Consumer issues, Oil deregulation

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. #

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Oil deregulation

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. #

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Oil deregulation

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. #

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Oil deregulation, SONA 2011

SONA 2011: 27 rounds of diesel price hikes, oil profiteering highlight Aquino’s failure

Amid 27 rounds of diesel price hikes since becoming President and unabated profiteering by oil firms, Aquino displays a helpless and defeatist attitude

Less than a week before the second State of the Nation Address (SONA) of President Benigno S. Aquino III, oil firms again jacked up their pump prices. On Monday (July 18), oil companies hiked the price of diesel by P1.10 a liter; kerosene, P1; regular gasoline, P0.60; and unleaded gasoline, P0.30.

This is the second consecutive round of oil price hikes in the weeks leading to Aquino’s second SONA. Last July 12, oil firms raised the pump price of unleaded gasoline by a whopping P2 per liter and diesel, P0.80.

The Aquino administration can, of course, pin the blame on rising global oil prices and claim that it is beyond its control. But precisely because of this helpless and defeatist attitude that oil companies are able to aggravate the plight of the people as they continue to profiteer from rising oil prices.

Total price hikes

All in all, there have already been 27 rounds of diesel price hikes since Aquino was sworn in as President last June 30, 2010, 16 rounds of which happened this year. Similarly, there have been 28 rounds of unleaded gasoline price hikes during the same period, 17 of which happened in 2011.

The common price of diesel in Metro Manila is now pegged at P45.60 per liter from P34.25 when Aquino was inaugurated, or a total increase of P11.35 per liter. The common price of unleaded gasoline, meanwhile, went up from P44 per liter to P56.95 today, or an increase of P12.95 per liter. (See Chart)

Aquino’s liability

Local oil prices, of course, have already been rising rapidly even before Aquino became President especially since the downstream oil industry was deregulated in the late 1990s. Aquino, however, refused to support the demand by various sectors to repeal Republic Act (RA) 8479 or the Oil Deregulation Law. In this regard, Aquino is liable to the people.

RA 8479 allowed oil firms to adjust pump prices automatically based supposedly on price changes in the world market. Because the industry is dominated by the international oil cartel of American and European firms, the law merely gave the big oil players more room to pad the true cost of oil products in the country. Aside from monopoly pricing, oil prices in the world market are also artificially bloated by speculation. All this is fully passed on to consumers making oil prices excessively high.

Profiteering

Due to deregulation, oil companies in the Philippines are also able to rake in additional profits by implementing weekly price adjustments that are beyond what supposed international price benchmarks warrant.

From January to July 12 this year, for instance, the pump price of diesel should have only gone up by an estimated P5.45 per liter based on the movement of benchmark Dubai crude as well as the foreign exchange (forex). During the period, the monthly average of Dubai jumped from $92.19 per barrel in January to around $109.5 in the first two weeks of July. Forex, on the other hand, improved from P44.17 per US dollar to about P42.71. (See Table)

But actual change in diesel’s common price in Metro Manila reached P7.10, indicating an over-recovery of P1.65. The same thing could be observed in the pump price of unleaded gasoline which increased by P7.95 per liter, for an estimated over-recovery of P2.50. Since the oil price crisis in 2008, the accumulated profiteering by local oil firms has now reached about P8.37 to P9.22 per liter.

No real reforms

Instead of marshaling his allies in Congress to work for the repeal of RA 8479 and support proposals like House Bill (HB) 4355 filed by the progressive bloc of partylist groups at the House of Representatives, Aquino implemented the Pantawid Pasada. Not only is this seriously lacking as a relief measure, it also underscores Aquino’s lack of interest in implementing fundamental reforms in the economy to address longstanding problems like exorbitant oil prices, energy insecurity, and abusive practices by foreign cartels.

Oil price hikes could have been mitigated by cancelling the Arroyo-era 12% value-added tax (VAT) on petroleum. But even this was rejected by Aquino because it might turn off the foreign creditors and credit rating agencies. The Aquino administration today is collecting a VAT of around P5.47 a liter on diesel and around P6.83 on unleaded gasoline. When Arroyo stepped down, the VAT on diesel then was only about P4.11 per liter and unleaded gasoline, P5.28.

Urgency

Aquino’s supporters often dismiss critics of the administration as simply impatient. It has only been one year, they point out. Change is not an overnight process, they say. To be sure, no one’s asking the President to change the country in one year. But it must be also recognized that the problems facing our people are urgent, requiring immediate and decisive action from Aquino.

Oil prices, as mentioned, have risen by P11 to 12 a liter via 27 to 28 rounds of oil price hikes in just a year while oil firms continue to overprice their products. In just one year, jeepney drivers saw their income being eroded by more than P340 a day due to unabated oil price increases. The same thing is true for millions of farmers, fishers, households, etc that rely on petroleum products on a daily basis.

Some transport groups have used the latest surge in petroleum prices to again press for another round of fare hike. At the start of year, the minimum fare for jeepneys has been raised by P1 due to unabated increases in the price of diesel. Just four months ago, the minimum fare for buses has also been increased by P1. Driven by escalating fuel prices, inflation last month reached 4.6 percent – the highest since April 2009.

Issues like these need immediate attention. The people have every right to be impatient. Aquino does not enjoy the luxury of time.

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Oil deregulation

Overpricing amid speculative oil price spikes, not supply, is more urgent concern

(This article was first published by the Philippine Online Chronicles)

On Tuesday (Mar. 8), oil firms implemented the eighth round of oil price hikes this year and the third round in one week. All in all, the pump price of diesel has already increased by P6.75 per liter since January; kerosene, P6.50; and gasoline, P6. The retail price of liquefied petroleum gas (LPG), on the other hand, posted a net decrease of P1.90 per kilogram (kg). But recent trends show an uptrend in the LPG international contract price, consequently hiking the local retail price by P2.50 per kg since March 1. (See Table 1)

Alarming pace

The pace with which pump prices are increasing is very alarming. This year, the price of diesel at the pump is rising by almost 68 centavos a liter per week and those of gasoline and kerosene by 65 centavos and 60 centavos, respectively. Just to give you an idea how bad the situation is, note that during the 2008 oil price crisis, the retail price rose by just 57 centavos a liter per week. This, of course, is just an average. At its peak (June and July), the 2008 crisis jacked up local pump prices by P1.42 a liter per week. Unfortunately, we all have no idea if the current surge in prices has already peaked or at least nearing the summit. As we speak, tension continues to build up in the Middle East, with protests now spreading to Saudi Arabia. Meanwhile, the US is planning to intervene militarily in the Libyan civil war. These fuel more speculations, driving wild spikes in prices like in 2008. But unlike in 2008, the oil rich regions are today embroiled in serious volatility that may actually disrupt supply which means more bad news for importing countries like ours.

No shortage

Certainly, there is no actual shortage yet with most members of the Organization of Petroleum Exporting Countries (OPEC) pumping more oil than their individual quotas even before the unrest in Libya. The spare capacity of OPEC is pegged by the International Energy Agency (IEA) at 4.9 million barrels a day or about three times Libya’s output. Spare capacity means capacity levels that can be achieved in 30 days and sustained for 90 days. Oil inventories of the world’s largest economies under the Organization for Economic Cooperation and Development (OECD) also exceed the normal 52-54 days with 57.5 days in December. Nevertheless, taking early measures to prepare for a possible supply disruption is a prudent decision on the part of President Aquino who created an Inter-Agency Contingency Committee (IACC). The Department of Energy (DOE) has also imposed a minimum inventory of 30 days for refiners and 15 days for importers of finished products.

Real problem

However, the real problem right now is not supply but the skyrocketing costs of oil and its impact on the people, especially the poor. Although much of the increases in the global oil prices are speculative (there is no actual shortage, only fears of shortage), Filipino consumers bear the full brunt of soaring prices because of the Oil Deregulation Law or Republic Act (RA) 8479. Worse, oil companies have been taking advantage of the deregulated downstream oil industry to overprice their products. In a deregulated environment, oil firms simply “text” someone in the DOE that they are increasing prices, as a matter of FYI. This system obviously creates a lot of room for abuses. To illustrate, from 2008 to January this year, oil firms have implemented price hikes that were bigger than what changes in global prices and foreign exchange warrant. Similarly, they also implemented smaller rollbacks. The net result is an overpricing of around P7.50 per liter.

P7.50 per liter in overpricing

Thus, on top of the speculative increases, consumers also shoulder the cost of overpriced oil which is an enormous burden for ordinary folks. Consider, for instance, a lowly tsuper who uses 30 liters of diesel for his jeepney in a one day. Through overpricing, oil firms are robbing each of the more than 400,000 jeepney drivers nationwide and their families around P225 per day. About 8.6 million households that use LPG are being robbed of some P147.58 per month. More than 700,000 fishers, who are the poorest sector in this country (50% of them try to survive on just P41 a day), shell out P75 per fishing trip to cover the cost of overpriced gasoline. The poorest Filipino households use kerosene for lighting and cooking and even they are being squeezed dry by the oil companies. (See Table 2)

From the burden of these poor sectors and the rest of consumers, oil companies squeeze P369.65 million everyday in extra profits from overpricing. Of this amount, Petron accounts for P124.59 million, followed by Shell with P91.41 million; Chevron, P40.66 million; Total, P14.31 million; and other players, P54.32 million. Even the Aquino administration gets its share from the profiteering of the oil companies through the 12% value added tax (VAT) imposed on oil to the tune of P44.36 million daily. (See Chart)

Regulate prices now

The Aquino administration at first refused to engage the issue of skyrocketing prices, as it has done on the general increase in prices of basic goods and services. (Read “A regime of high prices: Aquino’s apathy towards the poor”). But as the oil price hikes rage on and escalating people’s protests over high prices loom, government is now at least showing a semblance of concern. The Department of Finance (DOF) is reportedly considering subsidizing oil products consumed by the poor and reducing the VAT on petroleum. These measures are apparently the most “drastic” proposals that government is ready to make.

While any measure that can immediately bring down the price of oil (especially the scrapping of the 12% oil VAT) to provide much needed relief is welcome, we need a truly drastic reform. Overpricing must be addressed because even during times of low prices, consumers are still being exploited by the oil companies. Of course, there is a task force composed of the DOE and the Department of Justice (DOJ) that the Oil Deregulation Law created to look into the abuses of the oil players. But in the 13 years that this task force has existed, not a single oil company has ever been penalized for overpricing. Not even when the Director General of the National Economic and Development Authority (NEDA) himself is saying that they are overpricing (remember now Sen. Ralph Recto’s allegation in 2009 that oil products were overpriced by P8 a liter?).

The excuse for this is simple. As argued by the late Angelo Reyes, who as the then DOE chief lambasted Recto’s claim, there is no such thing as overpricing or a standard formula under deregulation. Every price adjustment is justified as a business decision in the name of competition and driven by the world market. But we all know that this is hogwash. More than eight out of every 10 liters of oil sold in the domestic market are from just four companies (Petron, Shell, Chevron, and Total) with tight links to the global oil cartel. They set the price adjustment and everyone else just follows. Government should stop using the world market as an excuse for being helpless. Otherwise, there is no more need for a government. At the very minimum and as an immediate policy reform, we need to regulate the price adjustments through a system of credible, democratic, and transparent public hearing. Hindi pwedeng “text-text” lang ang oil price hikes. (end)

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Consumer issues, Power industry, Privatization

Meralco’s insulting attempt at pa-pogi

Meralco bill (Image from ofwnow.com)

On Tuesday (March 9), the Manila Electric Co. (Meralco) asked the Energy Regulatory Commission (ERC) to allow it to “reduce” and spread over several months the whopping P1.83 per kilowatt-hour (kWh) hike in this month’s generation charge.

This is clearly a case of an insulting attempt at pa-pogi. Meralco wants to make it appear that consumers should have utang na loob for the firm’s voluntary offer to mitigate the impact of a drastic rate hike when in reality, the rate increase is unreasonable and Meralco has billions of unpaid debts to its close to 5 million customers.

Lower rate hike

In its petition, Meralco said that instead of a one-time hike of P1.8298 per kWh in generation charge for March, the ERC approve a rate hike of just P1.3852. The remaining balance of 44.46 centavos shall be collected from April to September to ease the impact of the increase on its customers.

Under the Electric Power Industry Reform Act (Epira) of 2001, distribution utilities like Meralco can implement automatic generation rate adjustment. This means that they can automatically pass on to consumers increases in the cost of power generation.

Overcharging probe

Meralco’s move comes amid an ongoing probe on fresh allegations that the power firm overcharged its customers. In a December 2009 report, but released to the public only last month by the ERC, the Commission on Audit (COA) accused Meralco of overcharging its customers by as much as P7.29 billion.

According to the COA report, Meralco illegally passed on to consumers operating expenses such as P2.36 billion worth of employees’ pensions and benefits. Consumers were also made to shoulder the costs of property and equipment that COA said are questionable including the construction of a P526.2-million creek and a P156-million parking lot.

The ERC is expected to conduct public hearings this month to determine if the power firm needs to refund or implement a rate reduction to offset its over collections. Or it can also uphold Meralco’s claim of innocence.

Propensity for abuse

But this is not the first time that Meralco has been accused of overcharging. In 2003,  the Supreme Court (SC) affirmed COA’s findings that Meralco illegally collected P30.2 billion from its customers from 1994 to 2002. COA discovered that Meralco included income taxes in its RORB (return on rate base) calculations resulting in bloated electricity bills for consumers. Until today, the power distributor has yet to fully comply with the refund order of the SC.

Far from the image of a considerate and responsible company it desperately hopes to portray, Meralco has shown its unmistakable propensity for abuse. Its pattern of overcollections in the past couple of years clearly attests to this. Aside from the P30.2 billion, Meralco was also ordered by the ERC to return P2.88 billion in meter deposits as well as P3.92 billion in over-recovery of currency adjustments.

Upholding public interest

The power distributor could not claim that its generation charge is simply a pass on cost. Remember that Meralco sources its electricity from its own independent power producers (IPPs) and sister firms. Even in the Wholesale Electricity Spot Market (WESM), which Meralco is citing for the sudden and drastic hike in this month’s generation charges, Meralco’s sister companies and IPPs allow Meralco to account for as much as 40 percent of generated capacity.

Thus, consumers have nothing to thank Meralco for. We do not owe Meralco a single centavo, and it is Meralco that still has to return billions of pesos it illegally collected from us.

In light of the latest COA report accusing Meralco of again overcharging the consumers, the ERC should disallow any petition for a rate hike by the power distributor. Allowing it to jack up its rates would mean continuing injustice to consumers.

An immediate rate reduction is also justifiable considering that the latest COA report questioned the cost assumptions that the ERC used in approving Meralco’s huge 41-centavo hike in its distribution rates last year, which  allowed Meralco to post a 114 percent increase in its 2009 profits.

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Oil deregulation

Petron, Shell lying about “losses” due to EO 839

Oil cartoon

IBON cartoon

Pilipinas Shell today (Nov. 12) claimed that because of EO 839, it has incurred losses of as much as ₱80.9 million in just six days (or about ₱13.48 million daily). Also today, Petron Corporation reported a net income of ₱3.38 billion from Jan. to Sep. but quickly warned that if EO 839 is not lifted until yearend, it will suffer over ₱1 billion in losses in the fourth quarter.

Kung ganyan, bakit hindi na lang sila magsara? And then the State can just take over as proposed recently by senior senators.

Because the truth is they are not losing money and on the contrary have been raking billions of pesos in extra profits (i.e. on top of their regular profits) due to overpricing, which has become more intense and unbridled under the current DOE and Arroyo administration.

When EO 839 was issued on Oct. 20, petroleum products nationwide were overpriced, on the average, by ₱5.48 per liter, according to Bayan. Consequently, oil firms are earning extra profits of about ₱212.38 million daily. Due to overpricing, Petron is earning extra profits of around ₱82.19 million daily; Shell ₱63.5 million; Chevron, ₱29.94 million; Total, ₱9.56 million; and other players, ₱27.18 million.

If they could afford to reduce their prices and still earn, why do oil firms, in particular the big foreign players, oppose EO 839? The reason is more political than economic. While it is supposed to be based on RA 8479, EO 839 in effect puts into question the wisdom of oil deregulation and affirms the argument that for public interest, the market should not be left to itself.

What is at stake in the debate on EO 839 is not the profitability or viability of the industry. The bigger issue is that EO 839, despite its inherent limitations in terms of truly protecting in a sustainable manner the interests of oil consumers, has provided a glimpse of what the state can do if it is serious enough and has the needed political will to stand for public welfare.

EO 839 itself, because it was pursued in the framework of deregulation, did not protect consumers but simply increased the burden of consumers in the Visayas and Mindanao, where oil prices have been raised to offset the supposed losses of the oil firms due to the Malacañang order and where pump prices  have been historically higher than Luzon’s. 

To a certain degree, however, it questioned the lies long peddled by the oil companies and staunch defenders of neoliberalism about neoliberal free market economics. If left unchallenged, EO 839 could become a precedent in policy making – that the government, in the name of public good and welfare, could take decisive action against abusive corporations.

Recent pronouncements by several policy makers about taking over the industry and state-led oil importation must be welcomed. They affirm what opponents of oil deregulation have been saying all along.

Now it remains to be seen if these will translate to actual policy reforms.

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