Business groups want fuel price freeze lifted

MANILA, Philippines – Foreign and local businessmen demanded yesterday the termination of President Arroyo’s Executive Order 839, which places petroleum products under price control, saying the directive will adversely affect 80 percent of the country’s oil supply and create a black market.

In a statement, the Joint Foreign Chambers (JFC) said fuel supply in Luzon, which accounts for 80 percent of the country’s petroleum market, will be reduced because importers will not sell at a loss.

The Management Association of the Philippines (MAP) also said EO 839 is “based on an oversimplified but misleading view of the problem.”

“It holds out the promise of lower prices but it does not properly inform the public of the dire consequences of arbitrary and sweeping price control,” MAP said in a statement.

Other groups that have expressed concern over the imposition of EO 839 are the Philippine Chamber of Commerce and Industry, Makati Business Club, and the Federation of Philippine Industries.

The foreign chambers said the price control may also cause an arbitrage between Luzon and the rest of the country because there will be an incentive to sell remaining oil stocks in Luzon in Visayas or Mindanao where prices are higher.

“We strongly recommend an immediate announcement of a termination date for EO 839 to mitigate the adverse impact of forced loses on the petroleum, risk of future adequate supply industry, and disincentive to future investment,” JFC said.

Foreign businessmen also fear that with forced loses in petroleum sales, investor confidence in the industry might weaken and affect supply in the long term.

JFC said the business community is concerned about the indefinite implementation of the order, making it difficult to create a business outlook.

“Our members are particularly concerned about the open-ended nature of this price control with no specific ‘sunset’ date which leaves the oil industry and all those who depend on oil products in a state of great uncertainty for the foreseeable future,” the group said.

President Arroyo signed EO 839 on Oct. 23 to protect consumers against predatory pricing by oil companies while a nationwide state of calamity is declared in the aftermath of a series of destructive storms that hit the country. It remains in effect in Luzon until the state of calamity is lifted.

JFC said that there is no need to impose a price control on oil firms because oil firms keep prices in check.

“Oil companies operating in the Philippines have been demonstrating outstanding corporate social responsibility in various forms during the state of calamity in Luzon and, in particular, in keeping overpricing in check and bringing their damaged facilities quickly back into operational status to ensure continuity of petroleum supplies.”

JFC maintained that the recent price hikes were caused by rising import costs because of recent increases in international prices, which are determined by oil exporting governments and global demand.

MAP said that instead of imposing a price control and potentially upsetting market balance, the government should go after oil smugglers “who cheat the public coffers of billions of pesos in taxes.”

“Experience has shown that price distorts supply patterns. This order will not be an exception. The unavoidable response of a company that is forced to sell below cost is that it has to cut its business volume to minimize losses. Buyers then turn to informal sources and a black market emerges. In the end, the objective of keeping prices low is defeated. Restoring normalcy to the market is then a protracted and painful process,” MAP said.

“If the government smells profiteering, it can, with all the powers of inquiry and enforcement at its disposal, isolate and severely punish the wrongdoers while allowing legitimate players to go about their business of faithfully serving the public without being unfairly demoralized. For example, it can do the people a lot more good by mercilessly going after the smugglers in the oil industry.”

MAP said that with the imposition of the order, the government is breaking its promise to provide oil investors stability and protection under the law.

“In countries where prices are kept artificially low, it is the government that subsidizes the products. Private companies should not be made to subsidize their products. These are the same investors that government invited into the country with the assurance of stability and protection under the law. Not only are they not getting protection from rampant smuggling, they are also being forced to bleed by selling products below their cost,” MAP said. –Ma. Elisa Osorio (The Philippine Star)