THE ECONOMY
Review Body Backs Oil Deregulation; for Fare Deregulation

The arguments raised are nothing new, and the conclusions and recommendations made are not surprising. Aside from being overshadowed by the media’s attention to the current political crisis, this could explain why not much media coverage was given to the findings of the independent committee tasked to review the oil deregulation law. However, the obvious still needs to be restated if only to highlight the government’s unwavering stance to fully support oil deregulation, even if it means the eventual deregulation of land transportation fares.

By DANILO ARAÑA ARAO
Bulatlat

An independent committee that is supposed to objectively ascertain the impact of oil deregulation ended up echoing what government officials have been saying all along: Oil deregulation must continue, socially-sensitive petroleum products must not be subsidized, price increases are justified and most oil companies are losing money. In addition, there must be an “automatic fare setting mechanism or formula that can adjust fares quickly in response to increases or decreases in fuel prices.”

The six-person Independent Review Committee (IRC) submitted last June 30 to the Department of Energy (DoE) its report on the review of Republic Act (RA) No. 8479 or the Downstream Oil Deregulation Act of 1988.

In December 2004, then Energy Secretary Vincent Perez recommended an independent review of the oil deregulation law because of the public’s perception that “the deregulation law is largely the cause of higher oil prices." The committee was formed in March 2005 as a result of the public clamor to analyze the current deregulated regime in the wake of successive oil price hikes.

Carlos Alindada, retired chair of SGV & Co. and a former commissioner of the Energy Regulatory Commission, served as chair of this committee. Its members are Cedric Bagtas (deputy general secretary of the pro-government Trade Union Congress of the Philippines), Merceditas Garcia (president of the Federation of Petroleum Dealers of the Philippines), Jose Leviste, Jr. (chair of the Philippine Business Leaders Forum, Inc.), Alberto Suansing (secretary general of the Confederation of Land Transport Organizations of the Philippines) and Dr. Peter Lee U (dean, University of Asia and the Pacific School of Economics which has links with the conservative Opus Dei).

The 60-page report, a copy of which was obtained by Bulatlat, acknowledged weaknesses in the implementation of oil deregulation that resulted in “illegal, unsafe and unfair practices” like smuggling. Despite this, the report said, “Deregulation brings about market forces such as competition which has the tendency of reducing prices as against prices produced by a fixed formula which are not affected by market forces.”

Certain reforms, however, were identified. The committee recommended that the DoE monitor oil prices regularly and consequently inform the public of its monitoring. Given that Petron Corporation still has government representatives in its board, the oil company can serve as a “price moderator.” The committee stressed that Petron suits the role since it is both a refiner and market leader.

As regards price increases, this was attributed not to oil deregulation but to the escalating world prices and fluctuations in the peso-dollar exchange rate. The frequency of such increases was said to be due to the “positive government suasion for oil companies to spread major price increases over a longer period rather than in one big jump.”

The committee said that there is no cartel in the downstream oil industry. “When products are interchangeable, when market share is the `name of the game’ and competition is in full swing, we should expect that oil companies’ prices will seem to rise and fall at the same time.”

Analyzing the findings

Except for a more explicit support for the deregulation of transportation fares, the arguments, conclusions and recommendations are nothing new. The DoE and other government officials have time and again identified the advantages of oil deregulation and that the negative effects like increased prices are just “birth pangs” of the policy.

While the report acknowledged that there are more industry players and that gasoline stations and LPG dealers have increased in number, it is surprisingly silent on the fact that most of them are concentrated in urban areas, as argued by cause-oriented and transportation groups. That petroleum products remain inaccessible to those living particularly in remote areas is a situation that the report failed to address.

The same can be said for the “jeepney lane” in 347 selected stations nationwide that give discounts on diesel up to one peso a liter. Data from the DoE show that out of this number, 53 percent (184 stations) are in Metro Manila, while other parts of Luzon, Visayas and Mindanao only account for 29 percent (100 stations), 7 percent (24 stations) and 11 percent (39 stations). Given its members’ access to all the data from DoE, one therefore wonders why such statistics have not been included in the report.

The report also failed to analyze monopoly pricing in hard-to-reach areas as a result of oligopolistic practices of oil companies. While it exerted an effort to research on petroleum prices in other countries, it was with the end-view of proving that local prices are lower. Such prices were not analyzed in the context of wages and purchasing power in each of the respective countries. Had it done so, the public outcry in the Philippines over increased prices of petroleum products in the country would be better appreciated given low wages and high cost of living.

Indeed, the committee members failed to distinguish between accessibility and affordability of petroleum products.

Deregulated fares as policy reform?

The committee supports the deregulation of land transportation fares, as may be gleaned from its argument that “land public transport is currently disadvantaged because while their fares are regulated, the cost of their key input, namely fuel, is deregulated.” It noted that public transportation casts “an envious eye on the oil companies who are able to automatically translate any increase in international prices to their pump prices.”

This implies that deregulation of land transportation fares could be a major policy reform under the Arroyo administration. Indeed, the current debate on what to do must not only be in the realm of politics, but also in economics, of which the situation of the downstream oil industry could be a start.

After all, the report failed to analyze the roots of the problem besetting the downstream oil industry given that it harped on the assumption that deregulation must be given a chance to work. Bulatlat

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