EXECUTIVE ORDER 839, CLAMPING A CAP ON oil prices in the wake of the devastation wrought by “Ondoy” and “Pepeng,” has sparked a tempest of protests from a wide sector of the business community. It also brought to a head the conflict involving government intervention in price-setting and populist measures intended to protect the consumers of oil products, so vital in the large-scale reconstruction of provinces hard hit by the storms, mainly on Luzon, against a succession of price increases set by the oil companies.

The government faces increasing pressure from business chambers, and the oil companies, to lift the price cap. The chambers have warned in a letter to President Macapagal-Arroyo that oil importers would be forced to cut the volume of oil they import to “minimize losses,” because the price of crude in the world market is now rising. They warned that consumers could turn to the black market if supplies run low.

The issue highlighted by the controversial executive order centers on the power of government to fix prices in a time of national emergency and the long-term consequences on fuel supply on foreign investments, and the acute need of government to implement short-term measures to protect fuel consumers against spiraling oil prices. In essence, the government is under severe criticism for taking the populist option to avert public unrest over escalating fuel prices.

In her executive order, the President, after declaring a state of national calamity in the aftermath of the two destructive storms in October, decreed a price ceiling that returned the prices to Oct. 15 levels. In full-page newspaper advertisements, the Joint Foreign Chambers of Commerce, Philippine Chamber of Commerce and Industry, Makati Business Club, and Federation of Philippine Industries flexed their collective muscle and ganged up against the government, warning that the executive order would result in losses on the part of the oil companies, cut oil supply and serve as a disincentive to future investments.

On Oct. 20, the oil companies raised the prices of petrol by P1.25 and those of diesel by P2 a liter. Justifying the price rollback to levels prevailing on Oct. 15, President Arroyo said the government had to “respond immediately to the clamor of the Filipino people to prevent unreasonable increases in the prices of petroleum products during the state of calamity.”

“The government must exercise the powers conferred upon it within the limits set by law to prevent predatory pricing, cartelization, among others, which the oil industry may resort to,” she said. The government emphasized its power to intervene under the Oil Deregulation Law, which states that “in times of national emergency, when the public interest so requires, the Department of Energy, may during the emergency and under reasonable terms prescribed by it, temporarily or direct the operation of any person or entity engaged in the industry.”

The government countered the threats of the oil companies with the threat of a crackdown by law enforcement agencies on companies which disobeyed the executive order. It also insisted, however, that the price cap was temporary, effective only for the duration of the state of calamity. It warned that it was monitoring compliance to the executive order. The Department of Justice said that if the companies did not comply, it would investigate their books of account to determine whether they were losing or charging exorbitant prices.

The executive order re-ignited the contentious issue of state intervention in the market and the lack of cooperation of oil companies in opening their books to government scrutiny. It stoked the flames of economic nationalism, fueled by the Filipino First of the 1960s in which nationalist members of Congress denounced the global cartelization of the oil companies.

The Arroyo administration is resurrecting old arguments used by the nationalists to head off public disquiet over the unfettered rise of fuel prices. Facing widespread public unrest and record lows in unpopularity ratings, the administration has fallen back on taking the nationalist line and populist positions to maintain political stability and ensure regime survival.

The case for lifting the price freeze and its adverse long-term consequences was put forward by the chambers of commerce. “The new trend of government to issue price controls undermines the free market,” the European Chamber of Commerce in the Philippines said. The Management Association of the Philippines warned: “Experience has shown that price control distorts supply patterns. This order will not be an exception. The unavoidable response of a company that is forced to sell below cost is that it has to cut its business volume losses. And the entire chain inevitably gets scaled down, supply gradually disappears.”

The issue of costs is hard to ascertain, as government auditors have been denied access to the companies’ books of account. Politicians, including some senators, have jumped on the populist issue to win brownie points among the public.

An economic adviser of President Arroyo, Albay Gov. Joey Salceda, deviated from the administration line. He said that the price freeze would adversely affect government tax collections, given that petroleum is the most heavily taxed and most consistent source of government revenue.