Commentary 

Price Hikes Expose Pitfalls of Oil Deregulation

The current data on increasing world crude prices must be seen in the context of how local prices can be stabilized. Accepting the global realpolitik as fait accompli only serves the interests of oil firms and the powers-that-be and aggravates the already unrewarding toil of the poor. 

By DANILO ARAÑA ARAO 
Bulatlat.com

On the surface, the data are on the side of the powers-that-be.

For the first half of Jan. 2003, Dubai crude prices are pegged at $27.02 per barrel, a 5.01% increase from the Dec. 2001 level of $25.73 per barrel. The increase in Dubai crude prices gets even more apparent when compared to the January 2002 level of $18.48 per barrel.

When Caltex announced a new round of increases last Jan. 25, Petron even managed to appear benevolent as it promised not to increase prices for the rest of January. As of this writing, Shell is yet to decide whether or not to match Caltex’s recent price hike.

It may be recalled that oil firms also increased prices of gasoline by P0.49 per liter last Jan. 3, citing increased world crude prices.

Last Jan. 18, Shell announced an oil price hike by P0.60 per liter. Petron, Caltex and other industry players followed suit a few days after. The oil firms claimed that this was due to the cost of complying with the Clean Air Act which required gasoline products to contain no more than 35% and two percent aromatics and benzene, respectively, beginning January 1 of this year.

Initial media reports last Jan. 25 said that Caltex increased pump prices of diesel by P0.65 per liter and kerosene by P0.45 per liter.

In the eyes of the Arroyo administration

According to the Department of Energy’s (DOE) website, “it will only take a careful and closer look at the industry to actually recognize the benefits that the country has reaped with the deregulation of the (downstream) oil industry (with the enactment of Republic Act No. 8479 in February 1998).”

For the administration, such “careful and closer look” includes a different approach in analyzing current prices which the Arroyo administration acknowledges as “higher than it was prior to deregulation.” The administration explains: “(C)onsidering present conditions(,) it is fair and actually lower than is expected under a regulated environment.”

The powers-that-be admit that deregulation does not “guarantee lower prices but fair prices. Domestic oil prices are increasing because world market prices are increasing.”

Deregulation weaknesses

Of course, the administration is correct in saying that world market prices are increasing. Deregulation, however, makes the local downstream oil industry even more dependent on the global situation. To make things worse, it becomes more vulnerable to the profiteering ways of oil companies.

An oil firm’s pump prices, deemed “fair” by the Arroyo administration, are not just based on Dubai crude and the foreign exchange rate but also includes price levels of its competitors.

This may be evident in the behavior of small industry players that, through the years, tended to follow the price increases of the Big Three oil firms, keeping a price differential of about P0.50 per liter.

Given the absence of price controls, oil firms can dictate prices at will, and gas stations can set higher prices should they desire.

That pump prices increased three times this January is not anymore surprising, though announcement of past increases were normally done either monthly or twice a month. The government’s objective of deregulation, after all, is to “acclimatize the public to frequent changes in the domestic price of oil products,” according to a study by the then Energy Regulatory Board in the 1990s.

The current data on increasing world crude prices must therefore be seen in the context of how local prices can be stabilized and how the domestic market can be least affected.

Accepting the global realpolitik as fait accompli only serves the interests of oil firms and the powers-that-be and aggravates the already unrewarding toil of the poor.

It is imperative to seriously consider the option for nationalization which seeks, among others, to institute price controls and a buffer fund, though not necessarily reverting to the previous regulatory environment which had its share of pitfalls. Various progressive groups have already made this call since time immemorial.

A new regime must be established in the downstream oil industry, since the age-old problems remain unresolved, particularly the affordability and accessibility of petroleum products. Indeed, chronic problems need radical solutions in order to end the oily ordeal. Bulatlat.com

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