WHEN DEREGULATION SEEMS TO FAIL

The Philippine Star
11/17/08

Without doubt, a free market system is still the better environment for any economy to grow. But, as with the lessons that the world has learned from the U.S. credit market problem that metastasized into the current global financial crisis, free market must be tempered by effective controls and systems.

Such is the parallel state that is emerging from the recent free-willing fall and rise of crude oil prices. There are now strong suspicions of price manipulation, of a “free” market being managed by a few to control supply and demand.

Bringing the discussion closer to home, such view – but applied to the local setting – is drawing more attention and support from a number of our lawmakers. Among the esteemed congressmen who have raised questions about the wisdom of the oil deregulation law are Cebu Rep. Eduardo Gullas, Catanduanes Rep. Joseph Santiago, and Quezon Rep. Danilo Suarez.

Lawmakers ask questions

Cong. Gullas has been questioning the apparent massive powers of Shell and Petron, who together share over two thirds of the local market, to command pump prices, more so in recent weeks when crude costs have been plunging to less than half its price of $147 per barrel in July.

Cong. Santiago, on the other hand, is batting for the imposition of additional measures that would guard against excessive earnings of the oil companies especially if they try to keep domestic prices at high levels even when the price of crude has dropped to less than $60 a barrel.

Cong. Suarez has started a congressional inquiry to directly determine whether the oil pricing latitude enjoyed by oil companies that came with the deregulation of the industry is being abused.

In the Senate, questions were first raised by Sen. Francis Pangilinan, who had remarked about the oil industry’s apparent conniving demeanor when setting pump price.

Changes to deregulation law

Most recently, Sen. Juan Ponce Enrile himself has entered the fray, delivering a privilege speech on behalf of consumers calling for a legislative inquiry, possibly with the end-view of coming up with changes to the current oil deregulation law.

I am reprinting parts of his speech in this column, as follows:

“Over the past few months, millions of ordinary Filipinos – farmers, housewives, businessmen, students and even the government bureaucracy – have been on the receiving end of the effects of the cost of operations, production and primary commodities. The cost of power especially is highly dependent on fuel costs. No sector of society, industry and the national economy has been spared.

 “It seemed like we were seeing the light at the end of a long dark tunnel when international oil prices started to go down by August. From its peak in July, Dubai crude had gone down by 61 percent or at $55 per barrel by the end of October. 

“During the first 10 days of this month, it has gone down to $57 per barrel. Using the venerable law of supply and demand, it was logical to presume that domestic oil prices would follow suit.

“Although local prices went down, it did not go down fast enough nor did it go down as low as one would expect. What happened?
“More perplexing is that one other country had a different experience. Let us consider the following figures:

“Last July, when oil prices were at its peak, oil companies purchased crude oil at P6,244 per barrel which, based on foreign exchange rate of P44.60 to $1, is equal to $140. Now, it sells at P2,657 per barrel which, based on foreign exchange rate of P48.30 to $1, is equal to $54.51.

“The Mean of Platts Singapore (MOPS), which serves as the basis of prices of imported refined petroleum product, indicates that Singapore's diesel and regular fuel oil prices have dropped by 56 percent and 63 percent, respectively.

“However, our domestic prices, dropped by a mere P18 (or by 31 percent) for diesel and by P12 (or by 26 percent) for regular fuel oil, respectively.  

“Liquefied petroleum gas (LPG) has also dropped significantly from $804/metric ton last month to between $314 and $490 per metric ton.

“According to reports, however, the price of LPG in Philippine market is at a level that could still be cut by as much as P191, for an 11-kilo tank.
“With regard to fuel used in the maritime industry, Singapore's marine gas oil (MGO), which is also equivalent to local diesel, and IFO 180, the equivalent of our local regular fuel oil, went down by 56 percent and by 63 percent, respectively.

“On the other hand, the decrease of prices in these products in the Philippines is nowhere near that of Singapore's figures.

“… it is my opinion that the proper management of the price of oil is the one key to our economic well-being. If this problem is left unresolved, it may mean more belt-tightening – something that our people may no longer be able to bear.

“Vital to this concern is the systematic search for a policy that would identify and correct an obvious defect in the current oil and energy distribution system.

“As members of the Senate, we are duty-bound to legislate a solution based on sound policy.”

Questions for big oil companies

Manong Johnny brought out some questions that are in the minds of patiently suffering consumers. What prevents the big oil companies from implementing significant cuts in their prices of their fuel and petroleum products and achieve price levels that are more reasonably in accordance with the drop in the global fuel price reductions, the senator asked.

This question is relevant considering the big disparity between the current domestic oil prices and the prevailing crude cost. It is apparent that the big oil companies are not just passing on to the consumers the increase in crude prices but more as shown by the record profits made at a time when crude prices were soaring.

Sen. Enrile is also asking what are the reasons for the seeming distortion or discrepancy in the reduction of fuel prices among the different classes of fuel? This is related to the question earlier raised by Cong. Suarez as to why price reductions made by Petron and Shell are the same when they have different supply source, different profile of distribution and operating costs. “They are protecting each other’s profit margin and market and therefore there is no real competition,” remarked Cong. Suarez.

And lastly, Manong Johnny is posing the question as to what is the best way to maintain stability in the prices of fuel?

Definitely, we support Sen. Enrile’s call for transparency from the oil companies and more importantly, solutions to this.

FilOil Flying V “Sweet 16” match ups

The stage is set for the climatic closing of the year’s search for the national collegiate champion. Out of 212 collegiate teams from 27 “mother leagues” nationwide that participated in the 2008 Philippine Collegiate Championship games, sixteen teams will be in the FilOil Flying V “Sweet 16” Final Challenge. Fourteen teams have secured their places in the elite group with the last two slots being hotly contested by FEU Tamaraws, Xavier U Crusaders, University of San Carlos Warriors and Capitol U Stallions in the ongoing Mindanao zonal championship at Cagayan de Oro City.

Pairings for the “Sweet 16” first knock-out round are: Ateneo vs. Lyceum; MLQU vs. Mapua; San Sebastian-Recoletos de Cavite vs. Letran; San Beda vs. USJR; UCN vs. Arellano U; and University of Visayas vs. UE. De La Salle and JRU are paired against the Mindanao zonal qualifiers.

For more details about the biggest collegiate basketball event for the year presented by SMART, PLDT, FilOil Flying V and KFC visit the official website, www.CollegiateChampionsLeague.net and www.gameface.ph, internet media partner of PCCL.

Should you wish to share any insights, write me at Link Edge, 25th Floor, 139 Corporate Center, Valero Street, SalcedoVillage, 1227 MakatiCity. Or e-mail me at reydgamboa@yahoo.com. For a compilation of previous articles, visit www.BizlinksPhilippines.net.