthly spot price of the benchmark Dubai crude fell to $112.86 per barrel in August and drastically further went down to an average of $96.49 from September 1-26. It peaked at a July average of $131.27 per barrel after starting off the year at $87.37 in January. Meanwhile, the Mean of Platts Singapore (MOPS) spot price of unleaded gasoline averaged $107.41 per barrel from September 1-26 from $115.49 in August and $140.30 in July. The MOPS spot price of diesel also fell to $121.07 per barrel in September, down from $135.26 last month and its peak price of $169.36 in June. (See Chart)

Consequently, local pump prices have posted nine rounds of reductions since August to the tune of P10.50 per liter for gasoline products and P8.50 for diesel and kerosene. The rollbacks have brought down the pump price of gasoline products to around P49.51 (regular) to P53.91 (premium plus) a liter, as of September 26, and those of diesel to P51.19 and kerosene to P53.77 a liter. The monthly average of local pump prices peaked in July (for gasoline products) and August (for diesel and kerosene) after progressively climbing since February, with prices posting weekly increases from the last week of April to the last week of July. (See Table)

Pump prices of selected petroleum products, monthly average 2008 (in P per liter)

Premium plus






























































Sep 1-12 ave.







Sep latest*







*As of September 26; Bayan estimates (deducting P2, total rollbacks on Sep 18-19 & 26, from the Sep 1-12 averages of gasoline products, kerosene and diesel)Compiled by IBON using DOE data

Some analysts have identified the “combination of the slowdown in the global economy, which is damping oil demand, and higher production from the Organization of Petroleum Exporting Countries (OPEC)” as the major reason for the reductions in world oil prices since July. OPEC, for its part, listed “lower demand especially in the developed countries, increased oil supply, the strengthening of the US dollar and easing of geopolitical tensions” as the factors behind the decline in global prices. [1]

But an independent report released recently by the US Senate pointed to speculators as responsible behind the rapid rise and subsequent steep fall in oil prices this year. The report said that from January to May, index traders poured $60 billion into commodity markets causing a big spike in oil prices. But when the US Congress held hearings in May to July to curb speculation, traders pulled $39 billion from the market. One of the authors of the report summed up their findings, to wit: “The bottom line here is with regard to commodities, money going in pushes prices up, money going out pushes prices down”. [2]

This underscores the fundamental defect of Republic Act (RA) 8479 or the Oil Deregulation Law (ODL). Because the downstream oil industry is deregulated, local firms are allowed to automatically adjust pump prices as supposedly determined by “free market” forces. But the global oil market has always been under the control of a few giant transnational oil corporations from the US and Europe which impose monopoly prices. This has been aggravated by massive speculation in recent years that has further artificially pushed up prices and because of ODL, all these are easily passed on to end consumers. An energy and financial markets expert estimated in May 2008 that “as much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds”. [3]

Indeed, the global oil market remains vulnerable to speculation and as such local pump prices could again steeply climb in the coming months primarily due to renewed speculative attacks. The volatile financial market, which in one week saw the demise of two of the US’s mightiest investment banks – Lehman Brothers (which went bankrupt) and Merrill Lynch (which sold out to the Bank of America) and could have claimed a third one, the AIG, if not for the bailout by the US Federal Reserve – triggered fresh rounds of speculation. Trading of crude oil futures contracts at the New York Mercantile Exchange (NYMEX) for October delivery jumped at one point by $25 per barrel on September 22 – its biggest single-day surge ever – one week after the upheaval at Wall Street. The unusual price hike compelled the Commodity Futures Trading Commission (CFTC) to subpoena trading records from some NYMEX traders to look into possible “illegal manipulation” of prices. [4]

Speculators are currently betting on a weaker oil demand from the US, the world’s largest oil consumer, following the Wall Street turmoil in September and uncertainties on the Bush administration’s $700-billion bailout plan. NYMEX crude oil for November delivery fell to $106.70 per barrel on September 26 while London Brent crude declined to $103.47. [5]

With the bursting of the housing bubble, more speculators are expected to shift from real estate speculation to speculation in the futures market on commodities including oil. The expected slowdown in real demand as a result of the worsening US recession may not deter traders from speculating on oil since the backdrop for continuing speculation on supply such as the political instability in the Middle East remains.


1. “Surprise OPEC cut pushes oil above $100” by Carlos Hoyos, Financial Times, September 10, 2008

2. “Big oil price swings caused by speculators, says report”, Reuters, Inquirer Money, September 11, 2008

3. “Perhaps 60% of today’s oil price is pure speculation” by F. William Engdahl, FSO Editorials, May 2, 2008

4. “Investigation widens into unusual oil price rise” by Diana B. Henriques, The New York Times, September 24, 2008

5. “Oil falls below $107 on doubts over US rescue plan” by Fayen Wong, Reuters, Inquirer Money, September 26, 2008

VAT: Defending The Indefensible In The Name Of Foreign Debt

Gloria's SONA speech illustrates how defensive Malacanang is over the VAT (Photo from Reuters)

First published in Paninindigan, Ang Pahayagan ng Bayan, Jul-Sep 2008 – In her latest State of the Nation Address (SONA), Gloria Arroyo spent a considerable portion of her speech defending the value added tax (VAT), calling it the means for Filipinos to ride out the world food and energy crisis. The speech illustrates how defensive Malacañang is over the unpopular and regressive tax, which various sectors and some lawmakers want scrapped as food and fuel prices escalate. It aggressively hypes the so-called Katas ng VAT program to justify the VAT and show that it provides concrete and direct benefits for the poor.


Arroyo is forced to uphold the VAT in particular on oil and power despite growing clamor against it as the International Monetary Fund (IMF) and the World Bank have both warned the government against cancelling or even reducing the VAT. Malacañang could not afford to let go of what the Finance department described as the “biggest tax measure since the birth of the Republic”.


Indeed, Arroyo’s VAT reform agenda, realized through Republic Act (RA) 9337 that increased from 10 to 12 percent the VAT rate and further expanded to include oil and power among others, have notably increased government’s tax revenues. Total RVAT (reformed VAT under RA 9337) collections from 2006 to the first half of 2008 have already reached P219.08 billion. Of this amount, oil accounted for P122.4 billion or almost 56 percent while power, P24.04 billion or just below 11 percent. For the second half of 2008, government expects to collect P51.6 billion in VAT on oil and P8.4 billion from power.


Malacañang is determined to protect these revenues to maintain its good standing among the foreign creditors, who get their signal from the IMF’s assessment of a country’s fiscal position. In 2007, no less than the former managing director of the IMF hailed the Philippine government for its fiscal progress and described the VAT as Arroyo’s “central achievement”. Days before the SONA, the IMF strongly warned the Philippines of the adverse fiscal effects of tax cuts in response to the run-up of oil prices.


In her last SONA, Arroyo went as far as to say that scrapping the VAT will only benefit the non-poor (i.e. may kaya) who supposedly consume “84 percent of oil and 90 percent of power”. Thus, the poor according to the government, do not shoulder a heavy burden of the VAT but even gain from it through programs such as the P7.5-billion Katas ng VAT. The Finance department, however, later said that the poor (i.e. low-income) refers to those earning less than P80,000 a year – a ridiculously low standard to measure poverty.


Nonetheless, the Katas program has been widely discredited as its various components merely offer one-time dole-outs such as the P500-subsidy for small power users. Its frivolity was fully exposed when the Budget department announced that it is no longer funding the program next year. It cited the falling prices of petroleum for its decision and said that the program will only resume if global oil prices top $200 per barrel next year. Such is the character of the Katas program, which the Arroyo administration hyped so much to counter calls to scrap the VAT on oil and power. At its core, it is an empty publicity and stopgap measure of an embattled government scrambling to justify its anti-poor policies.


No matter how Malacañang packages the VAT as a pro-people fiscal measure, it still could not conceal how the regressive tax puts undue additional burden on the consumers. In the case of oil, the VAT has become even more unjustifiable as pump prices soared to record levels, with diesel peaking at P60 per liter in July. Though oil prices have eased in the last couple of weeks, VAT still comprises between P6 to 7 per liter, a significant amount for ordinary income earners especially in these times of double-digit inflation.


Arroyo of course also claims that with increased revenues, there are now more funds for the poor – a blatant lie easily exposed by official records. Bureau of Treasury data, for instance, show that from 2001 to 2005, the annual allocation for education was 15.6 percent of the national budget; health, 1.7 percent; housing, 0.2 percent; and debt servicing (interest), 27.8 percent. Comparing these levels with the RVAT period (2006-2007), the share of education even fell by 1.4 percentage points and health by 0.1, while housing slightly increased by 0.2. Interest payments as a portion of the national budget, in contrast, rose by 1.2 percentage points.


But Arroyo and her economic managers could not care less, obsessed as they are to achieve fiscal stability and keep the foreign loans flowing. As of first quarter 2008, the country’s foreign debt stood at $54.6 billion, up from $54 billion in the same period a year ago. Government expects to incur an additional foreign debt of $2.3 billion for the whole year, and another $2.5 billion in 2009. Consequently, Malacañang will allocate increasing amounts to pay for these loans – P636.1 billion this year and P681.2 billion next year.


What’s in store for Arroyo and her cabal from these debts? Well, think of the botched NBN-ZTE, the Northrail and Southrail, and other projects funded by foreign debt wherein multimillion dollar tongpats abound. This is how the vicious onerous taxes – foreign debt – corruption cycle milk the Filipino people dry.


This vicious cycle must end and it is only possible through direct political actions by the people. The series of protests against the VAT in the past months and the favorable public opinion it has created have obviously helped to compel the House ways and means committee to propose the targeted scrapping of the VAT on power. Of course, this is not enough and thus, the people’s campaign to remove the VAT on oil and power must continue and intensify. (END)

Constitutional issues to determine alignments in Senate vote on the JPEPA

First published in, Vol. VIII No. 33, Sep 21-27, 2008

It has been more than two years now since President Gloria Arroyo and Japanese premier Junichiro Koizumi signed the Japan-Philippines Economic Partnership Agreement (JPEPA) in September 2006. But the controversial treaty remains pending in the Senate and despite many delays continues to face rough sailing at the upper chamber.

While the treaty’s sponsors, Senators Miriam Santiago and Mar Roxas, still have a lot to explain to their colleagues about the economic implications of the JPEPA, not to mention the still unresolved issues of toxic waste dumping and dubious gains for Filipino nurses and health workers, it seems that the issue of constitutionality will be the most contentious debate among the senators. Constitutionality has been emerging as a key factor that could determine alignments in the Senate once the JPEPA is put on vote.

Conditional concurrence and side agreement

Since the joint committees on foreign relations and trade and commerce, chaired respectively by Santiago and Roxas, closed public hearings in December 2007, the JPEPA has been hounded by questions on its constitutionality. Santiago, who has emphatically recognized the unconstitutionality of the JPEPA, has since insisted for a side agreement that will correct the constitutional flaws of the treaty. These legal infirmities pertain to the treaty’s investment provisions on national treatment, most favored nation (MFN) and prohibition of performance requirements.

By April 2008, the Department of Trade and Industry (DTI) and the Department of Foreign Affairs (DFA) have yet to convince their Japanese counterparts on a detailed side agreement that will amend the country’s unconstitutional obligations in the JPEPA. At that time, Santiago had started to push for what she called “conditional concurrence” wherein the Senate will ratify the JPEPA based on the condition that a side agreement revising the treaty will follow.

Conditional concurrence, however, was criticized by some of her colleagues, notably Senator Francis Escudero who pointed out that both the Constitution and the Vienna Convention on the Law of Treaties do not allow the Senate to issue a conditional concurrence on the JPEPA. More importantly, Malacañang knew that pushing for a conditional concurrence will put the Philippines in a position that could cause the Arroyo administration diplomatic embarrassment because Japan has remained adamant in its stance not to revise the JPEPA. For Japan, striking out the questioned investment provisions from the JPEPA will cancel the most important concessions that they got under the treaty.

Thus, DFA secretary Alberto Romulo had to ask Santiago to defer her scheduled April 28 sponsorship speech, when she was supposed to officially endorse conditional concurrence, and wait until the side agreement between the two governments has already been clinched. Negotiations for a side agreement continued but has not been produced until Congress took a break from its first regular session in June. JPEPA’s next opportunity to get Senate approval was further delayed to August when Congress resumes session.

During the congressional break, DTI secretary Peter Favila continued pursuing the detailed side agreement with Japan. Even Roxas flew to Tokyo in July and met with top Japanese trade and foreign affairs officials to help convince them on the need for a side deal so that the JPEPA could get pass the Senate. But Japan would not budge from its “no revision” position. By end-July, Santiago was forced to admit that the best they could get from Japan was a mere “general statement” of assurance that the JPEPA will not violate the Constitution instead of a detailed side agreement that effectively revises the country’s unconstitutional obligations in the treaty.

Exchange of notes

With the doors for a possible revision of the JPEPA effectively shut, Santiago is left with no option but to endorse concurrence on the treaty as it stands. Santiago, of course, is obliged to do this as a political payback to Arroyo’s nomination of her to the International Court of Justice (ICJ). But Santiago and the JPEPA proponents still need to package the sponsorship for concurrence as if the earlier conditions have been met to counter the anticipated opposition from the public and some senators.

It is in this context that Santiago, in her August 6 sponsorship speech on the JPEPA, said that she is now endorsing (unconditional) concurrence on the treaty because the Japanese have already agreed to an “exchange of notes” that will supposedly correct the constitutional defects of the JPEPA. The exchange of notes actually has not been produced and made public until September 1, which further delayed interpellations in the Senate as some lawmakers including Roxas wanted to see its contents before proceeding with the interpellations.

Only five pages, the actual document is composed of: (1) the diplomatic letter of Romulo to Japanese foreign minister Masahiko Koumura, dated August 22, identifying four major points of “shared understanding” between the Philippines and Japan and (2) Masahiko’s reply to Romulo, dated August 28, citing verbatim the points he raised and a statement confirming the shared understanding.

The first two points of the shared understanding refer to general statements pertaining to the parties’ commitment to respect each others’ national laws, including their constitutions; and to implement the JPEPA in accordance with each other’s respective charters.

Point number three, meanwhile, enumerates the provisions of the 1987 Constitution that the Philippines clarified shall not be amended by the JPEPA. These include provisions in Article II (Section 15), Article XII (Sections 1, 2, 3, 7, 8, 10-12 and 14), Article XIV (Sections 4 and 12), and Article XVI (Section 11). The provisions cover, among others, the protection of Filipino enterprises from unfair foreign competition; restrictions on foreign ownership of public lands and in the exploration and exploitation of natural resources; limitation to Filipinos of certain investment areas; preferential rights, privileges and concessions granted to Filipinos covering the national economy and patrimony; regulation of foreign investments; regulation of technology transfer and promotion; and the promotion of preferential use of Filipino labor, domestic materials, and locally produced goods.

A useless document

A closer look at the contents of the exchange of notes reveals that the document is useless in so far as ensuring that the JPEPA will not undermine the Constitution. It could have been a stronger and more binding document if it explicitly amended the questionable provisions of the JPEPA, as originally proposed by retired SC justice Florentino Feliciano who first raised the constitutional issues during one of last year’s Senate hearings.

In fact, the exchange of notes could be a Trojan Horse just awaiting the opportune time to attack. A closer look at point number four of the shared understanding reveals the hidden intentions of the document:

“4. The present exchange serves only to confirm the interpretation of and does not modify the rights and obligations of the Parties under the provisions of the JPEPA.” (emphasis added)

In other words, the unconstitutional provisions of the agreement remain and will still bind the Philippines once the JPEPA gets ratified. The exchange of notes did not resolve the constitutional issues but in effect just deferred the question to be tested by actual legal conflicts over the treaty’s implementation that may arise in the future. This places the Constitution under unnecessary duress because under the Vienna Convention on the Law of Treaties, the Philippines could not raise unconstitutionality for failure to comply with its JPEPA obligations.

Legal luminaries share the same observation. In a paper, former UP College of Law dean Professor Merlin Magallona described the exchange of notes as a derogation of the Constitution. Magallona wrote: “The essence of a treaty in international law is that it creates legal relations between the state parties, and the core of such relations consists of rights and obligations embodied in the meaning of the text of the treaty in question. For this reason, instead, the Exchange of Notes appears as reaffirmation of the legal relations between Japan and the Philippines in JPEPA and has the effect of reinforcing the intent to adhere to the rights and obligations as provided in JPEPA”.

Magallona also argued that if the Senate ratifies the JPEPA, there is a danger that the treaty will supersede the Constitution in application and settlement of disputes over JPEPA’s interpretation. “In case of incompatibility between JPEPA and the Constitution as an issue to be decided by an arbitral tribunal that may be created by the parties pursuant to JPEPA, that tribunal will apply JPEPA over and above the Constitution pursuant to the fundamental principle of the pacta sunt servanda and in accordance with the basic norm of international law that a party to a treaty cannot invoke its internal law, including its Constitution, as a justification for failure to perform its obligation under the treaty”, Magallona wrote.

Professor Harry Roque, also of the UP Law, meanwhile, belittled the exchange of notes as a scheme to appease domestic opposition to the JPEPA. “The reality is that in a treaty, neither of the parties can invoke a violation of its domestic law as a ground for its non-compliance therewith. In short, even if the JPEPA were to violate the Philippine Constitution, it will not affect its binding nature. Hence, the exchange of note is a superfluity”, Roque pointed out.

Both Magallona and Roque said that the remedy to the unconstitutionality of the JPEPA is not the exchange of notes but non-concurrence on the part of the Senate.

Emerging alignments

While Santiago claims that with the exchange of notes, the JPEPA could now breeze through the Senate and perhaps be finally ratified by October, the reality is that more and more senators are being convinced that the treaty is legally indefensible. Since the exchange of notes was made public, a bloc of senators has emerged pushing for a renegotiation of the JPEPA.

Among them is Senate majority floor leader Francis Pangilinan who said that despite the exchange of notes, JPEPA’s ratification is not assured because he thinks that it failed to cure the major defects of the treaty. He pushed for renegotiation as a “way out” of the debate over the pact. While Pangilinan is careful not to call the move a rejection of the treaty, a renegotiation will, in effect, mean Senate non-concurrence on the current JPEPA. As Santiago noted, “a call for renegotiation will effectively kill the treaty” and asked her colleagues to simply “love it or leave it”.

Senator Benigno Aquino III has already confirmed that he belongs to the renegotiation bloc while Senator Panfilo Lacson has also made public his proposal to renegotiate the treaty. Lacson shares the views that the exchange of notes “may be rejected by the Japanese Diet or could be questioned before an international court”. Unconfirmed reports also list Senators Jamby Madrigal and Antonio Trillanes IV as among those included in the renegotiation bloc although Madrigal has been consistent from the start on her opposition to the JPEPA.

While not reported listed in the renegotiation bloc, Senator Pia Cayetano has also been vocal since the onset about her serious misgivings on the JPEPA specifically on its environmental impact. In addition, reliable sources also disclosed that Escudero and minority floor leader Aquilino Pimentel Jr. will likely vote against the treaty or support the call for a renegotiation. Santiago, interestingly, has also named Senator Gringo Honasan as among those who want the JPEPA renegotiated although he has yet to make any public statement on this.

Thus, there is a fighting chance that the needed eight votes to block JPEPA’s ratification may be mustered as senators forge a consensus around the unconstitutionality of the JPEPA despite the exchange of notes. But nothing is certain at this point considering that the Japanese, according to Senate insiders, have been really aggressive in their lobbying efforts to get the JPEPA approved and unrevised. Also, the propensity of Malacañang to use all the (dirty) tricks in the book to push for its agenda must not be overlooked.

The challenge for anti-JPEPA advocates is to ensure that those who have already come out publicly against the JPEPA, whether for outright rejection or for renegotiation, will firm up their position. The exchange of notes must be further exposed to help convince the other senators who have not yet made up their mind on the treaty. Public pressure, through the combination of one-on-one dialogues and briefing with targeted senators and direct mass actions to pressure the Senate as an institution to vote against the JPEPA must be intensified. (END)

Huling martsa

(Mayo 28, 2008 nang magmartsa ang may 20,000 tao upang ihatid ang mga labi ni Ka Bel sa kanyang huling hantungan)

At tayo’y narito na

Sa iyong huling martsa

Narito pa rin ang mga bandilang pula

Hindi nagmamaliw ang sigla ng kanilang pagwagayway

Lalong mahigpit ang pagtangan sa kanila ng mga kinakalyong kamay

At hindi pinakupas ng maraming digmaan ang kanilang kulay.

Bagkus higit silang nagiging matingkad ngayon

Sa bawat igkas ng telang sumasayaw sa hangin

Inuukit sa aking balintataw ang mga lansangang

Tinahak natin noon

Gaano man hilamin ng luha

Sila’y aking abot-tanaw pa rin.

Kaya hindi ko mapigilang hanapin

Sa dagat ng mga sigaw ang iyong tinig

Hindi ko mapigilang hagilapin

Ang iyong kamao sa alon ng dalawampung libong

Kamaong nakatiim

At hinahamon ang mga panginoon

Na ihambalos ang kanilang pinakamalupit na daluyong.

Hindi ko sila natagpuan ngayon –

Ang dating sigaw at kamao,

Hindi ko sila natagpuan ngayon.

Gayunman, salamat!

Salamat at iniwan mo sa akin ang iyong ala-ala at ngiti

Upang ilang ulit man akong dahasin at paslangin

Tiyak kong hindi ako magagapi

Tulad mo noon.

At our expense: Malacañang collects almost P123 M daily in VAT from diesel, kerosene, LPG

Crude futures prices continue to post record highs after breaching the $130 a barrel mark last Wednesday. In my previous article, I have argued that these prices are speculative and while they tend to push prices up in the physical spot market, pump prices in the Philippines should not be affected.

But all Energy Secretary Angelo Reyes can say is that “this is the reality that we must face” as he warned the public yesterday to brace for still higher fuel prices. Reyes added that the government is cancelling the 3% tariffs on imported crude and refined oil to mitigate price hikes by at least 50 centavos per liter.

I do not know what relief this move can provide to hapless consumers considering that oil firms have been implementing P1 a liter weekly oil price hikes and will continue to do so in the coming weeks. Compare this with the proposal to scrap the 12% value added tax (VAT) on oil which can immediately lower pump prices by P5 to 6 per liter.

Unfortunately for the public, the VAT particularly on oil is one of the Arroyo government’s most important and reliable sources of tax revenues. But these revenues are raised at our expense as we are forced to cope with spiraling oil prices amid depressed wages and incomes and job scarcity.

To give an idea how much the government has been collecting from the oil VAT and how it burdens ordinary people, let us look at three of the most socially sensitive petroleum products – diesel, kerosene and liquefied petroleum gas (LPG). In 2007, the average daily consumption for diesel is around 17.63 million liters; kerosene, 4.54 million liters; and LPG, 5.06 million liters.

Applying these consumption levels to 2008 average pump prices, Malacañang has been collecting since the start of the year until May around P122.7 million everyday in VAT revenues from diesel (P82.81 million), kerosene (P17.87 million), and LPG (P22.02 million) alone. This translates to total collections of about P18.65 billion in the first five months of the year for the three petroleum products. (See tables below for details)

Official data from Finance department show that total VAT collections from oil in 2006 and first half of 2007 reached P67.8 billion or 56.2% of total revenues from the VAT during the said period.

2008 estimated VAT collections from diesel


Pump price ave


Consumption (million liters)*

Est. VAT collections (P million)


























Total VAT collections


* Based on 2007 consumption levels

** Based on 1-7 May ave only

Estimates by Bayan based on DOE data

2008 estimated VAT collections from LPG


Pump price ave


Consumption (million liters)

Est. VAT collections (P million)


























Total VAT collections


* Based on 2007 consumption levels

** Based on 1-7 May ave only

Estimates by Bayan based on DOE data

2008 estimated VAT collections from kerosene


Pump price ave


Consumption (million liters)

Est. VAT collections (P million)


























Total VAT collections


* Based on 2007 consumption levels

** Based on 1-7 May ave only

Estimates by Bayan based on DOE data

$130 a barrel oil: notes on recent oil price trends

The Inquirer’s headline today says that world oil prices have already reached $130 a barrel and that domestic oil companies are implementing weekly price increases supposedly to reflect the uptrend in international prices. But the article is actually referring to the New York Mercantile Exchange (NYMEX) futures price for July delivery. It does not have anything to do with the actual or physical supply and demand of oil in the Philippines but is only a speculative price based on speculative supply and demand.

However, it indirectly pushes local oil prices up as physical spot market prices are also affected. So is it reasonable to implement oil price hikes based on the spot price movements? In the Philippines, more than 90% of oil come from long-term supply contracts of transnational oil companies and not from the spot market. But why are oil companies allowed to implement weekly increases in local prices to reflect these movements in the spot market as well as speculative prices? Answer: deregulation which allows oil companies to automatically adjust pump prices. But why does the Arroyo government allow automatic oil price hikes? Answer: VAT.

Price movement

Oil companies, including the Big 3 (Petron, Shell and Chevron) claim that they use benchmark prices in the international oil market to determine domestic pump prices. For crude oil importers such as Petron and Shell, they refer to the Dubai crude spot price while other players that import refined petroleum products like Chevron refer to the Mean of Platt’s Singapore (MOPS) spot prices.

Table 1 shows that the spot price of the benchmark Dubai crude is now pegged at $110.72 per barrel as of the first seven days of May. It breached the $100 a barrel monthly average in April and is now 26.7% higher than its average last January. On the other hand, MOPS-based unleaded gasoline averaged $122.37 per barrel in the first nine days of May while diesel, $146.34 per barrel. The said figures are 21.7% and 35.6% higher, respectively than their averages last January. 

Table 1. Crude benchmarks & foreign exchange, Monthly average, 2008 (crude prices in $ per bbl; forex in P per $)






Dec 2007






























*May 1-7 ave only

Source: Department of Energy/Platt’s

Meanwhile, the country’s foreign exchange has been declining since the start of the year with a 1-7 May average of P42.49 per US dollar, weaker by P1.59 from its January average.

These factors have supposedly combined to push domestic pump prices up. Table 2 shows that during the period in review, the prevailing pump price of unleaded gasoline in the National Capital Region (NCR) surged by P4.11 per liter between its January average and 1-7 May average; kerosene, by P4.13; and diesel, by P3.09. Overall, the average retail price of various petroleum products increased by P3.58 per liter during the said period.  

Table 2. Prevailing pump prices in NCR, Monthly ave, 2008 (in P per liter)







LPG (per 11-kg tank)

Ave retail









































* As of 7 May

Source: Department of Energy

Domestic pump prices have increased much more rapidly this year than in the previous years. Table 3 shows that the prevailing price of diesel in NCR as 7 May, for example, has already exceeded the Bagong Alyansang Makabayan’s (New Patriotic Alliance or Bayan) simulated monthly price for May 2008 based on the monthly average growth rate for 1996-2007 (deregulation period) and for 2005-2007. Note that the said prevailing price does not yet reflect the latest round (as of this writing) of P1 a liter oil price hike (OPH) implemented by the oil firms last 10 May. Five days before the said OPH round, Shell has warned that oil firms allegedly still need to recover P6-7 per liter more in the coming weeks.

Table 3. Actual pump price movement vs Bayan’s simulated prices for diesel, 2008 (in P per liter)


Actual diesel pump price

Based on 1996-2007 growth rate

Based on 2005-2007 growth rate





















*Actual diesel pump price for May as of 7 May only

Source of basic data: DOE

Unmitigated price increases allowed under Republic Act (RA) 8479 or the Oil Deregulation Law of 1998 has only worsened the fundamental problem of transfer pricing by the global oil cartel and the speculative attacks by transnational banks and other giant financial firms that further artificially push oil prices up in the international market and taken advantage by the local Big 3 cartel (local units of the global cartel).

Massive speculation, and not physical supply and demand balance, continues to account for recent global oil price surges with the Goldman Sachs predicting in May that prices could rise as high as $200 a barrel over the next six months to two years. One estimate claims that speculation now comprises as much as 60% of current global oil prices.

Token measures

Note that there was a general decline in domestic pump prices in February in spite of an uptrend in Dubai crude and MOPS spot prices apparently due to the Arroyo government’s efforts to gain political points for the Energy Summit it organized from 29-31 January and 5 February. It was also the period that the clamor to scrap the 12% value added tax (VAT) on oil products to immediately lower pump prices started to gain ground.

To fend off criticisms that the Energy Summit does not offer anything concrete that could bring down pump prices as well as to derail the campaign to scrap the oil VAT, GMA rehashed the oil tariff adjustment mechanism through Executive Order (EO) 691. Under this system, tariffs on imported crude oil and petroleum products will be reduced or waived based on certain trigger prices. For February, GMA ordered a tariff cut of one percentage point.

Taking their cue from Malacañang, the biggest oil companies Petron and Shell implemented an oil price rollback of as much as P1 per liter starting 29 January and the other players followed suit. But it has been a steep climb for domestic pump prices since then, starting with the 50 centavo a liter hike implemented by the oil firms on 1 March.

Overall, oil companies have implemented 10 rounds of oil price hikes that increased the pump prices of gasoline, kerosene and diesel by P6 per liter between 1 March and 10 May, or an average of one OPH round per week. The biggest increases were implemented on 3 May and 10 May, when pump prices were raised by P1 per liter in each round from the usual 50 centavos a liter in the previous weekly increases.

The price increases since March has exposed the worthlessness of the oil tariff cut mechanism in lowering pump prices. For instance, the trigger price set by the Department of Finance (DOF) to reduce oil tariff from 3% to 0% for MOPS-based diesel is $115.2 per barrel and $103.25 per barrel for Dubai crude. Table 4 shows that since March, MOPS-based diesel price has already breached the DOF trigger price and Dubai crude, since April. This means that the government is no longer collecting oil tariffs to supposedly mitigate domestic pump price increases but such intervention has not been felt at all.

Table 4. Oil tariff cut trigger prices vs actual global prices, March-May 2008 (in $ per bbl)


Trigger price to reduce tariff to 2%

Trigger price to reduce tariff to 1%

Trigger price to waive tariff

March monthly ave

April monthly ave

1-7 May monthly ave

MOPS diesel







Dubai crude







Sources of basic data: DOF, DOE & MOPS

In the face of more and bigger price hikes in the coming weeks, the Department of Energy (DOE) asked the oil firms to justify the increases but then later retreated to its usual helpless mode of pleading the oil companies to implement staggered increases. In response, Petron announced that it will revert to 50 centavo weekly price hikes until July to recover its supposed losses. But note also that Petron made the announcement on the same day that the nationwide transport strike and people’s protest against the oil VAT and the Oil Deregulation Law was held. Thus the announcement was an obvious, albeit meaningless, effort to appease the public.

VAT cancellation

Meanwhile, the Arroyo government continues to ignore the demand to cancel the VAT on oil products as a doable measure to immediately bring down pump prices. The latest statement came from the DOF which argued that the “VAT on oil should be collected to fund the 2008 budget.” Instead of oil VAT cancellation, the DOF is proposing to “use the revenues (from VAT) for targeted expenditures to cushion the impact of oil price hikes on the poorest of the poor.”

However, scrapping the VAT on oil remains the most immediately doable policy option which can significantly lower pump prices and provide relief to the consumers. Table 5 shows that based on the prevailing prices in NCR as of 7 May, VAT cancellation can immediately bring down pump prices of unleaded gasoline by P5.83 per liter; kerosene, P5.29; diesel, P4.98; and liquefied petroleum gas (LPG), P68.83 per 11-kilogram cylinder tank.

Table 5. Comparative pump prices, with VAT & without VAT, as of 7 May 2008


With VAT

Without VAT


Premium plus
















AV turbo












Fuel oil








* LPG prices equivalent to P573.61 per 11-kg tank with VAT & P504.78 w/o VAT

Source of basic data: DOE

In justifying the oil VAT, the DOF said that scrapping the said regressive tax will “bring minimal benefits to the lowest income groups.” But Bayan has already pointed out the concrete and direct benefits that the poor will reap from the oil VAT cancellation, including the jeepney and tricycle drivers, small fishers, and poor households using kerosene and LPG, as summarized in Table 6.

Table 6. Estimated benefits of oil VAT cancellation based on 7 May 2008 prevailing prices in NCR


How much do they spend on oil?

How much will they save without the oil VAT?

How many will benefit? (nationwide)

With VAT

Without VAT

Jeepney drivers using 30 liters of diesel per daily trip

P1,246.20 per daily trip

P1,096.66 per daily trip

P149.54 per daily trip

426,572 jeepney drivers

Tricycle drivers using 4 liters of unleaded gasoline per daily trip

P194.24 per daily trip

P170.93 per daily trip

P23.21 per daily trip

581,578 tricycle drivers

Small fishers using motorized bancas with 10 liters of regular gasoline per fishing trip

P458.60 per fishing trip

P403.57 per fishing trip

P55.03 per fishing trip

708,000 small fishers

Households using 11-kg LPG tank

P573.61 per tank

P504.78 per tank

P68.63 per tank

8.6 million households

Households using 4.2 liters of kerosene per month for lighting & cooking

P185.30 per month

P163.07 per month

P22.24 per month

9.4 million households

Sources of basic data: DOE, LTO, IMF, NSO, Piston, Pamalakaya, interviews

The real reason behind Malacañang’s persistent refusal to scrap the oil VAT is its impact on the national budget deficit that could affect the regime’s foreign borrowings. The oil VAT provides a steady stream of revenues for the government, especially amidst high oil prices, which is favorable for the country’s credit worthiness. The DOF estimated that removing the VAT on oil products will result in P54 billion annual revenue losses for the national government. Table 7 also shows that the oil VAT accounted for 56.2% of total VAT revenues raised by the GMA regime from 2006 to the first half of 2007.

Table 7. VAT collections, 2006 & 1st sem 2007 (in P billion)




Total VAT

Jan-Dec 2006




Jan-Jul 2007








Source: DOF

Higher oil prices mean more revenues for the GMA regime that will assure its foreign creditors of debt repayments. In 2006, for example, Bayan estimates show that the government collected an average of P4.34 per liter in VAT for all petroleum products. This year, it is collecting 72 centavos per liter more in oil VAT due to unabated price increases. (See Chart 7)

Table 7. Annual average retail price of all petroleum products & VAT collections (in P per liter)


Ave retail price

VAT collection










*Jan-7 May only

Source of basic data: DOF

The regime’s so-called fiscal health should take a backseat to the more pressing problem of the ordinary people on high and increasing oil prices. In the first place, the government is raising revenues to supposedly help ease the people’s burden – a responsibility that it has not been fulfilling as most revenues go to debt servicing and lost to corruption. Cancelling the oil VAT thus simply means returning back the people’s money which will translate to actual, immediate and direct benefits (in the form of lower oil prices and improved incomes) instead of entrusting that money to a corrupt and anti-poor regime through the oil VAT.

Furthermore, even if the oil VAT is removed, there are other measures that government can do to raise revenues. Tax effort, for instance is dismal – in 2007, tax effort was only 10.3%, a significant drop from 2006’s 14.3 percent. Certainly, improving efficiency in tax collections will result in billions of pesos in additional revenues. Addressing bureaucratic corruption can raise revenues as well as an estimated P30 billion in public funds are lost annually due anomalous contracts alone such as the NBN-ZTE scam. Tax perks and fiscal incentives to big foreign corporations and the liberalization of trade have also resulted in billions of pesos in foregone revenues and these policies must be reversed.

At present, there are two bills pending at the Senate that seek to suspend or scrap the oil VAT. Senate Bill (SB) 1962 filed by Senator Mar Roxas proposes to suspend the imposition of the oil VAT for six months. SB 1977 of Senator Miguel Zubiri, on the other hand, offers to exempt petroleum products (as well as electricity) from the VAT. SB 1962 and SB 1977 have been pending at the ways and means committee of the Senate since December 2007. At the House of Representatives, the Bayan Muna (People First) party-list has filed House Bill (HB) 3442 to cancel the VAT on petroleum products but has yet to be scheduled for first reading.

But while the VAT removal could provide immediate relief, such respite is only temporary. It can be wiped out in the coming months as oil prices continue to escalate. Thus, the call to scrap the VAT on oil must be complemented by price control and repeal of the ODL with the direction towards the nationalization of the Philippine oil industry. This is the only way that we can protect our people and the economy from the merciless attacks of speculation and price manipulation by transnational corporations.

Sources and notes

P6-7 fuel price increase seen, Philippine Daily Inquirer online, 6 May 2008

RA 8479 is actually the second Oil Deregulation Law. The first, RA 8180, was passed in 1996 but was declared unconstitutional by the Supreme Court in 1997

For further discussion, please refer to Hinggil sa pagtaas ng presyo ng langis, Bayan’s powerpoint presentation downloadable from its website <>

Democrats: close speculation loophole,, 8 May 2008

Perhaps 60% of today’s oil is pure speculation by F. William Engdahl, Financial Sense Editorials, 2 May 2008

EO 691 was signed by GMA on 10 January 2008

Palace: no cut in VAT on oil, Philippine Daily Inquirer online, 15 January 2008

(2nd update) Oil firms to cut prices by P1/liter, ABS-CBN news online, 29 January 2008

Oil firms decide week not complete without price hike, Philippine Daily Inquirer online, 10 May 2008

Major oil firm to revert fuel price hikes P0.50, Business World online, 13 May 2008

DOF counts cost of suspending VAT on oil, Business World online, 13 May 2008


Sen. Roxas, on the other hand, claims that net yearly revenue losses if the oil VAT is removed is only around P30 billion because the amount saved by consumers from the VAT removal can be translated to increased consumption of other VAT-able goods and services.

There is no available data yet on full-year VAT collections for 2007 showing revenues from the oil VAT. Latest data from the Bureau of Treasury peg total VAT revenues at P69.47 billion from January to September 2007.

Corruption, inefficiency cost govt P30B yearly, Manila Times internet edition, 4 April 2008

Addressing the oil price increase, Senate Economic Planning Office policy brief, January 2008