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With Due Respect

Alleviating high fuel prices

The retail or pump price of major petroleum products surged by more than P1 per liter per week during the last two weeks (prices are adjusted on Tuesdays). On Jan. 1-May 22 this year, the average price of gasoline and diesel in Metro Manila went up by about P10 per liter.

This steep increase essentially reflects the almost 200-percent rise, from US$30 to nearly $80 per barrel (bbl) during the last two years, of the world price of crude oil from which petroleum products are refined and derived.

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Two years ago, the benchmark “Dubai” (as distinguished from the more expensive “Brent”) crude used in the Philippines traded at an average of only $30.42/bbl in the first quarter of 2016. It alarmingly rose 75 percent more to $53.12/bbl in the same quarter a year later, in 2017. The average rose 20 percent higher to $63.88/bbl in the first quarter this year. Worse, during the last two weeks, it gushed to nearly $80/bbl.

The phenomenal surge of crude oil prices is caused mainly by the geopolitical tension and civil strife in the oil-producing countries. In Venezuela alone, production declined from three million barrels a day to one and a half million.

Additionally, the members of the Organization of Petroleum Exporting Countries (Opec) cut their production as their strategy to raise prices. Russia, though not an Opec member, followed suit.

In contrast, China, the European Union, the United States and many Asian countries, including the Philippines, are consuming more oil, thereby escalating demand amid the contracting supply.

And when demand rises beyond what can be supplied, prices naturally rise also, under what economists call the “irrepealable” law of supply and demand. And when petroleum prices increase, so do bus, jeepney and taxi fares.

Worse, a domino effect sweeps other basic needs, like electricity (because the price of coal and natural gas to run the huge electric generators is indexed to crude’s), food, water, and about everything else.

World crude prices are bought and sold in US dollars. Thus, the 12-percent depreciation of the Philippine peso against the dollar during the last two years from about P47 on Jan. 1, 2016, to about P52.50 today contributed also to the pump price escalation.

Moreover, Republic Act No. 10963, the Tax Reform for Acceleration and Inclusion or TRAIN Law, imposed a new excise tax on petroleum products. Accordingly, per Revenue Regulation 2-2018, the excise tax imposed on gasoline was P7 per liter starting on Jan. 1, 2018, to be increased to P9 on Jan. 1, 2019, and to P10 on Jan. 1, 2020; on diesel, it was P2.50 per liter on Jan. 1, 2018, to be increased to P4.50 on Jan. 1, 2019, and to P6 on Jan. 1, 2020.

What can be done to alleviate high fuel costs? Some instantly say, “Increase the minimum wage.” However, the relief would be temporary because the increase of money in circulation will stoke inflation and raise the price of everything. The inflationary effect will linger even after crude prices decline and stabilize.

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Another favorite knee-jerk reaction is the repeal of the Oil Deregulation Law. However, experience has proven over the years that subsidizing pump prices is not viable and merely encourages wasteful consumption.

But these three suggestions may work because they are linked to crude, the main villain in high pump prices. First, under Sec. 43 of the TRAIN Law, the price increase in 2019 onward “shall be suspended when the average Dubai crude oil price … for three (3) months prior to the scheduled increase … reaches or exceeds eighty dollars (USD 80) per barrel.”

Second, the government can, by law, suspend the collection of the 12-percent VAT when the Dubai crude price reaches or exceeds $63, the average price during the first quarter of this year. Instead of subsidizing pump prices like other countries, the Philippines can just suspend its additional tax take when the Dubai crude reaches a threshold that our people can no longer afford.

Finally, our consumers can also help via practical savings, like minimizing unnecessary trips, popularizing car pools, using alternate routes during heavy traffic, etc. The savings tips of “Asiong Aksaya” five decades ago could be revisited.

Comments to [email protected]

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