Time to amend oil deregulation law
Whenever pump prices of petroleum products shoot up, the government is helpless and consumers have to bear the brunt of more expensive fuel. Republic Act No. 8479, or the Downstream Oil Industry Deregulation Act of 1998, had allowed market forces to dictate how much consumers should pay for gasoline and other oil products. It stripped the Department of Energy (DOE) of its power to intervene in the local oil market. But when oil prices spiked early this year after Russia attacked Ukraine and, in turn, roiled international commodities markets, the clamor to revise the law mounted.
Last June, the DOE promised that it will ask the 19th Congress to prioritize the review of the oil deregulation law. Energy Assistant Secretary Gerardo Erguiza Jr. said the agency wants to regain its authority to intervene whenever there is a dramatic and sustained increase in oil prices, similar to the one triggered by the Russia-Ukraine war. “We wrote to the Congress to give priority to revisit and review the oil deregulation law so that the government will have the power to do something in this kind of situation,” Erguiza noted then. After the Marcos administration took over, Energy Assistant Secretary Mario C. Marasigan said in a congressional hearing in early September that the DOE is already firming up the creation of a panel that will study and craft the specific proposals that will be pushed in Congress for the review of RA 8479.
Some suggested amendments to the law may be difficult or even unpalatable to the current administration that is in need of money to finance its essential expenditures. Among these proposals include spending billions to make Petron Corp. a government-owned entity again and the scrapping of the value-added tax (VAT) and excise tax on petroleum products that brought in P220.3 billion to government coffers in 2021 alone. The latter could have had an immediate effect in lowering prices, but would also limit state spending on essential public services.
Article continues after this advertisementHowever, one area that needs to be acted upon with dispatch is the unbundling of oil pricing. The energy department believes that the oil deregulation law failed to define what is “unfair or unjust pricing,” which is perhaps the biggest concern in determining whether pump prices truly reflect market conditions. One cause of suspicion on possible “pricing collusion” has been the fact that oil companies have been purchasing fuel from various suppliers at different costs and terms, yet their retail prices never stray from that of their supposed competitors. Fuel cost unbundling should have helped erase this doubt. The DOE has actually been batting for the unbundling of oil prices to promote transparency in oil price adjustments, but the policy was not implemented because oil companies went to court to stop it.
The unbundling policy, which was supposed to take effect on July 13, 2019, requires all oil companies to report their “unbundled price adjustments,” including import costs (freight, insurance, exchange rate), taxes, oil company margin, and other charges such as brokerage and bank fees, wharfage, and Customs documentary stamps, among others. However, oil companies filed a lawsuit—and were given an injunction—that stopped the DOE from implementing the policy. They argued that under RA 8479, the DOE is only authorized to monitor international and local price movements of petroleum products, as well as compliance with national standards. We can only guess why oil companies, despite the public service nature of their business, want to hide the different cost components of the products they sell.
The importance of oil in the country’s power mix remains vital. In a media conference early last August, Acting Energy Secretary Raphael Lotilla said the country remains dependent on imported energy supplies, particularly coal and oil. He noted that the Philippines’ primary energy supply in 2021 was 56.8 percent imported and 43.2 percent indigenous or locally sourced from geothermal, natural gas, hydro, and other renewable energy such as solar. Of the imported energy supply, coal accounts for 37.1 percent, of which 98 percent comes from Indonesia; while oil accounts for 34.6 percent, but it also accounts for 89 percent of power sources in off-grid areas.
Article continues after this advertisementThis makes the country “energy insecure” given the highly volatile global oil prices as well as the uncertainty in the supply of coal as exporting countries can easily implement a coal export ban, such as what Indonesia earlier did. The long-term answer, as Lotilla cited, is to focus on expanding and harnessing indigenous energy sources as a strategy toward energy security in the future. That is indeed the solution many years down the road. In the meantime, however, Congress should immediately start a review — and eventual revision — of the oil deregulation law, to finally implement the price unbundling policy. This is the urgent action needed if the government is to make fuel pricing transparent and fair, and hopefully bring down pump prices to ease the burden on ordinary consumers.
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