Analysis 

Amid Looming U.S. War on Iraq:
Gov’t Oil Security Plan Fails to Curb Price Hikes, Overpricing

The Arroyo administration is doing all it can to ensure adequate supply of oil in the country due to the impending U.S. war on Iraq. At least that’s what the Department of Energy (DOE) claims.

By DANILO ARAÑA ARAO 
Bulatlat.com

Energy Secretary Vincent Perez said last Feb. 14 that the country has 70 days of oil supply inventory, better than Thailand’s 50 days. He assured the public that the country has enough oil stocks in case the U.S. war against Iraq breaks out.

In October Last year, President Gloria Macapagal-Arroyo signed Executive Order 134 which required oil companies to set a minimum oil inventory. The administration had been forced to issue this order since Republic Act (RA) No. 8479 (Downstream Oil Deregulation Act of 1998) does not require oil companies to have a minimum inventory, unlike the previous oil deregulation law in 1996 (RA 8180).

Perez added that countries like “Indonesia, Saudi Arabia, Russia, Iran and other Middle East countries, will provide the Philippines as much oil as the country needs, in case a Middle East war erupts.”

According to him, the other immediate measures in a war scenario are the maximization of national storage capacity for stockpiling of diesel and other products, extension of the Pandacan, Manila oil depot business permit, activation of the Energy Contingency Task Force that will implement contingency plans according to scenario level, and implementation of a communication plan such as TV advertisements that recently came out about how to conserve oil.

As regards prices of petroleum products, Perez said that the Department of Energy (DoE) will closely monitor oil prices, “regularly publishing latest prices and encouraging consumers to exercise power of choice, continuing dialogues with transport groups and petroleum dealers, and providing other measures to avert possible transport fare hikes.”

How about oil price hikes?

Perez has apparently left out one important detail --- i.e., ensuring stability of prices of petroleum products due to the rising prices of crude oil in the international market. After all, what good is availability of products if these are not affordable in the first place? 

On the same day Perez talked to the press, Singapore-based The Straits Times reported that crude oil prices already hit a 28-month high, as Brent crude surged to $33.05 per barrel in the futures market. The report stressed that this happened “after the US said its inventories were at the lowest since 1975 - with enough to meet daily consumption for just two weeks.”

The administration already rejected calls to suspend the imposition of specific taxes on petroleum products, arguing that this will reduce government revenues and consequently increase the already ballooning budget deficit.

According to RA 8184 (Oil Tax Restructuring Law), the specific taxes per liter are as follows: Premium gas, P5.35 or $0.09 (based on exchange rate of P53.935 per US dollar); Unleaded, P4.35 or $0.08; Regular gas, P4.80 or $0.09; Diesel, P1.65 or $0.03; Kerosene, P0.60 or $0.01; and Fuel Oil, P0.30 or $0.01.

Needless to say, a suspension of these taxes would not only stabilize prices but may also result in a substantial rollback of prices of petroleum products.

Exposing overpricing

Just like its predecessors, the Arroyo administration has continually ignored the issue of overpricing. In fact, energy officials are wont to justify price increases the past few months, citing the reality in world crude prices.

Indeed, Dubai crude increased to $27.81 per barrel as of January this year compared to $18.48 per barrel during the same month last year. This represents a 50.5% in just 12 months.

In January 2000 and 2001, Dubai crude per barrel was pegged at $23.36 and $22.85, respectively.

The January levels of the peso per U.S. dollar exchange rates stood at P40.39 (2000), P50.93 (2001), P51.39 (2002) and P54.20 (2003).

On the other hand, prices per liter of petroleum products from January 2000 to January 2003 increased by P8.48 or $0.16 (premium); P8.15 or $0.15 (unleaded); P8.87 or $0.16 (regular); P11.03 or $0.20 (AV Turbo); P9.82 or $0.18 (kerosene); P9.00 or $0.17 (diesel); P8.58 or $0.16 (fuel oil); and P4.85 or $0.09 (LPG).

Analyzing actual movements in pump prices in relation to the fluctuations in Dubai crude prices and the peso-dollar exchange rate, oil firms overpriced their products by as much as P0.31 ($0.01) per liter. (See Table 1)

Based on an independent computation, the overpricing of P2.64 ($0.05) per liter in 2000 more than offset the underpricing of oil companies in the following years.

The computation is based on the prevailing rule of thumb from 2000 to 2002, with the latter data used as basis for analyzing the price fluctuation during the first month of 2003.

Based on the average Dubai crude price and exchange rate in 2002, a $1 per barrel increase or decrease in crude oil translates to a corresponding P0.42 ($0.01) per liter adjustment in pump prices. On the other hand, a P1 ($0.02) adjustment in the exchange rate results in a P0.20 ($0.004) increase (in case of devaluation) or decrease (in case of appreciation). (See Table 2)

More oil price hikes in the offing

The Arroyo administration indeed fails to address the fundamental problem in the downstream oil industry which persists even prior to 9/11 and the subsequent U.S. wars of aggression.

A spate of oil price hikes await the country as oil firms once more find a convenient excuse to engage in profiteering, still tolerated by the administration that continues to claim that deregulation is good for the country. Bulatlat.com

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