Consumer issues, Oil deregulation

Amid Saudi attacks, no need for oil price hikes

Amid a looming oil crisis precipitated by the attacks on Saudi Arabian plants that effectively shut down 6% of global oil supply, oil companies in the Philippines can still afford not to raise prices. This is because they have overpriced domestic petroleum products to the tune of Php4.38 per liter for gasoline and Php1.80 for diesel from January 2018 up to the first week of September 2019.

This “overpricing” is the result of the oil firms implementing price adjustments that do not properly reflect movements in global price benchmarks, in particular the Mean of Platts Singapore (MOPS) for diesel and gasoline, as well as fluctuations in the US and peso foreign exchange (forex) rates. To illustrate, the net price adjustment for diesel in 2018 based on MOPS and forex was a rollback of Php2.08 per liter. But the actual price adjustment was a rollback of only Php0.60, or a difference (overpricing) of Php1.48 per liter. For 2019, up to the first week of September, the actual price hike for diesel was Php3.15 per liter when the adjustments should have only been Php2.83, or a difference of Php0.32 per liter.

Similarly, there should have been a net rollback of Php5.83 per liter for gasoline in 2018, but the actual reduction was only Php2.35 or a difference of Php3.48 per liter. For 2019, as of the first week of September, the total adjustment in gasoline prices should have only been Php3.25 per liter, but actual price hikes have reached Php4.15 per liter at that point, or a difference of Php0.90 per liter.

So-called global price benchmarks like MOPS, of course, do not show the actual price of oil, which tends to be artificially high because of global oil monopolies that dictate supply and prices. With or without an oil price hike, prices are bloated because of global monopoly control by the oil giants like Shell and Chevron. But on top of this monopoly price, oil firms even profit more by taking advantage of lack of government control on domestic prices and supply. Under oil deregulation, oil firms hike or roll back local pump prices by much higher (in case of price hikes) or lower (in case of rollbacks) than the movements in global benchmark prices and forex.

Can Duterte curb this abusive practice of the oil companies? Not under Oil Deregulation Law, which took away government’s capacity to regulate and ensure fair domestic prices and price adjustments. Will Duterte stop local oil overpricing? Not if his government is raking in about Php7.72 million every day in additional VAT (value added tax) revenues on overpriced diesel and gasoline.

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Consumer issues, Oil deregulation

Oil firms overpriced gasoline by Php3.48 per liter in 2018; diesel by Php1.48

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(Photo: Novinite.com)

After a series of oil price cuts that started from mid-October 2018 up to the first week of the new year, domestic pump prices have begun to climb up again. The recent increases are due to the combined impact of rising global oil prices and of the second tranche of additional excise tax on oil products under the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

For consumers, it is bad enough that they are made to shoulder a heavier tax burden from a commodity as vital as oil. It is even greater injustice that they are forced to pay for overpriced oil and for even bigger fuel taxes due to such overpricing.

As oil firms are wont to do in a deregulated regime, they implemented price adjustments in 2018 that were higher than what were justified (at least based on Department of Energy or DOE standards) by the weekly changes in global benchmark prices as well as foreign exchange rates.

For 2018, oil companies overpriced gasoline by an estimated Php3.48 per liter and diesel by about Php1.48 per liter. (See Table 1)

tab 1 summary of overpricing 2018

The figures were based on the estimated impact on local pump prices of the weekly adjustments in the Mean of Platts Singapore (MOPS) prices of gasoline and diesel, as well as of the peso-US dollar exchange rates. The results were then compared to the actual price adjustments implemented by the oil companies. According to the DOE, the Philippines uses the MOPS prices as benchmark for pricing finished petroleum products that are retailed in the country.

Put another way, oil firms were implementing higher price hikes when global prices were rising and lower price rollbacks when global prices were falling. This means that consumers were still being abused by the oil companies even as they were rolling back prices in the last three months of 2018. In fact, looking at Table 1, the oil firms overpriced more during the successive weeks of price rollbacks in October to December.

The Oil Deregulation Law (Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998”) and its regime of price adjustments without public consultations created the environment for such abuse to be committed with impunity.

These allowed the oil firms to rake in around Php33.93 billion in extra profits last year on top of their regular income, and the Duterte administration to collect some Php4.63 billion in additional revenues from the 12% value added tax (VAT). Apparently, it is not in the interest of the government to regulate oil price adjustments because of the tax windfall that high and overpriced oil generates. (See Table 2)

tab 2 summary extra profits & vat 2018

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

Oil price unbundling

During the height of unabated oil price hikes at the start of 2018, the DOE initiated its proposal to unbundle the prices of petroleum products. The latest is that the DOE is already finalizing a circular to implement the proposed unbundling meant to put more teeth in monitoring oil prices and protect the consumers. Industry players and energy officials have already agreed on seven out of the eight major components of the unbundled price.

Understandably, the remaining contentious item in the planned unbundling is the “industry take”, which indicates the profit margin and operation cost of the oil companies. Nonetheless, the DOE expects to finally issue the circular by the first quarter.

While unbundling could make the cost breakdown per liter of fuel products seem more transparent, it will still not guarantee fair price setting. Adjustments in prices will remain deregulated and oil firms, especially the largest ones, can continue to abuse the weekly price adjustments and overprice their products. This is similar to the unbundling of electricity rates in the privatized and deregulated power industry, which did not stop the abusive pricing practices of the big power monopolies.

Besides, real transparency in prices requires that all oil companies disclose their term contracts with their suppliers, detailing key information such as the specific source/supplier of imported oil, the actual negotiated import price, volume of oil imports, etc.

Impact of the TRAIN Law on oil prices

Compounding the overpricing by the oil companies is the additional fuel tax imposed by the Duterte administration. The TRAIN Law (or Republic Act 10963) will add another Php2 per liter in excise tax to the pump prices of gasoline and diesel; Php1 per liter for kerosene; and Php1 per kilogram (kg) for liquefied petroleum gas (LPG). Including the 12% value added tax (VAT), the second round of tax hike under the TRAIN Law will increase the price of gasoline and diesel by Php2.24 per liter; kerosene by Php1.12 per liter; and LPG by Php1.12 per kg.

In 2018, the controversial tax scheme of the Duterte administration already added Php2.80 to the price of diesel; Php2.97 for gasoline; Php3.36 for kerosene; and Php1.12 per kg for LPG, representing the additional excise tax and the corresponding VAT. Adding to this year’s adjustments, the TRAIN Law’s total price impact as of 2019 would be an increase in the pump price per liter of diesel by Php4.80; gasoline by Php5.21; and kerosene by Php4.42. For LPG, the total price hike is Php2.24 per kg or a total of Php24.64 for the usual 11-kg cylinder tank that households use.

The bad news is that there remains still another tranche of excise tax increases next year under the TRAIN Law. The scheduled increases for 2020, including the VAT, are: diesel, Php1.68 per liter; gasoline and kerosene, Php1.12 per liter; and LPG, Php1.12 per kg. Table 3 summarizes the impact of the TRAIN Law on oil prices.

tab 3 train impact on oil prices

As of the latest price adjustments (i.e., Jan 15, 2019) and including the second tranche of fuel excise tax under the TRAIN Law, the pump price of diesel is more than Php12 per liter higher than its level before the Duterte administration took over; gasoline is almost Php9 higher. Of the said price increases, the additional tax burden (i.e., excise and VAT) imposed by the TRAIN Law accounted for Php5.04 per liter for diesel (41% of the total price increase in diesel under Duterte) and Php5.21 per liter for gasoline (59% of the total increase in the price of gasoline). (See Table 4)

tab 4 oil price before & under duterte jan 2019

If policy makers were to truly address the problem of high oil prices, they should look at both the TRAIN Law and the Oil Deregulation Law. Removing the unnecessary fuel tax burden and making oil taxation more progressive will immediately bring down the price of oil for sure. But oil prices will remain exorbitant and price adjustments will remain unjustified as long as the oil industry is deregulated. ###

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Oil deregulation

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

(Photo from Inquirer.net)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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Oil deregulation

No overpricing? Oil review, as usual

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

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

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

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

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

Determining overpricing

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

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

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

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

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

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

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

Lack of fresh perspective and independence

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

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

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

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

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

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

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Oil deregulation

Oil overpricing continues despite rollbacks

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

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

Local overpricing

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

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

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

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

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

Other estimates

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

Global monopoly pricing and speculation

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

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

Review body

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

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

Direct action

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

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

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Consumer issues, Oil deregulation

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. #
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Consumer issues, Oil deregulation

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. #

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