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 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)

Facts and figures you should know about oil prices

(The video above, produced by Mayday Multimedia, is a short but very useful visual presentation of the issues behind the high and increasing oil prices in the country. Below are some of the latest available official data as well as independent estimates that hopefully you may also find useful.)

  • P48.10 per liter – the common price of diesel in Metro Manila as of Mar. 8, 2012; P57.75 for gasoline; and P835 to P919 for an 11-kilogram (kg) cylinder tank of liquefied petroleum gas (LPG).
  • P3.20 per liter – the net increase in the pump price of diesel since the start of the year until the last round of oil price hikes on March 8-9; P5.85 for gasoline; and more than P190 per 11-kg cylinder tank of LPG.
  • 8 rounds of oil price hikes have already been implemented in the first 10 weeks of 2012.
  • P96 per day – the eroded amount from the income of jeepney drivers because of oil price hikes this year; P1,443 is their estimated daily consumption of diesel; P1,200 is the total amount loaded in a Pantawid Pasada card.
  • P62 million per day – the estimated increase in government revenues from the 12% value added tax (VAT) on diesel due to oil price hikes this year.
  • $116.16 per barrel – the published price of Dubai crude as of February 2012. Dubai crude is the benchmark for international crude oil prices that oil companies in the Philippines use in pricing their petroleum products.
  • $29 to $43 per barrel – the estimated amount needed to produce a barrel of crude oil. The estimate is based on the US Energy Information Administration’s (EIA) data showing that the finding cost (exploration and development) is about $6.99 to $18.31 a barrel while the lifting cost (operation and maintenance of wells) is about $5.75 to $8.26 a barrel. The EIA also said that royalties is about 14% of the selling price (or $16.26 a barrel based on Dubai crude’s selling price of $116.16 as of Feb. 2012).
  • $73 to $87 per barrel – the difference between the published price of Dubai crude and the estimated needed amount to produce a barrel of crude oil. This amount approximates the super profits squeezed through global monopoly pricing and speculation by oil monopoly capitalists and financial oligarchy (Goldman Sachs, Morgan Stanley, and other Wall Street firms) from the US, Europe, and other advanced capitalist countries.
  • Two-thirds – the estimated portion of physically sold oil in the world market that is traded through the production and distribution chain directly controlled by the oil monopoly capitalists such as Royal Dutch Shell (UK/Netherlands), ExxonMobil (US), British Petroleum (UK), Chevron (US), and Total (France). Such direct control allows the global oil monopoly to arbitrarily pad the price of oil as it goes through its production and distribution network.
  • At least 80% – the estimated portion of oil sold in the Philippine market that goes through the chain of production and distribution directly controlled by the global oil monopoly. As such, prices are not actually affected by the daily fluctuations in spot markets and futures market, as claimed by the big oil companies and government.
  • $378.15 billion – the total revenues in 2010 of Shell, the world’s largest oil monopoly capitalist. That’s almost twice the size of the domestic economy of the Philippines (gross domestic product or GDP of $199.59 B in 2010). Chevron, which like Shell is an oil monopoly capitalist operating in the country, posted revenues of $196.34 B, or almost the same size as our domestic economy.
  • P8.60 per liter – the estimated overpricing in the price of diesel in the Philippines since the Oil Deregulation Law was implemented (accumulated from January 1999 to February 2012). The amount is on top of global overpricing due to monopoly pricing and speculation and simply reflects the discrepancy in international crude prices and local pump prices.
  • P147 million every day – the estimated extra profits that oil firms earn from overpricing the local pump price of diesel alone. Almost 78% of this amount will go to the four biggest oil companies in the country (Petron – P55 M daily extra profits from overpriced diesel; Shell, P38 M; Chevron, P15 M; and Total, P8 M).
  • Almost P6 per liter – the estimated immediate reduction in the pump price of diesel if the VAT on oil is removed; almost P7 per liter for gasoline; and as much as P110 per 11-kg tank for LPG
  • 20 – the number of bills and resolutions filed so far at the 15th Congress that aim to review, amend, or repeal the Oil Deregulation Law; probe overpricing; reduce, suspend, or scrap the VAT on oil; institute a regime of effective state regulation or at least a price setting mechanism; and impose a cap on oil profits.
  • Zero – the number of bills and resolutions endorsed by President Aquino or substantially taken up and prioritized by the House and the Senate to reduce or control the price of oil. #

More Filipinos think Aquino not addressing oil overpricing

"Heartless" oil firms hit for Valentine's Day price hikes

The latest survey of the Social Weather Stations (SWS) shows that while the Aquino administration continues to enjoy high public satisfaction ratings, more Filipinos are dissatisfied with government response on the issue of oil prices. According to the SWS’s Dec. 3-7, 2011 survey, published yesterday (Feb. 13) by the BusinessWorld, the Aquino administration maintained a high 56% net public satisfaction on its general performance.

But the administration also posted a negative 3% on its performance on the specific issue of “Ensuring that oil firms don’t take advantage of oil prices”. The negative 3% is 7 percentage points lower than the already low 4% that it recorded in SWS’s previous survey in September 2011. Furthermore, the issue of oil is also just one of two among the 19 specific performance indicators included in the SWS survey wherein the Aquino administration registered a negative net satisfaction rating. The other is “Resolving the Maguindanao massacre case with justice” wherein government recorded a negative 18 percent.

(Download the complete results of the SWS survey here)

The survey results came out amid fresh rounds of oil price hikes and widespread public perception that oil companies are overpricing their products and accumulating huge amounts of profits at the people’s expense. The SWS findings clearly indicate that the public is not buying the Aquino administration’s response to the problem of high oil prices and overpricing charges against the oil firms. This includes the Pantawid Pasada program and the establishment of a so-called independent panel to review “the books of oil companies to ensure transparency in fuel pricing”.

The adverse public opinion against the profit-greedy oil companies and lack of government action against their abuses should compel policy makers to initiate reforms in the downstream oil industry. Unfortunately, it is obvious that the people could not expect President Aquino to instigate this policy shift. Aquino has shown unwillingness to heed the demand to repeal the Oil Deregulation Law (ODL) or Republic Act (RA) 8479 and establish a regime of effective state regulation to “ensure that oil firms don’t take advantage of oil prices”. Aquino has also rejected calls for not just the scrapping of the 12% value-added tax (VAT) on petroleum products but even its suspension to at least mitigate the oil price hikes.

But fortunately, some lawmakers have taken notice of the perennial problem of high, escalating, and questionable oil prices and made proposals to look into the ODL and the oil VAT. At the House of Representatives (HoR), for instance, aside from the representatives of progressive partylist groups, legislators from mainstream political parties as well as from moderate partylist groups have also filed bills ranging from amendments of to outright repeal of RA 8479 and suspension or repeal of the VAT on oil.

A quick look at the webpage of the HoR’s committee on energy shows at least five (5) bills proposing to repeal RA 8479 and at least two (2) bills and one (1) resolution proposing review and amendments. On top of these, there are also at least five (5) resolutions calling for a probe on oil pricing as well as one (1) resolution seeking emergency powers for the President to address the oil crisis. Aside from proposals on what to do with RA 8479, at least three (3) congressmen have also filed bills removing or at least suspending the VAT on petroleum products. All in all, there are currently 17 bills and resolutions filed in the 15th Congress of the HoR that aim to reduce and/or control high and escalating oil prices. Meanwhile, at the Senate, at least three (3) bills have been filed that propose to amend RA 8479; institute a system of fair fuel pricing; and impose a cap on the profits of the oil companies.

The following are the bills and resolutions filed at the energy committees of the HoR and Senate on the issue of ODL and oil prices as well as proposals to remove or suspend the VAT on oil filed at the lower chamber’s committee on ways and means:

  • House Bill (HB) 4355 – An act regulating the downstream oil industry and repealing RA 8479 (filed by Rep. Teddy Casiño, Bayan Muna) (Download here)
  • HB 4317 – An act repealing RA 8479 (Rep. Rafael Mariano, Anakpawis)
  • HB 2569 – An act regulating the oil industry, establishing the oil price stabilization fund, and repealing RA 8479 (Rep. Rufus Rodriguez, Partido ng Masang Pilipino or PMP) (Download here)
  • HB 5295 – An act regulating the oil industry thereby repealing RA 8479 (Rep. Winnie Castelo, Liberal Party or LP)
  • HB 00347 – An act regulating the downstream oil industry (Rep. Danilo Suarez, Lakas-Kampi) (Download here)
  • HB 3267 – An act amending RA 8479 (Rep. JV Ejercito, PMP) (Download here)
  • HB 4893 – An act to ensure transparency in pricing, amending RA 8479 (Rep. Romeo Acop, Nationalist People’s Coalition or NPC)
  • House Resolution(HR) 00672 – A resolution directing the energy committee persistent oil shortage and recent spate of oil price hikes (Rep. Ben Evardone, LP)
  • HR 00880 – Resolution directing the energy committee to investigate the price monitoring and regulatory system instituted by the DOE in the light of overpricing allegations (Rep. Luz Ilagan, Gabriela Women’s Party or GWP)
  • HR 01027 – A resolution authorizing President Aquino to exercise emergency powers to address a possible oil crisis in the country (Rep. Teodorico Haresco Jr., Kasangga)
  • HR 01170 – Resolution directing the energy committee to investigate unusually high oil prices in Negros Occidental and other areas outside Metro Manila (Rep. Teddy Casiño, Bayan Muna)
  • HR 01310 – A resolution directing the energy committee to investigate high oil prices in Bacolod City and Negros Occidental (Rep. Roilo Golez, LP)
  • HR 01464 – A resolution directing the energy committee to investigate DOE’s decision of clearing oil firms of price-fixing allegations (Rep. Rufus Rodriguez, PMP)
  • HR 01627 – Resolution urging the HoR to review the ODL for possible amendments (Rep. Mitos Magsaysay, Lakas-Kampi)
  • HB 02806 – An act suspending the VAT on oil (Rep. Rufus Rodriguez, PMP) (Download here)
  • HB 04554 – An act exempting petroleum products from the VAT (Rep. Ma. Theresa Bonoan-David, Lakas-Kampi)
  • HB 2719 – An act exempting petroleum products from the VAT (Rep. Teddy Casiño, Bayan Muna) (Download here)
  • Senate Bill (SB) 1828 – Fuel pricing fairness act (Sen. Miriam Defensor-Santiago, People’s Reform Party or PRP) (Download here)
  • SB 754 – An act amending RA 8479 (Sen. Jinggoy Estrada, PMP) (Download here)
  • SB 2529 – Imposing a 12% cap of paid-up capital on the maximum allowable profits of oil companies (Sen. Antonio Trillanes IV, Indpendent)

There is no shortage of proposals on what to do with the problem of high and soaring oil prices and the abuses that oil companies commit. The public, meanwhile, is deeply discontented with what the Aquino administration has been doing (or not doing) to address the issue. The conditions are favorable to aggressively push for the proposals pending in Congress against the ODL and the oil VAT and compel the Aquino administration to support these initiatives or be further exposed as anti-people and pro-oil cartel. #

14 years of oil deregulation is enough! (Last part)

After 14 years of deregulation, the dominant position of the Big Three remains intact, if not stronger, while consumers are forced to bear exorbitant and steadily soaring oil prices

Read part 1 here

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

Exorbitant oil prices

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

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

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

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

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

Global monopoly

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

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

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

Continuing monopoly control

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

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

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

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

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

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

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

Prospects of Aquino’s Oil Deregulation Law review

The transport strike and people's protest last Sep. 19 underscored the message that Aquino should not pay lip service to the people’s longstanding demand to control petroleum prices. (Photo by Nino Jesus Orbeta/INQUIRER.net)

First published by The Philippine Online Chronicles

In an effort to preempt the transport groups from staging a potentially massive strike, President Benigno S. Aquino III last week held a dialog with the leaders of the transport sector. Malacañang was partly successful as only the Pinagkaisang Samahan ng mga Tsuper at Opereytor Nationwide (PISTON) went ahead with the transport strike last Sep. 19 while the others backed out.

PISTON was supported by fellow progressive people’s organizations which staged mass protests in various parts of Metro Manila. Transport strikes and people’s protests were also held in various parts of Southern Luzon and Mindanao, where transportation was crippled.

Arrogant, insensitive

Presidential spokesperson Edwin Lacierda said that Malacañang is dismayed that PISTON still pushed through with the transport strike despite the dialog even as he claimed that very few passengers were affected. He also chided the transport group for opting to be part of the problem and not of the solution.

Meanwhile, Secretary Mar Roxas of the Department of Transportation and Communications (DOTC) visited the protesters not to express sympathy but to tell them in person that the strike was “perwisyo” (nuisance) to the public. Lacierda’s and Roxas’s statements speak volumes about how the Aquino administration appreciates the problem of exorbitant oil prices and the plight of ordinary people like the jeepney drivers.

Such arrogance is supposed to be a thing of the past because the “pamumunong
manhid sa daing ng taumbayan”
supposedly ended last June 30, 2010. But like its predecessor, the Aquino administration is proving to be as arrogant and as insensitive to the legitimate grievances of the people. It is proving to be as repressive, too. The Land Transportation Franchising and Regulatory Board (LTFRB) is reportedly reviewing the franchise of PISTON members who joined the transport strike.

All this casts doubts on the sincerity of the Aquino administration to have another look at the Oil Deregulation Law as promised by the President during the dialog with transport groups.

Task force

As Malacañang’s response to the transport strike, Roxas has announced that government has formed a task force composed of the DOTC, the Department of Energy (DOE), and the Department of Justice (DOJ) to probe “questionable collaboration” among oil firms in setting prices.

“The task force will investigate how oil companies come up with market oil price, particularly how much they actually spend to import the product from oil cartels in the Middle East, transfer it via Singapore or other routes, and load the products into gasoline trucks before they reach oil gas stations,” said Roxas.

But it is unclear if the task force is the implementation of Aquino’s order to review the deregulation policy. If it is, then the review is in danger of being reduced to how the law may be improved to better monitor oil prices instead of being a full-blown
investigation of Republic Act (RA) 8479.

To be sure, an investigation of the pricing scheme of the oil companies should form an important aspect ofthe review but it should not be the only focus. The review must also seek to answer equally important issues such as whether or not the monopoly of the so-called Big Three (Petron Corporation, Pilipinas Shell, and Chevron Philippines) has been dismantled under deregulation.

These issues can only be pursued through an exhaustive review which should be open to exploring alternatives including the repeal of the Oil Deregulation Law and instituting effective state control over the oil industry.

Credible review

Furthermore, the review must immediately translate to legislation given the urgency and magnitude of the problem. As such, the review should not be left to the agencies of the Executive branch alone. Instead, it must be a joint effort of Malacañang and the Energy Committees of the House of Representatives and the Senate where there are already pending proposals on what to do with RA 8479 such as House Bill (HB) 4355.

This shall fast track the process and ensures that the results of the review will quickly translate to concrete policies, not to mention that government can even save on its meager resources. If Aquino truly wants to review the law, he should muster the support of his party mates and allies in Congress to immediately act on the pending bills.

Also, the process should be as democratic as possible and must seek the participation of people’s organizations including the transport sector, workers, farmers, consumers, women, and youth. It must also include independent experts from non-government advocacy groups of academics, researchers, economists, and scientists among others.

Otherwise, Aquino’s review order will just end up like the last review of the deregulation policy conducted in 2005. The Independent Review Committee created by Arroyo ended up dismissing all the issues raised against RA 8479 and bolstered criticisms that the initiative was nothing but a moro-moro to reaffirm the legitimacy of the much-criticized deregulation policy.

Regulation as alternative

The Aquino administration must recognize that the “proper” implementation of RA 8479 or even amending it to supposedly give the DOE more power to police the oil firms will not address the problem.

One particular contentious issue is overpricing, a persistent allegation that has long been hounding the oil firms. Any deregulation law will not have a provision on overpricing because deregulation assumes that the market and competition will set the “fair” price. But this is a fallacy especially in the case of the oil industry which since time immemorial has been dominated and controlled by the monopoly of giant companies from the US and Europe.

To curb overpricing and ensure reasonable prices at the pump, there must be a system of public hearing before any increase in prices is made. Unlike today when oil companies can automatically increase their prices – whether monthly, weekly or even daily – effective regulation will require them to justify the oil price hike up to the last centavo.

In addition, the government must also have an active role in the importation, storage, refining, and retailing of petroleum products. To effectively regulate the oil industry including the determination of prices, the public needs to know where the petroleum imports come from, how much were they bought, in what quantity, etc. – details that are hidden from the consumers under the current set-up of decentralized importation.

Centralized procurement of oil imports – even if gradually implemented based on available government resources – will help correct this defect. The government must also buy back Petron to better ensure reasonable prices and stable supply of oil products. Other key reforms include the establishment of an oil price and supply buffer fund that should cushion the impact of drastic increases in global prices on local petroleum products.

Political pressure

Is the Aquino administration ready and willing to consider these policy reforms in lieu of the Oil Deregulation Law? Aquino has already demonstrated his strong bias for neoliberal free market policies. He has earlier rejected calls for price control and junking of RA 8479 amid public clamor for substantial government intervention as pump prices skyrocketed in the first quarter of the year.

Instead, Aquino implemented the much-hyped but severely lacking P300-million Pantawid Pasada fuel subsidy. It also turned out that only P70 million has been released so far for the said program since it was launched five months ago.

In fact, even after ordering the review of RA 8479, Malacañang continued to express support for deregulation. Abigail Valte, another presidential mouthpiece, said after the dialog that “the President stressed that the idea behind the law is to espouse competition… He believes there is more room for competition.”

Indeed, reconsidering the deregulation law has never been in the agenda of the Aquino administration. It was not, for instance, included in the priority bills – even the proposals to amend RA 8479 – that Malacañang submitted to the Legislative-Executive Development Advisory Council (LEDAC) during its first meeting under Aquino last March. At that time, oil prices were soaring at an alarming pace, threatening to duplicate the oil crisis in early 2008.

Aquino only ordered a review of the Oil Deregulation Law after PISTON and other transport groups threatened to stage a strike against unreasonable oil prices and the lack of state regulation. PISTON’s decision to still push through with the transport strike even after the dialog underscored the message that Aquino should not pay lip service to the people’s longstanding demand to control petroleum prices.

It also serves as a reminder that the powers-that-be will not act on pro-people reforms without unrelenting pressure from the streets. For Aquino’s review order of the deregulation policy to benefit the people, the people must keep on the pressure. #

Oil firms, government earned P75 B in extra profits, VAT from overpriced diesel, unleaded gasoline

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing. (Photo by Nino Jesus Orbeta)

Transport groups, led by the progressive Pinagkaisang Samahan ng mga Tsuper at Opereytor Nationwide (PISTON), are staging a transport strike today (Sep. 19) in selected routes in Metro Manila as well as in various regions around the country. PISTON and its allies are pushing through with the strike and people’s protest despite the last-minute turnaround of other transport groups following their dialog with President Aquino last week.

Aquino, who promised to be the total opposite of Mrs. Gloria Arroyo, is employing the same tactic of his predecessor when faced with the threat of a transport strike – intimidate the jeepney operators with a cancellation of their franchise. But PISTON members are unfazed and they have every right and reason to go on with the strike even after Aquino ordered a review of the Oil Deregulation Law. The strike should send a strong message to Aquino and the oil companies that the grave abuse they inflict on the public transport sector and the people must stop.

Overpriced oil

Unabated oil price hikes since the start of year have already eroded the daily income of jeepney drivers by about P158 (based on the P5.25-total diesel price hike since January and the 30-liter a day average consumption of a jeepney driver). This is reason compelling enough for drivers to strike. But worse, the increases are unjustified despite the repeated claims of the oil firms, echoed by Energy officials, that they are simply reflecting the movement in global prices and foreign exchange (forex).

Because of unregulated price adjustment under the Oil Deregulation Law, oil firms have more space to abuse consumers such as through local overpricing, or imposing domestic pump price adjustments that are much higher than what global prices and forex warrant. It must be pointed out though that global oil prices are already artificially high due to monopoly pricing and speculation. But local overpricing certainly worsens the impact of exorbitant global prices on the people.

Allegations of overpricing come not only from activists. Senator Ralph Recto, when he was still the Director General of the National Economic and Development Authority (NEDA), for instance, accused the oil firms of overpricing the public by P8 per liter. Our own estimate is that diesel is overpriced by about P7.60 per liter and unleaded gasoline by around P9.85. These figures represent accumulated monthly overpricing from January 2008 to August 2011.

The process detailing how we arrived at these estimates is discussed here.

Extra profits

By selling overpriced diesel and unleaded gasoline, the oil companies raked a total estimated extra profits (on top of their regular profits) of P66.19 billion from January 2008 to August 2011. Meanwhile, the government also has its share of the loot through the 12% value-added tax (VAT) imposed on overpriced diesel and unleaded gasoline to the tune of P9.03 billion. Thus, a total of P75.23 billion has been over-collected from jeepney drivers and other consumers since 2008. Of this amount, P45.05 billion came from diesel and P30.18 billion from unleaded gasoline.

The estimates were derived from multiplying the estimated annual overpricing in diesel and unleaded by their respective demand from 2008 to 2011. For instance, from January to August 2011, the accumulated overpricing for diesel is 88 centavos per liter. Using 2010 daily demand figures for diesel (2011 data are not yet available) of 19.63 million liters multiplied by 243 days (January to August), the estimated extra profits and VAT collections from overpriced diesel is P4.19 billion. 12% of this amount represents government’s VAT collections and the remainder goes to the oil companies. Using this same process, we estimated the extra profits and VAT revenues from overpriced diesel and unleaded gasoline in 2008, 2009, and 2010.

Furthermore, using the annual distribution of the local market per oil company, we can also estimate how much extra profits due to overpricing are collected by each of the Big Three. Of the P75.23 billion, P26.75 billion went to Petron Corporation; Pilipinas Shell, P19.85 billion; Chevron Philippines, P8.82 billion; and the rest of the oil players, P10.78 billion. The remainder, as mentioned, went to the government as additional VAT revenues.

You may access the Excel files of these computations here.

Join the strike

If you think that these figures are scandalously high, they are actually just peanuts compared to the billions if not trillions of dollars that the investment banks and the global oil giants, who supply the country’s petroleum needs, pocket in superprofits from monopoly pricing and speculation.

You may download a PowerPoint presentation on the global oil industry here.

Direkta at buong-buong pinapasan ng mamamayang Pilipino and lahat ng pang-aabusong ito dahil sa Oil Deregulation Law. At kasabwat pa ang gobyerno sa pang-aabuso sa pamamagitan ng VAT.

Support the striking jeepney drivers and operators. Join the transport strike and people’s protest today. #