Bu-lat-lat (boo-lat-lat) verb: to search, probe, investigate, inquire; to unearth facts
Vol. IV, No. 32 September 12-18, 2004 Quezon City, Philippines
the Oil Industry is Tough, But…
countless increases in oil prices, why does the Macapagal-Arroyo
administration still insist that deregulation of the downstream oil
industry is working for the people’s interest?
DANILO ARAÑA ARAO
officials see nothing wrong with the deregulated regime. In the past, they
argued that world crude prices are increasing and absolutely nothing can
be done about it or stop oil price hikes. Energy Secretary Vince Perez
even stressed that due to deregulation, “the government can only appeal
to oil firms.”
executives even thanked selected oil firms for imposing increases in small
increments so that the people will not immediately feel the full impact of
oil price hikes. Media projected oil firms as benevolent when they delayed
oil price increases particularly during the election campaign, thereby
allegedly absorbing losses in the process.
that the deregulated regime is part of its sound macroeconomic
fundamentals, the Macapagal-Arroyo administration has swept under the rug
the demand for the repeal of Republic Act No. 8479 (Downstream Oil
Deregulation Act of 1998) which will revert the downstream oil industry to
a regulated regime.
this point, it is important to review the circumstances behind the
regulation of the downstream oil industry in the 1970s. By analyzing the
past, one would know the reasons behind the regulation of the downstream
oil industry and the basis for the present demand to nationalize the
downstream oil industry.
the 1970s downstream oil shocks
international oil crisis in the early 1970s prompted the then Marcos
administration to regulate the Philippine oil industry. Studies showed
that world crude oil prices increased by as much as 1,700 percent at that
Philippine National Oil Company (PNOC) was established in 1973 to ensure
adequate and continuous supply of oil, as well as break the foreign
companies’ control of the oil industry. The PNOC later established
Petron Corporation as its marketing arm.
major policy measure adopted in the 1970s was the creation of the Oil
Industry Commission (OIC) to oversee the industry and stabilize oil
prices. (In 1987, the Energy Regulatory Board replaced the OIC.)
Oil Price Stabilization Fund (OPSF) was created in October 1984 through
Presidential Decree No. 1956. Its objective was to cushion the effects of
frequent changes in the price of oil caused by exchange rate adjustments
or increase in the world market prices of crude oil and imported petroleum
to its operations manual, the OPSF “absorbs the roller coaster effects
of the world crude and petroleum products prices and the Peso/US Dollar
exchange rate into the domestic petroleum products prices. In this way, it
effectively addresses one of its primary purposes of minimizing the
frequent price changes in the local market resulting from volatile world
market conditions and the fluctuations of peso/dollar parity. Likewise,
when it has a very healthy balance, it also assumes drastic upward price
adjustments without affecting the pump prices or the consumers.”
period of regulation required the oil companies — which, by 1985, only
numbered three (i.e., Petron, Shell and Caltex) —to petition the ERB in
order to increase oil prices. The ERB was required to conduct public
hearings to determine the validity of price adjustments.
early as the late 1980s, oil companies called on government to deregulate
the oil industry. According to then Shell President Reiner Willems,
“(Under deregulation) it will be easier to make business decisions, and
there will be less politics.”
Benjamin Diokno of the UP School of Economics, however, stressed in a 1995
study that the plan to deregulate had to be aborted in 1990 due to the
uncertainties brought about by Iraq’s invasion of Kuwait at that time,
as well as the precarious dollar reserves level.
1992, Republic Act No. 7638 that created the Department of Energy (DoE)
was signed into law. According to this law’s Sec. 5(b), the thrust was
toward privatization of government agencies related to energy,
deregulation of the power and energy industry and reduction of dependency
on oil-fired plants.
the process, Sec. 5(e) required the DoE to come up with a “timetable of
deregulation of appropriate energy projects and activities of the energy
industry.” According to the action plan of the DoE, the skills training
of its staff in preparation for a deregulated oil industry started as
early as 1993.
with RA No. 7638, Petron Corporation was privatized in 1993. The PNOC sold
40 percent of its equity in Petron to the Arabian American Oil Company (ARAMCO)
on December 16 of that year. At the same time, 20 percent of Petron’s
equity was sold to the public through an initial public offering (IPO).
deregulation of the downstream oil industry happened during the Ramos
administration after it was made a condition by the International Monetary
Fund’s (IMF) structural adjustment program. Republic Act No. 8180 was
took effect in April 1996 but was declared unconstitutional by the Supreme
Court in November 1997. The second downstream oil deregulation law (RA No.
8479) was therefore passed in February 1998.
qualitatively different from 1970s regulation
years after the deregulation of the downstream oil industry, Willems’
wish apparently came true as prices of petroleum products became
depoliticized. For instance, prices of socially sensitive products like
diesel, kerosene and liquefied petroleum gas (LPG) were subjected to
taking a stand for nationalization, various cause-oriented groups and
individuals argue that this can reverse the depoliticized price setting of
petroleum products by having instead a regulated pricing mechanism. In
other words, price controls will be a major feature of the nationalized
makes the nationalized regime, however, qualitatively different from the
past regulated regime is the institution of the following policies: (1)
centralized procurement of all imported crude oil and refined petroleum
products; (2) commodity swaps through bilateral agreements; (3) abolition
of specific taxes on petroleum products; (4) imposition of higher tariffs
on imported crude oil and refined petroleum products; and (5) aggressive
development of alternative sources of energy.
in the past, a buffer fund will still be established to stabilize prices
of petroleum products. Its use, however, shall be solely for this purpose
unlike in the case of the OPSF where the latter’s funds were spent for
initiatives beyond oil price stabilization like disaster relief and
rehabilitation and the bailout of a mismanaged government-owned and
these policies under a nationalized regime, consumers would not feel the
impact of sudden fluctuations in world crude prices. Measures like
centralized procurement and commodity swaps would make the government a
more active player in the downstream oil industry. The poor in particular
may also find prices of socially sensitive products more affordable since
these could be even sold at subsidized rates. More importantly, the
downstream oil industry would get integrated to the thrust towards
there is an urgent need to nationalize the downstream oil industry, as the
failure of the deregulated regime becomes apparent due to runaway prices
of petroleum products.
The question at this point is: Does the Macapagal-Arroyo administration have the political will to turn its back on globalization, which is what nationalization requires? Bulatlat