As I See It

Amend Oil Deregulation Law, end opportunism

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In his dialogue with transport groups the other day, President Aquino, in the face of complaints against the inexorable increases in fuel prices, ordered his subordinates to review the hated Oil Deregulation Law with the intention of amending, even repealing, it. That should not be hard to do, if his subordinates have any brains. All they have to do is read the laws of other Asian countries that also deregulated their downstream oil industries.

In the successful models, they will readily see that there are open-ended transition periods during which time price controls are in effect. The reason for this is to give new players enough time and opportunity to compete with the established oil companies. Because without true competition, deregulation will not force prices down, as we are now witnessing in the Philippines. The established oil companies will continue to lord it over their competitors and dictate the prices of fuel, as our Big Three (Petron, Shell and Caltex) are now doing.

The transition period is open-ended; there is no deadline. Only when there is true and effective competition among the players will total deregulation take place and price controls be abolished.

But when our Oil Deregulation Law was being crafted by Congress, the lobby of the Big Three was so strong that members of Congress put in a transition period of only six months, and President Fidel V. Ramos even cut it shorter. That was a farce. How could new oil players fully and effectively compete with the Big Three in just six months? It was like throwing the turtle into the river.

And so now we are reaping the whirlwind. The oil companies raise prices at will, using as an excuse the rising price of oil in the international spot market. If the price rises today, fuel prices here are increased within a day or two even though it would take months to buy the crude oil, ship it here, refine it and distribute it to the gas stations.

But when the international price of oil goes down, our oil companies do not immediately lower their prices. They say they are still selling their higher-priced old stock.

And when they raise prices, it is by pesos per liter. When they lower prices, however, it is by centavos per liter.

Have the Commission on Audit look at the books of accounts of the Big Three, and we will see that they have been enjoying windfall profits from the time the Oil Deregulation Law took effect. That is why the Big Three refuse to open their books to government auditors.

During all that time, the government sat by and did nothing to stop the abuse, saying that the oil industry is deregulated and it could not do anything.

At least the government should compute the spot market price of crude oil, the shipping and refining costs, and the time it takes the oil to reach here and be refined, and distributed to gas stations. It should also be the one to tell the people how much the increase, or decrease should be and when.

But the Department of Energy is either too lazy or too ignorant, or in the pay of oil companies that it just sits on its ass and does nothing.

There are about 70 oil players, according to a spokesman of the Big Three. But even if that were true, that does not make for true competition. How can the new players compete with the Big Three when many of them buy their refined products from the Big Three and retail the fuel products in their pitifully few gas stations? They are not competitors; they are retailers.

How can they sell at prices lower than those of the Big Three when the latter sell their products at a certain price; and the former have to add a mark-up to earn a profit?

The players pretend that there is competition by pricing their products a few centavos lower or higher than the others’ prices. But note that the prices at different gas stations are almost the same, differing by only a few centavos per liter. That is nothing but a moro-moro.

Now what should we do with our present Oil Deregulation Law? Amend it and put an open-ended transition period during which price controls will be imposed. That way, the public will know that the price of the commodity is really what it should be.

If the price rises, then we are assured that that is the fair price in proportion to the rise in the price of crude oil in the spot market. And we are assured that when the price rises in the gas stations, we are buying not the old stock bought by the oil companies at a lower price months ago but the new, higher-priced new stock.

I emphasize that the transition period should be open-ended, not bound by a deadline. Only when there is true and fair competition among all the players should there be full deregulation, with no price controls.

The transition period can last for many years because it takes new players many years and much capital to set up shop and compete with established oil companies. Some of the Asian countries that deregulated their downstream oil industries many years ago are still in the transition phase.

The Philippine government abdicated its responsibility when it prematurely deregulated the oil industry. It did not want to be blamed by the public for fuel price increases, but it also did not want to subsidize these increases. So it threw the public at the mercy of the oil companies and said, “Bahala na kayo.”

That is not how a responsible and caring government should behave. It should protect the people from opportunists like the oil companies. It owes the people that much for the taxes they pay, the same taxes that allow public officials to enjoy fat salaries and allowances and luxurious lifestyles.

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  • http://twitter.com/velezcollege Velez College

    I was sold at free enterprise but what I got is mafia

  • http://twitter.com/ka_marks TheGUM

    “That is not how a responsible and caring government should behave. It should protect the people from opportunists like the oil companies. It owes the people that much for the taxes they pay, the same taxes that allow public officials to enjoy fat salaries and allowances and luxurious lifestyles.”

    Aruy!  Tumpak talaga, bosing Cruz.  Sige nga tingnan natin kung may magawa si Presidente Aquino tungkol sa pagtigil ng oportunismo ng mga kumpanyang langis.  Duda ako na gagawa siya ng tamang hakbang.  Maaring mali ako.  Tingnan natin kung sino talaga boss ni Pnoy.

  • Tyopando

    Ang pwede po gawin ng Transport Groups eh pag-aralan kung paano magtayo ng sariling Oil Company para sa mga members nila para hindi sila umasa sa mga mapang-abusong oil-companies. 

    Palagay ko naman sa laki ng pondo nila, kayang-kaya nila yan…….At dahil Transport Cooperative po sila eh dapat ang importation nila eh VAT Free hindi po ba? Sa dami ng members nila, siguradong hindi sila malulugi…

    Sa halip labanan ang Oil Deregulation Law, dapat nilang gamitin ang batas na yan para sa ika-uunlad ng kanilang industriya….

  • antonioluna

    ang laki siguro ng kinita ni tabako noong maging batas ito, pero sa totoo lang hindi naman mga pulitiko ang nagpapatakbo sa ating gobyerno mga puppet lang sila ng mga negosyanteng katulad ng kano, intsik at iba pa, katunayan ang mga batas na umiiral ngayon ay puro pabor sa mga negosyante.
    may sarili tayong mina ng langis pero bakit ganon, walang naging tulong para sa pagunlad ng ekonomiya ng pinas?

  • antonioluna

    i agree, at dapat wala tayong maging problema kahit magsilayas ang mga iyan dahil may mina na tayo ng langis sa palawan, sa galco field.

    • Anonymous

      Even we have oil fields in the Philippines ,private will still reap their profits ,when they are the ones who are drilling the oil out ,they are also the ones who refine and sell the products to every one of us.

  • Anonymous

    I think having a bank secrecy law is the cause of all loopholes in the law. if we can’t check our politicians bank accounts we don’t see the millions that lobbyists pay them. amend the bank secrecy law first to exempt officials of government.

  • Anonymous

    The sale of Petron by the National government was the biggest blow of them all.The oil deregulation was only a primer  but Petron could have averted all this manipulative pricing  if they had control to one the top sellers.We could all laugh about it,but with Petron under the government wings could make life a little bit easier for us.

  • Anonymous

    Many people will not agree with this suggestion but what the government should really do is to speed up the construction of more rail-based mass-transport system i.e. LRTs to replace the jeepneys.  Jeepney is an inefficient public transport in mega-city like Metro Manila e.g. major cause of traffic build-ups and back-ups, major source of pollution due poor engine condition, and less-passengers/liter of diesel consumed. A lot of precious fuels are wasted everyday because of this backward mass transport system.  Go electric ..use the trains.  Why are there jeepneys in advanced and prosperous countries like Japan, Taiwan, or South Korea??

    • Anonymous

      We really need these LRT’s & MRT’s in all metropolis like Manila, Cebu, Davao, etc. When all big cities are serviced by these mass transit systems, it’s time to condemn these jeepneys. They are good feeds for the steel recycling industry. It’s about time we eradicate these blights on the road. 

  • http://pulse.yahoo.com/_75QJCBJN7KPDM2SV5RSBRHJZGY rene

    The government with its finance wizards should find a way to solve this problem. The big three while paying VAT which is just being pass on to the consumers are not really paying big corporate income taxes because of the transfer prices recorded in their books. The solution really is for the government to import oil similar to what we are doing to rice as basic commodity. The government should be the sole importer and the big three will just be mere distributors, anyway their parent companies are making money. These oil companies are not even paying the right taxes and does not give what is due to the governent.

  • Anonymous

    makes sense…

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