Petron Corporation, the country’s largest oil company, has alleged that about one out of every three liters of gasoline or diesel sold in the Philippines is smuggled. For the government that translates to P30-40 billion in lost revenues a year, said Petron boss Ramon S. Ang. For the company it means fewer profits because smuggled oil can be sold at extremely low prices and undermine Petron’s market share.
But why should ordinary Filipinos, who have been forever abused by Petron and other big oil firms, care? Jeepney, taxi and tricycle drivers, the small fishers and farmers do not mind buying smuggled oil if that’s the only way they can boost their meager income eroded by ever rising fuel costs. They simply can’t empathize with Petron’s predicament of seeing its profits fall to “just P2.3 billion” last year. They can’t appreciate the lost government revenues either since social services are hardly felt anyway. Just ask Kristel Tejada’s parents.
If there is one issue that matters to ordinary folks in the allegation of Ang is the huge tax burden imposed by government on a commodity as socially sensitive as oil. The claim of Petron is that smugglers are using the special economic zones to evade paying the 12% value-added tax (VAT) and the excise tax. This allows some retailers to sell cheap oil.
How much do government taxes add to the retail price of petroleum products?
As of April 2, 2013, the retail price of gasoline in Metro Manila ranges from P48.65 to P54.64 per liter, based on the monitoring of the Department of Energy (DOE). The VAT is about P5.84 to P6.56 per liter (12% of the retail price). The excise tax, on the other hand, is fixed at P4.35 per liter. Thus, the VAT and the excise tax comprise around 20 to 21 percent of the current retail price of gasoline.
Compare it to the percentage of government taxes to the pump price of gasoline in the US which is just about 12% (more details here). The Philippines, in fact, has one of the largest taxes as a percentage of gasoline retail price in the world, together with Hong Kong, Thailand, New Zealand, Cambodia and Singapore (read more here). The same thing is true for diesel, which is has zero excise tax but is also imposed with the 12% VAT.
The country’s oil products carry high government taxes despite the elimination of the 3% import duty on crude oil and refined petroleum by the Arroyo administration in 2010. Refusing to scrap the VAT and the Oil Deregulation Law, it was government’s attempt to mitigate the impact of soaring global oil prices.
But it was a futile move. Pump prices remained high and continued to increase exorbitantly in a regime of deregulated prices. The basic problem of monopoly control, overpricing and speculation remained, which even the so-called Independent Oil Price Review Committee (IOPRC) acknowledged. And compounding the consumers’ predicament is the oppressive 12% VAT on oil, in which government revenues increase as oil prices skyrocket.
Consumers need lower oil prices. Government must find ways to reduce them. One immediately doable step is to scrap the VAT. Government may retain the excise tax or re-impose the 3% tariff (except for the most socially sensitive oil products like diesel, kerosene and LPG) but the VAT should go. Government should also devise tax measures that will make oil firms, especially the biggest and most profitable ones, shoulder more tax burden.
As for smuggling, it must be addressed within the framework of deep reforms in the industry and with the aim of dismantling the oil monopoly and curbing price abuses. The problem of rampant smuggling can only be solved if the downstream oil industry is strictly regulated by government.
One possible measure is a system of centralized procurement wherein the Philippine National Oil Company (PNOC) or any relevant state agency will be the exclusive importer of crude and refined petroleum. Under this system, it will be easier to track or identify smuggled oil, e.g. anything not imported by the PNOC is automatically considered smuggled. It will also help minimize the overpricing of oil companies. (End)
The country’s largest and most profitable firms are oblivious to the devastation being wrought by torrential rains on Metro Manila and various provinces in Luzon. Displaying barefaced greed, oil companies led by Petron Corp. hiked their pump prices, the fifth round in as many weeks since July. Then, the Manila Electric Co. (Meralco) announced a new increase in its generation charge this month. Also, the Business Process Outsourcing Association of the Philippines (BPAP) asked for an exemption from the work suspension order issued by Malacañang.
All these even as hundreds of thousands of mostly poor people are still struggling to survive the worst downpour since tropical storm Ondoy hit the country in 2009. According to the latest update (as of Aug.7, 5 p.m.) from the National Disaster Risk Reduction and Management Council (NDRRMC), the heavy rains spawned by the southwest monsoon have submerged 46 cities and municipalities in Metro Manila and Regions I, III and IV-A, affecting more than 541,000 people. Sixteen have been reported dead.
Such display of cold-blooded corporate greed amid a grave natural disaster is most unconscionable. We have yet to cope with this latest tragedy (and still reeling from the impact of typhoon Gener that preceded the heavy monsoon rains), and already we are being battered by increases in oil prices and electricity rates. Many families have yet to be rescued and still call center firms are requiring their employees to report for work.
But we must not forget that these profit-gluttonous companies have the temerity to do what they do because government allows them. They abuse and oppress the people with impunity because they know that government policies favor them, because they know that they are Aquino’s real bosses.
Petron, owned by presidential uncle Danding Cojuangco, and other oil firms increased their pump prices despite the calamity because the Oil Deregulation Law, which President Aquino has staunchly defended amid criticisms and allegations of overpricing, gives them the right to automatically hike their prices without a public hearing.
Meralco, also owned by Danding and known presidential allies Manny Pangilinan and the Lopez family, increased its generation charge despite the calamity because the Electric Power Industry Reform Act (Epira), whose full implementation is being pushed by Aquino despite strong opposition from Mindanao and other sectors, allows it to automatically increase its generation rates without a public hearing.
BPAP, meanwhile, knows that the BPO industry is one of the few supposedly growth areas prioritized by Aquino in his medium-term Philippine Development Plan (PDP) 2011-2016 for government promotion. I’m not sure if the administration has granted BPAP’s request. But Executive Secretary Jojo Ochoa said that call centers and other private firms that will require their employees to report for work should just “ensure personnel safety and give premium pay”. Para saan pa ang suspension order?
These intolerable acts of greed by the oil companies, Meralco and BPO firms bolster our argument for government to rethink and undo its current policies and programs. Especially during times of calamities, Aquino could not claim helplessness to stop oil price and power rate hikes because his predecessors, as dictated by foreign creditors, chose to deregulate the setting of pump prices and generation charge.
Government must revise its economic plan and stop relying on externally-driven growth sources like the BPO that is so detached from our own development needs, and in this particular case, from our domestic realities. BPO serves American and other foreign clients. Ano bang malay nila kung binabagyo na tayo at nalulunod na sa baha ang mga Pilipinong call center agents?
Unfortunately, Aquino has shown time and again that he is incapable and unwilling to implement the fundamental policy reforms we need.
For an in-depth discussion of these issues, click here (oil), here (power) and here (government’s development plan).
The Bagong Alyansang Makabayan (Bayan) and its member groups and allies have launched efforts to generate relief goods for flood victims. Please refer to the table below for a partial list of these initiatives and see which drop-off center for relief goods is nearest to you. Some of the groups have also provided bank accounts where you can deposit cash donations.
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)
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. #
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.
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.
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. #
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)
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.
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.
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)
Those who are ready to absolve government for the harmful effects of El Niño should think again. While El Niño is a natural phenomenon, its impact on the people and the economy could have been eased by right government policies. Sadly, the policies in place have exposed the country not only to the strongest blows from what experts describe as a “moderate” El Niño. These flawed policies have also exposed us to El Niño’s magnified impact.
Deregulated, privatized energy
Take the case of power and oil – strategic sectors that have been privatized and deregulated by government. As the water level in dams around the country fell, hydropower generation also declined. Consequently, more power is generated from plants running on expensive and overpriced oil. To make the situation worse, oil prices have been on an uptrend again in the past few weeks. Electricity bills, which are also artificially bloated, climbed as a result. Prices of other commodities and services are sure to follow.
Such predicament could have been capably addressed by a government that has the needed policy tools. But it threw away these tools when it allowed private corporations to take control of the entire energy sector. It tried to reclaim some of these tools through emergency powers but was met with understandable public skepticism. In the end, the reality that Congress could not be convened at this point in the election season forced government to give up the plan.
As an alternative, government now intends to lease modular generating sets that could produce an additional 160 megawatts (MW) of electricity for Mindanao. By itself, this plan is already costly with an initial tab of P5.5 billion aside from increasing power rates in Mindanao by P14 per kilowatt-hour (kWh). But it is made even costlier by overpriced oil that will be used in great amounts to feed the generating sets.
Amid the El Niño, energy companies, with their greed and abuses un-moderated, are having a heyday.
P8.12 per liter overpricing
In the coming months, households not only in Mindanao will have to pay for higher electricity bills. The reason is not only the limited supply of cheaper hydropower due to El Niño. As more power is generated by oil-fed power plants, consumers also become more exposed to the impact of frequent oil price hikes and overpriced petroleum.
Under Republic Act (RA) 8479 or the Oil Deregulation Law of 1998, oil companies are allowed to increase pump prices at whim. They are not even required to inform the public about their price changes, much less explain their price hikes. This policy has been abused to the hilt by the oil firms. The National Economic Development Authority (Neda) itself has once confirmed that oil firms are indeed overpricing their products.
As of January 2010, oil products in the country are still overpriced by an average of P8.12 per liter. This figure is based on the monthly difference between the ideal and actual changes in pump prices from January 2008 to January 2010. The ideal pump price adjustment is computed using the difference in the monthly averages of Dubai crude and foreign exchange (forex) rate during the said period. The actual price movement, meanwhile, is based on the Department of Energy’s (DOE) monitoring.
There is no consolidated data yet on actual pump price movement for February and March. But note that in February, there should have been an 83-centavo per liter rollback based on Dubai crude and forex monthly movements. The actual pump price of diesel, however, did not move during the said month while kerosene prices even jumped by 25 centavos a liter. In other words, the overpricing could be much higher (aside from the fact that even before imported oil reach our ports, they are already overpriced due to global monopoly control by the oil giants).
Daily overcharges of P7.44 M for Minda extra power
Meanwhile, government’s plan to lease modular generation sets to produce
an additional 160 MW of electricity in Mindanao will require millions of liters of petroleum. For purposes of comparison, let us look at the 1 MW Generac Diesel Power Module manufactured by Mitsubishi. This generator, running at 100 percent capacity, consumes 238.56 liters per hour of diesel; at 75 percent, 178.92 liters; and at 50 percent, 119.28 liters.
Using this as yardstick, and factoring in the P8.12 per liter in overpricing, we can estimate how much the people will needlessly spend for additional electricity in Mindanao. We shall use the 100 percent capacity level since the generating plants that will be leased need to run at full capacity to augment the power shortage in the region.
Per hour, the overpricing would be equivalent to P1,937.11. If a 1-MW generator runs for the entire day, the extra cost would be P46,490.57. If the entire 160 MW is generated in a day, the figure would be P7.44 million. For one month (30 days), the overpricing would be P223.15 million. If the 160-MW generators were commissioned for three months (April to June), taxpayers will unjustly shell out around P669.45 million on top of the real price of diesel and the cost of leasing the generating plants.
Unabated oil price hikes and overpricing also worsen the people’s burden due to El Niño in other ways. For instance, farmers who rely on irrigation pumps and fishers who use motorized bancas will have to pay more for gasoline. Note that due to El Niño, more farmers turn to irrigation pumps. Fishers also consume more gasoline as they spend more time fishing (warm temperature drives fish to deeper waters, fishers claim).
Overpriced power, too
Meanwhile, outstanding issues in the power sector continue to unjustly burden the people with or without an El Niño. Due to the ongoing implementation of RA 9136 or the Electric Power Industry Reform Act (Epira) of 2001, power rates remain exorbitant and continue to shoot up. Automatic adjustment in generation charges, for instance, allowed Meralco to again hike its rates for March by P1.38 per kWh. Just last year, Meralco jacked up its distribution rates by 41 centavos per kWh.
The Epira-created Wholesale Electricity Spot Market (WESM) also gave more opportunities for the new private power monopolies to manipulate electricity rates. In February this year, for example, power rates in the WESM spiked to as much as P68 per kWh, which Arroyo’s own economic adviser Albay Gov. Joey Salceda described as “unspeakable”. Apparently, power companies trading in the spot market withheld supply, a market abuse easily done by firms in control of both distribution and generation, jacking up prices in the process. Power sold in the Luzon grid is dispatched through the WESM, a mechanism that will also be set up in the Visayas soon.
These increases become more deplorable as power companies, like the oil firms, also overcharge the consumers. In its December 2009 report, for instance, the Commission on Audit (COA) said that Meralco’s illegal charges could reach more than P7 billion. And Meralco has not even com-
pletely refunded the P34.12 billion in overcharges that it illegally imposed on its almost 5 million customers in the past.
The energy sector is a lucrative industry but the billions of profits it makes come at the expense of the people and national development. Such greed and abuse become more deplorable during times of natural calamities such as the current El Niño when the people’s poverty and hunger intensify and the domestic economy is further undermined.
What we need is an oil and power industry that is not privatized and deregulated, and that is not controlled by the Cojuangcos, Aboitizes, Lopezes, Pangilinans and their American, European, and Japanese partners. What we need is an energy sector that is nationalized, state-owned, and effectively controlled by the Filipino people. Only then can we stop overpricing in petroleum and electricity, and better plan the energy needs of our people and economy.
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.