COMMENTARY

Why Not Regulate?

How long can government avert a fare adjustment under a deregulated regime? The truth is that government can protect the interest of both commuters and drivers through one major policy shift: the regulation of the oil industry.

By Arnold J. Padilla
IBON Senior Researcher
Posted by Bulatlat.com

Due to successive oil price hikes at the start of the year, jeepney drivers and operators are asking the Land Transportation Franchising and Regulatory Board (LTFRB) to adjust the minimum fare. Transport groups around the country held protest actions in the past month, and warned of more massive transport strikes if government refuses to heed their demand.

Averting a fare hike

For years, government has avoided increasing the minimum fare supposedly to protect the interest of commuters in spite of the uptrend in oil prices.

Since last year, the Arroyo administration has been promoting its discount scheme where 119 refilling stations offer diesel at marked down rates. Malacañang also plans to implement Executive Order 243 that would eliminate tariffs on some imported spare parts used by jeepneys and buses.

But the stopgap measures apparently failed to appease the operators and drivers, as the public transport sector is again in protest. With the extremely high prices of diesel and gasoline, the LTFRB can no longer ignore the demand for a fare hike.

How long can government avert a fare adjustment under a deregulated regime? The truth is government can protect the interest of both commuters and drivers through one major policy shift: the regulation of the oil industry.

Still under a foreign oligopoly

Proponents of deregulation argue that lifting state regulation would dismantle the oil cartel of the so-called Big Three: Petron, Shell, and Caltex. Republic Act 8479 (the oil deregulation law) would supposedly provide consumers with “competitive” oil prices. However, Petron, Shell, and Caltex have continued acting as a “foreign oligopoly” as they implemented and dictated price adjustments at whim.   

From April 1996 when the oil industry was deregulated to January 2004, there have been about 58 rounds of oil price hikes initiated by the so-called Big Three. Consequently, the average retail price of oil products has jumped by 224% during the said period.

Socially-sensitive oil products have become less affordable for the poor. Diesel prices have moved from P6.48 per liter in April 1996 to P17.53 per liter in January 2004 (170% increase); LPG, from P6.28 per liter to P13.55 per liter (116%); and kerosene, from P6.49 per liter to 17.46 per liter (169%).

Worse, overpricing among oil companies has remained rampant. From December 2002 to December 2003 alone, oil firms overpriced their products by 91 centavos per liter. As a result, the Big Three earned some P1.1 billion in extra profits last year.

Even without overpricing, consumers may still be paying more than what they should. Petron, Shell, and Caltex do not only own refilling stations. The global monopolies that control them also own exploration companies, vast oil fields, hundreds of kilometers of oil pipelines, fleets of oil tankers, large refineries, etc. Such monopoly control allows these oil companies to rig the true costs of their products.

Meanwhile, out of the 3,782 refilling stations nationwide as of December 2003, Petron owns 1,188; Shell, 1,083; and Caltex, 940. This means that the Big Three controls eight out of 10 refilling stations in the country.

In addition, of the 316,700 barrels per calendar day (BCD) consumption of oil products as of September 2003, the oil majors account for 272,000 BCD. In other words, for every 10 liters of oil products used, 9 liters come from Petron, Shell, and Caltex.

The benefits of state regulation

The local oil industry is under the monopoly control of global giants. Such huge and powerful corporations must be checked with effective state regulation and restriction. Imposing regulation on them means protecting the interest of ordinary consumers.

To avoid a fare hike and at the same time protect the interest of the public transport sector, government must strictly regulate oil price adjustments. Regulation will not only prevent unreasonable oil price hikes but also will hinder overpricing and transfer pricing.

The first step toward regulation is scrapping Republic Act 8479. Centralized procurement of imported crude oil and refined oil products must be instituted to prohibit oil firms from manipulating prices.

Government should also maintain a buffer fund to cushion the impact of oil price hikes. To finance the buffer fund, government can utilize savings from transactions and market price movements.

It is important to note however, that these are just some of the initial reforms. Regulation must be used to facilitate the nationalization of the oil industry. Only by ending foreign monopoly control can the oil industry truly serve the people and the country. IBON Features / Posted by Bulatlat.com

Back to top

We want to know what you think of this article.