By Joseph B.A. Marzan
A member of the Iloilo City Council who chairs the body’s transportation committee on Tuesday urged the national government to revert to regulating the oil industry amid the price roll back following a series of drastic raises in the past weeks.
In his privilege speech during the council’s regular session, Councilor Romel Duron highlighted how the Philippines has become largely dependent on oil.
Duron claimed, without citing sources, that the country produces 33,258 barrels of oil per day but consumes 429,000, placing it as the 36th oil consumer in the world.
He also compared this to the daily per-barrel production and consumption of oil in the United States (14.8 million produced but 19.6 million consumed), China (4.9 million produced but 12.7 million consumed), Saudi Arabia (12.4 million produced and only 3.3 million consumed), and Russia (11.2 million produced and only 3.6 million consumed).
“Oil is without [a] doubt one of [civilization’s] most important natural resources, and yet we are just beginning to learn how dependent we are [on] it. Total oil reserves in the Philippines are less than even a single year of oil consumption, making the Philippines highly dependent on oil imports,” Duron said in his speech.
Duron added that the current oil deregulation policy under the Republic Act No. 8479 (Downstream Oil Industry Deregulation Act of 1998) has placed the country at “100 percent at the mercy of oil companies.”
“The major oil companies act as a cartel and pretty much set whatever price they agree on, with no government intervention and little monitoring. All our officials can do is to exercise what economists call moral persuasion, but we still have to find an oil company that will allow itself to be swayed by morality,” he stated.
“In our country, prices of oil have increased for the 11th straight week, and the truth is, we no longer know how prices are being determined. Non-transparency is the rule in the oil industry.”
Duron opined that the government has to go back to the regulation of the oil industry to ensure fair and reasonable fuel pricing.
He also suggested special service stations where public transport vehicles can purchase fuel at subsidized prices, with funding coming from excise taxes.
Another suggestion he raised was to regain controlling interest of the erstwhile state-run Petron, which he believes will influence 35 to 40 percent of the market.
“The oil companies must obtain the government’s permission to raise prices. To determine whether the proposed price increase is fair and reasonable, and the government must have access to the oil companies’ data. The objective is not to control prices, but to correct the current situation of windfall profits and make the oil majors share the burden of the rise in the price of
crude with the consumer, rather than passing this all to the consumers,” he said.
“A re-Filipinized [oil industry] will be able to diversify our oil sourcing and make preferential deals with countries.. We must also radically shift from oil to electric power in transportation and the popularization of the use of bicycles for relatively short distances from stations to residence or office,” he added.
The Iloilo City government is set to begin implementing its 4-day work week on March 28, as a response to rising oil prices in the past few weeks.
After many weeks of oil prices going up, they have, however, rolled up for the first time drastically on Tuesday, ranging from P5 to P12 for gasoline, diesel, and kerosene fuels nationwide.
A February 2020 study by think-tank Philippine Institute for Development Studies (PIDS) indicated that before the passage of RA 8479, the then Energy Regulatory Board considered “the dollar cost of imported crude oil and the foreign exchange rate, and fixed prices of petroleum products.”
“A budgetary allocation maintained by the national government called the Oil Price Stabilization Fund (OPSF) automatically absorbed any price change incurred by the oil companies in importing crude oil, which is not reflected in the selling price,” the study said.
Consequently, the effects of a regulated oil industry were:
-Changes in the world prices of oil and foreign exchange rate were not immediately reflected in the domestic prices. Any large adjustment in oil prices made it difficult for businesses and consumers to adjust quickly, thereby causing disruptions;
-Cross product subsidization created imbalances in the demand and supply of petroleum products. Diesel was priced significantly lower, encouraging higher consumption and resulting in a shift in the use from gasoline to diesel;
-Oil companies experienced delays in margin recoveries since any price adjustments would still require public hearings; and
-Entry of new investors was discouraged, thereby minimizing competition.
The deregulation of the local oil industry was done in two phases: partial and full deregulation.
In the partial deregulation phase, oil importation was liberalized and the automatic pricing mechanism was implemented.
In the full deregulation phase, controls on oil price setting were similarly lifted, the foreign exchange cover was removed, and the OPSF was abolished.
There are four major reasons why the oil industry was deregulated:
-To stabilize and provide reasonable prices;
-To encourage competition;
-To encourage investments; and
-To remove cross product subsidies. (With additional information from https://dirp4.pids.gov.ph/ris/pdf/pidseid0002-feb.PDF)
