As I See It

Amend Oil Deregulation Law, end opportunism


09:25 PM September 15th, 2011

By: Neal H. Cruz, September 15th, 2011 09:25 PM

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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