Amid the misery and deaths caused by COVID-19, oil companies, including those controlled by prominent Duterte backers, have been raking in millions of pesos in extra profits from overpricing. This is beyond unconscionable and appalling as the socioeconomic fallout of the pandemic – i.e., record joblessness, hunger and poverty – continues to burden the people.
How oil firms manipulate prices
With the pandemic raging last year, the oil firms imposed a net overpricing of about PHP 4.96 per liter for gasoline and around PHP 2.86 per liter for diesel. The overpricing continued in the first three months of 2021, as the country suffers an even worse surge in COVID-19 cases. For gasoline, the overpricing is estimated at around PHP 0.71 per liter as of end-March this year; for diesel, it is pegged at PHP 0.88 per liter.
These estimates were computed by comparing the supposed adjustments in prices based on the weekly fluctuations in international oil prices and the foreign exchange rate, and the actual adjustments in local pump prices implemented by the oil companies.
Last year, oil prices saw a sharp decline as the global economy came to a standstill with countries enforcing months of lockdowns to contain the spread of the novel coronavirus. Based on the International Monetary Fund’s (IMF) monitoring of primary commodity prices, the price of Dubai crude oil fell from USD 63.73 per barrel in January 2020 to as low as USD 23.38 per barrel in April. It finished the year with a monthly average of USD 49.32 per barrel in December.
Consequently, local pump prices in the Philippines, one of the world’s most oil import-dependent economies, also declined. According to the monitoring of the Department of Energy (DOE), oil companies implemented a net price rollback of PHP 1.97 per liter for gasoline and an even bigger PHP 5.96 per liter reduction in the price of diesel.
But these price rollbacks are much smaller than what the oil firms should have implemented if they were simply reflecting movements in global prices, as they and the DOE are wont to say. Based on the Mean of Platts Singapore (MOPS), the international benchmark used by the Philippines in pricing petroleum products, and the fluctuations in the peso exchange rate to the US dollar, the price of gasoline should have gone down by about PHP 6.93 per liter. Similarly, the price of diesel should have been rolled back by PHP 8.82 per liter.
Comparing these to the actual adjustments per liter in pump prices that the oil firms implemented and the DOE allowed (i.e., rollbacks of just PHP 1.97 for gasoline and PHP 5.96 for diesel), the overpricing estimates of PHP 4.96 per liter for gasoline and PHP 2.86 per liter for diesel were calculated.
For 2021, even as global oil prices continued to pick up, the price of gasoline should not have gone beyond PHP 5.44 per liter in total increases based on MOPS price movements from January to March; but the oil companies hiked their gasoline prices by a total of PHP 6.15 per liter during the period, resulting to an overpricing of PHP 0.71 per liter.
Similarly, the price of diesel based on MOPS should have not increased by more than PHP 3.72 per liter. However, oil firms have already jacked up their diesel prices by P4.60 per liter, resulting to an overpricing of PHP 0.88 per liter.
Duterte regime, allies gain from overpricing
Deregulated oil prices under Republic Act 8479 or the “Downstream Oil Industry Deregulation Act of 1998” allows oil firms to adjust pump prices – supposedly as dictated by global market forces (e.g., international prices and exchange rates) – without the benefit of public consultation. Such neoliberal policy in oil price setting has only enabled the oil companies to abuse the consumers with impunity.
It must be emphasized that the overpricing estimates based on so-called global market forces do not illustrate the magnitude by which foreign oil monopolies such as Shell, Chevron, etc. artificially inflate prices. Such estimates merely show how oil firms under a deregulated regime can easily further manipulate oil prices through implementing adjustments that are above (in case of price hikes) or below (in case of rollbacks) the supposedly justified amounts based on international price benchmarks.
A crisis as grave as the COVID-19 pandemic should have been an opportunity to review and reverse this flawed policy. Unfortunately, it is clear that President Duterte, his political clique, and the neoliberal champions in his economic team will not entertain such policy turnaround to protect the public.
For one, with its obsession to collect taxes to appease creditors for its debt-driven infrastructure projects, oil overpricing provides additional revenues for the Duterte regime. Based on a rough approximation of petroleum demand in 2020 of about 14.69 million liters per day for gasoline and 24.32 million liters per day for diesel (reflecting the overall decline in demand of 23% in the first half of 2020 due to the pandemic, as reported by the DOE), it can be guesstimated that the total additional profits generated by the oil firms from overpricing gasoline and diesel is about PHP 142.50 million a day. Of this amount, PHP 17.10 million went to government in the form of the 12% value-added tax (VAT).
For another, Duterte’s political backers and their foreign partners with interests in the oil industry benefit hugely from oil overpricing. Due to overpricing, it is estimated that Petron Corp. earned PHP 23.19 million daily in 2020 on top of its regular profits based on market share. The largest oil refining and marketing company in the Philippines, Petron is majority owned by Ramon Ang’s San Miguel Corp. (SMC). Ang is among the tycoons who financed the presidential campaign of Duterte in 2016 and appears to be one of the most favored oligarchs by the administration, cornering big-ticket infrastructure contracts such as the controversial PHP735.6-billion Bulacan aerotropolis.
Dennis Uy, the Davao-based businessman and longtime ally of Duterte, also continues to make a fortune in the oil industry through Phoenix Petroleum, which in terms of market share (7% in 2019) ranks as the fourth largest oil retailer in the Philippines behind the old Big Three of Petron (25%), Shell (18%) and Chevron (8%). Uy and Phoenix Petroleum had a declared campaign contribution of PHP 36 million to Duterte’s presidential campaign in 2016. Based on market share, it is estimated that Phoenix raked in PHP 8.85 million daily in extra profits last year from overpricing.
Uy has seen his wealth grow tremendously under Duterte, including in the Philippine oil and gas industry where he has been expanding and consolidating his interests. Last year, Uy’s Udenna Corporation bought the 45% stake of Chevron in the Malampaya natural gas field and plans to partner with government through the Philippine National Oil Company (PNOC) to acquire as well the 45% stake of Shell. ###