Bulatlat.com

After six years of deregulation, free competition has not resulted in affordability and accessibility of petroleum products. Instead, it brought about profiteering due to the imposition of an automatic pricing mechanism.

The recent 35-centavo per liter oil price hike should be a wake-up call to everyone on the social cost of oil deregulation. Since the start of oil deregulation in 1996, oil companies have been empowered to set the prices of petroleum products without telling consumers beforehand.

The government sees nothing wrong with removing price controls. In its view, free competition will result in lower prices and better services. Then President Fidel Ramos even argued that affordability and accessibility of petroleum products is assured as a result of oil deregulation.

By setting up an automatic pricing mechanism, the government claims that oil prices have become "depoliticized." An undated study released in the early 1990s by the then Energy Regulatory Board (ERB) entitled “Proposed Downstream Oil Deregulation Plan” stressed that eventually, the public will be acclimatized "to frequent changes in the domestic price of oil products."

This means that the public should be conditioned to accepting changes in the prices of petroleum products as part of everyday life.

It must not come as a surprise therefore that based on media reports, oil companies are now mulling the imposition of price adjustments weekly instead of the past practice of making monthly price adjustments.

Deregulation removed oil companies’ accountability to the public. When the downstream oil industry was regulated from the 1970s to the mid-1990s, oil companies had to petition the ERB to increase oil prices and concerned groups and individuals were given the opportunity to air their views.

At present, the Big Three oil firms claim that the recent oil price hike was necessary due to their financial losses. But then again, how can Petron, Shell and Caltex be losing money when they posted a combined net income of P41.2 billion from 1991 to 2001? (See Table 1 below)

For the first six months of 2002, Petron reportedly earned P1.2 billion, a 90% increase from the P631-million income for the same period in 2001. Petron has already earned in six months its total net income for 2001.

Data from the Securities and Exchange Commission (SEC) also show that the net income of the Big Three oil firms since 1991 more than offset their alleged losses in 1997 and 2001.

This is just the tip of the iceberg, however. Oil firms have also taken advantage of the "automatic pricing mechanism" as a result of oil deregulation by dictating prices at will, even if these are not reflective of world crude prices and the foreign exchange rate.

Analyzing the fluctuations in Dubai crude prices and the peso-dollar exchange rate from 2000 to March 2002, Bulatlat.com reports showed that oil firms have overpriced their products by as much as 74 centavos per liter.

Indeed, government's promise of lower prices remains unfulfilled since 1996 when the first Downstream Oil Deregulation Act took effect.

Petroleum products also remain inaccessible to people, particularly those who live in remote, rural areas. In fact, data from the Department of Energy (DOE) show that Petron, Shell and Caltex own 98% of total gasoline stations nationwide, and 46% of the latter are located in the National Capital Region, Central Luzon and Southern Tagalog, areas that are relatively urbanized. (See Table 2 below)

In March 1996, Ramos signed into law Republic Act (RA) No. 8180 which deregulated the downstream oil industry. He said that deregulation "removes the de facto monopoly of big established oil companies by enabling market forces to prevail."

The transition phase happened when the law took effect on April 15, 1996, with the automatic pricing mechanism instituted beginning August 14 that year. The second phase, full deregulation, took place on Feb. 8, 1997 – or one month ahead of the government's target - through Executive Order No. 372.

Due to the successive oil price hikes at that time, progressive lawmakers and cause-oriented groups accused oil companies of cartelization and overpricing, among many others. Protest actions such as demonstrations and transport strikes were organized.

After a second nationwide transport strike in October 1997, the Supreme Court (SC) issued a temporary restraining order against oil companies from further increasing prices of petroleum products until the high court decided on the constitutionality of the oil deregulation law.

The following month, the SC, in a 40-page decision, voted 9-2 to declare RA No. 8180 unconstitutional. According to the high court, the law violated Art. XII, Sec. 19 of the 1987 Constitution which prohibits monopolies and unfair competition.

The high court stressed that "it cannot be denied that our downstream oil industry is operated and controlled by an oligopoly, a foreign oligopoly at that." As stated in the introduction of this study, the SC also argued, "Petron, Shell and Caltex stand as the only major league players in the oil market. All other players belong to the Lilliputian league."

The high court reaffirmed its decision in December that year, in response to the government's motion for reconsideration. The decision repealed RA 8180 the same month.

After a brief period of regulation, Congress passed the second oil deregulation law. The Downstream Oil Industry Deregulation Act of 1998 (RA 8479) was signed into law on Feb. 10, 1998. Full deregulation happened a month later on March 14 with the issuance of Executive Order No. 471.

This executive order was issued – again - by Ramos even if under RA 8479, the transition phase was pegged at five months following the law's effectivity.

Aware of the SC ruling in November 1997, government pegged the tariff on imported crude oil and refined petroleum products were at 3% (i.e., for a zero tariff differential), to be adjusted accordingly starting January 1, 2004 "to the appropriate level" based on commitments to the World Trade Organization (WTO) and other multilateral bodies.

In August 1999, Bataan Rep. Enrique Garcia petitioned the SC to declare unconstitutional Sec. 19 of RA 8479 which hastened full deregulation within just five months of the law's effectivity. Arguing along the lines of making deregulation work, Garcia argued that the transition period is too short to ensure free competition and the breakup of the oil cartel.

The SC upheld the constitutionality of RA No. 8479 and dismissed Garcia's petition in December that year. The justices argued that the petitioner (Garcia) failed to prove collusion and overpricing and that the validity of deregulation per se is not for the judicial branch of government to decide.

That the government used the framework of globalization as it opened up the local economy to foreign investors may be gleaned from the nature and characteristics of the policies and programs it implemented through the years.

The 1998 precautionary standby arrangement with the International Monetary Fund (IMF) stated that the government wants "an economy that is more competitive and more democratic, whose market is free and fair and responsive to global realities."

It is in this context that the enactment of the laws that deregulated the downstream oil industry (Republic Act No. 8180 and Republic Act No. 8479) must be analyzed.

The evidence also showed that even government benefited from the oil firms' operations through the taxes levied on crude oil and petroleum products. Specific taxes alone meant P40 billion in earnings for the year 2000.

The mainstream debate on what do to with the Philippine downstream oil industry focuses more on how to make deregulation work in order to "maximize opportunities brought about by globalization." Social control takes a backseat to neoliberal discussions on the people's benefits from free competition.

There are also arguments that purport to find ways to give deregulation a "human face." Proponents of deregulation argue that this policy must be pursued as long as a level-playing field is assured. The only way to dismantle the oil cartel, they argue, is to let more industry players come in.

At present, calls for reforms within a deregulated regime tend to belittle and render impractical the argument for nationalization of the downstream oil industry. Nationalization has been perceived, after all, as a slogan bereft of a concrete program of action.

Proponents of nationalization, on the other hand, say that "protecting the interests of the people and the national economy cannot be achieved in a deregulated regime, because free competition only tolerates wanton abuses of industry players." Deregulation perpetuates profiteering and other unscrupulous practices detrimental to consumers and the economy, they add.

Regardless of one's ideological persuasion, the arguments for nationalization must be seriously considered at this point to form an enlightened opinion about the matter and to ascertain its practicability, beneficiality and necessity in the light of the state of the downstream oil industry.

The contemplation whether or not to pursue nationalization proves to be important especially in a time when world market conditions provide opportunities for oil companies to gain more profit by increasing prices. Bulatlat.com

Table 1 Net Income of the Big Three Oil Firms 1991 to 2001 (in billion pesos)
	Petron	Shell	Caltex	COMBINED INCOME
1991	1.2	0.8	1.1	3.1
1992	1.5	0.5	0.9	2.9
1993	2.8	0.4	1.0	4.2
1994	7.5	0.6	0.9	9.0
1995	4.0	1.7	1.1	6.8
1996	4.2	2.5	0.7	7.4
1997	(0.6)	(1.5)	(2.4)	(4.5)
1998	3.7	1.7	1.3	6.7
1999	2.4	2.1	1.4	5.9
2000	(1.0)	(1.0)	(3.0)	(5.0)
2001	1.2	2.5	1.0	4.7
CUMULATIVE INCOME	26.9	10.3	4.0	41.2
Source: Securities and Exchange Commission (SEC) Note: Petron, Shell and Caltex 2001 net income based on newspaper reports

Table 2 Number of Retail Gas Stations per Industry Player
	Petron	Shell	Caltex	Others	TOTAL	% share
National Capital Region (NCR)	143	154	166	24	487	15%
Cordillera Autonomous Region (CAR)	19	7	11	0	37	1%
Region I (Ilocos)	77	74	70	2	223	7%
Region II (Cagayan Valley)	57	51	29	2	139	4%
Region III (Central Luzon)	159	131	137	21	448	14%
Region IV (Southern Tagalog)	201	192	131	15	539	17%
Region V (Bicol)	55	67	31	0	153	5%
Region VI (Western Visayas)	103	104	72	0	279	9%
Region VII (Central Visayas)	82	66	63	0	211	7%
Region VIII (Eastern Visayas)	41	26	27	0	94	3%
Region IX (Western Mindanao)	28	37	33	0	98	3%
Region X (Northern Mindanao)	58	59	44	0	161	5%
Region XI (Southern Mindanao)	78	64	68	0	210	7%
Region XII (Central Mindanao)	32	21	16	0	69	2%
ARMM	14	11	14	0	39	1%
TOTAL	1,147	1,064	912	64	3,187	100%
Source of basic data: Department of Energy (DOE), as cited in Arao, D.A. (2002). The State of the Philippine Downstream Oil Industry (unpublished master’s thesis). Manila: De La Salle University.