PHL government warned against ‘knee-jerk reactions’ to rising oil prices

The Philippine government needs to thoroughly study if reviving the Oil Price Stabilization Fund (OPSF) or amending the Downstream Oil Industry Deregulation Act of 1998 will do more harm than good in alleviating the impacts of rising oil prices.

This was emphasized by Philippine Institute of Petroleum Executive Director Raphael Capinpin, who served as a discussant at a webinar recently organized by the Philippine Institute for Development Studies (PIDS).

According to Capinpin, the OPSF did not achieve its objectives.

“Three of our members were participants in that era and all agreed that the frequent changes in the fund’s rules and the deviations from its intended purpose led to it not accomplishing its objectives and subsequently to the misuse of the fund,” he said, adding that “the government’s money was better spent in delivering essential social services.”

Capinpin also weighed in on the proposed amendments to the deregulation law, such as increasing the minimum inventory requirement (MIR) for oil companies in the country to ensure that fuel supply will not be disrupted.

He pointed out that the current MIR of 30 days for refiners, 15 days for importers, and 7 days for LPG players are “already sufficient” and that many oil players actually “exceed” these figures.

Moreover, Capinpin noted that the proposal to increase the MIR would not lead to lower fuel prices as the downstream oil industry does not practice inventory-based pricing, which involves setting prices based on the cost of the current inventory.

Instead, what is used is a pricing condition where average trading prices for the current week, as reported in Mean of Platts Singapore, are compared to the average trading prices of the previous week, and the difference is reflected the week after.

He added that the proposed amendment also requires massive capital for additional land, storage tanks, infrastructure, and the inventory itself—the costs of which may be passed on to consumers.

Increasing MIRs may also raise barriers to entry, discourage investments, and limit competition, as potential new entrants, startups, or even big players may be burdened with financing it.

Another proposed amendment to the law is the retail price unbundling, which aims to separate petroleum prices based on their various components.

“Oil industry players will continue to oppose this as it will be a form of price control inconsistent with the regulation and the supposed objective of promoting price transparency,” Capinpin said.

Meanwhile, he urged the government to further examine the proposed creation of strategic petroleum reserves in the country as “this will entail massive government investments and expertise [to administer].”

In his closing statement, Capinpin urged the government to “be wary of knee-jerk reactions” to increasing oil prices, especially as there is already “healthy competition” and better and safer facilities and services, and tax collection is “at an all-time high” within the industry.

“Every time fuel prices go up or there are significant geopolitical events, the clamor to amend the oil deregulation law comes alive. However, when prices are already stable, there is no talk about it,” Capinpin said. (PIDS)