Oil firms and Malacañang unjustly squeeze P329 M every day from consumers

poverty-ibonPump prices continued its downtrend, with three rounds of rollbacks announced by the oil firms in the first week of March. On Monday (March 2), the so-called Big Three (Petron Corporation, Pilipinas Shell, and Chevron Philippines) slashed the price of their diesel and kerosene by P1 per liter and gasoline by 50 centavos. It was followed by two rounds of price cuts in liquefied petroleum gas (LPG) by members of the LPG Marketers’ Association (LPGMA) on Wednesday (March 4) and Friday (March 6), which brought down the price of an 11-kilogram (kg) cylinder tank by a total of P22. It matched the earlier rollback in LPG prices by the major oil players.

The reductions have come at a time when public officials have all but admitted that Republic Act (RA) 8479 or the Oil Deregulation Law have been ineffective in curbing manipulations in the industry. Under public pressure to get tough on abusive oil companies, Secretary Angelo Reyes of the Department of Energy (DOE) said that while the government’s role is to protect public interest, it will “have to follow what the law dictates”. And the law (i.e., RA 8479), Reyes added rather candidly, does not say that government takes “more aggressive action versus the oil companies”.

But with the recent price cuts, proponents of deregulation will surely argue that there is no need for such state intervention. Market forces such as competition will supposedly impose discipline on the oil companies. The problem is despite these rollbacks, the unfortunate consumers are still burdened with overpriced petroleum and the profiteering of the oil companies, especially the major players, remains vicious.

Due to overpricing, oil companies in the country are earning extra profits of around P289.51 million daily, according to the latest estimates of the multisectoral group Bagong Alyansang Makabayan (Bayan). Petron Corporation accounted for the lion’s share of the daily extra profits cornering an estimated P112.04 million; followed by Pilipinas Shell, P86.56 million; Chevron Philippines, P40.82 million; and Total Philippines, P13.03 million. Other oil players posted an estimated collective share of P37.06 million.

The huge amounts of extra profits that oil companies collect from overpricing make the series of price cuts that they have implemented in the past two weeks meaningless. The price rollbacks are much smaller than what oil firms should reflect in pump stations to offset their overpricing. Bayan earlier said that as of mid-February, oil products in the country remain overpriced. Diesel is overpriced by around P2.94 per liter; kerosene, P6.42; unleaded gasoline, P2.31; and 11-kg LPG cylinder, P125.35.

The group’s overpricing estimates looked at the monthly movement of Dubai crude and the US dollar – peso exchange rate and their combined impact on pump prices. The results were then compared with the actual price changes as monitored by the DOE.

The extra profits were computed using the latest available (i.e. first half of 2008) figures on local oil demand of around 286.6 thousand barrels per day (MBD) and the market share of each player. As of first half 2008, Petron controls almost 39% of the market, followed by Shell, 30%; Chevron, 14%; and Total, 4%. The rest of the market, 12.8%, is divided among the smaller oil players. Furthermore, the overpricing and profiteering belie claims of losses by oil companies such as Petron’s reported P3.9-billion net loss last year due to “extreme volatility” of global oil prices. The commanding position that Petron enjoys in the local market and the automatic price adjustments under the Oil Deregulation Law allow it to squeeze billions of profits from hapless consumers.

But are Malacañang and its allies in Congress willing to pass a law, or amend RA 8479, that will allow aggressive government intervention against the abuses of the oil industry? Consider that the national government is collecting an additional P39.48 million everyday in value added tax (VAT) imposed on overpriced oil products.

Such amount is on top of Malacañang’s regular collections from the 12% VAT on oil, which the Department of Finance (DOF) described as the “biggest tax measure since the birth of the republic”. Why will government kill its own milking cow? Obviously, the additional VAT collections of government from overpriced oil make it disinterested in calls to regulate the industry and repeal the Oil Deregulation Law.

The oil companies and Malacañang together squeeze about P328.98 million in unjust collections everyday from the Filipino consumers. This brazen act of exploitation is downright condemnable, especially today that millions of workers face unprecedented job scarcity and poverty.

The Oil Deregulation Law should be repealed to ensure reasonable pump prices. The VAT on oil must be cancelled to immediately bring down the prices of petroleum products. These urgent measures can go a long way in easing the impact of the global financial and economic crisis on ordinary Filipino consumers. (END)


Firms controlling 92% of LPG market making identical price hikes is clearly dubious

Oil companies have announced identical increases in the retail price of LPG (Photo from Luis Liwanag/AFP/Getty Images)

Something is clearly dubious when four companies that together control almost 92% of the domestic market for liquefied petroleum gas (LPG) implement identical price hikes. Last week, Petron, Shell, Liquigaz, and Total separately announced the same increase of P4 per kilogram in the retail price of their LPG. These same companies have also separately announced identical LPG price hikes of P2 per kg in the second week of January. The rounds of price increases came amid reports of supposed shortage in LPG supply and allegations of overpricing.

Petron controls 37.8% of the domestic LPG market, followed by Liquigaz (24.6%); Shell (20.5%); and Total (8.7%). Only through their collusion can a supposed “shortage” in LPG supply occur and rake in windfall profits from higher retail prices. The greed for profits of these oil companies becomes even more deplorable considering that they have yet to adequately answer allegations of abusive pricing. Bayan, for instance, has earlier estimated that LPG prices should be rolled back by almost P61 per 11-kg cylinder tank to offset the oil firms’ overpricing last year. Even the Department of Energy (DOE) has been saying that LPG retail prices should not exceed P500 per 11-kg tank.

Threats of sanctions from the DOE are apparently not enough to check the abuses of the oil companies, especially the local units of the world’s largest oil transnational corporations (TNCs). Despite “strong warnings” from the DOE and the existence of a DOE-DOJ task force, created under the Oil Deregulation Law to purportedly curb abuses in the industry, not a single oil company has been punished for preying on the consumers. The problem is not simply the proper implementation of the Oil Deregulation Law because this policy by design creates conditions for price abuses to take place.

With thousands of Filipino workers here and abroad being displaced everyday due to the global financial and economic crisis, such abuses, tolerated by the government under the pretext of free market, become increasingly unforgivable. Worldwide, the raging economic crunch, bankruptcies, and economic dislocations have profoundly discredited the so-called free market implemented through policies such as the Oil Deregulation Law. Even the most ardent proponents of free and deregulated markets including the US government are now gradually reining unrestricted economic activities in hope to address what is now widely described as the worst crisis of global monopoly capitalism.

Price control, including effective regulation of oil price adjustments, is among the package of immediate measures that can help mitigate the impact of the global crisis on ordinary Filipinos. As more workers become jobless and underemployed, reasonable prices and affordable cost of living through effective state intervention become more imperative. Indeed, the massive economic dislocation, which even labor officials concede is happening at an alarming pace, further justifies the people’s demand to repeal the Oil Deregulation Law.