Lift price cap–chambers

EO harmful to foreign investments

The Joint Foreign Chambers of the Philippines on Monday urged the government to lift Executive Order 839, which froze petroleum prices to their levels before October 15 when the Philippines was ravaged by back-to-back storms. In response to the devastation, the government recently declared a state of calamity over the main island of Luzon.

In a statement, the Joint Chambers said, “We strongly recommend an immediate announcement of a termination date for EO [Executive Order] 839 to mitigate the adverse impact of forced loses on the petroleum, risk of future adequate supply industry, and disincentive to future investment.”

“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 statement added.

The Joint Chambers said that the oil price control would have “immediate and long-term adverse impacts on supply of petroleum products and future foreign investment in the sector.”

Troubling scenarios

The group also warned of the following scenarios—a reduction in supply to and availability of petroleum products in Luzon, because importers will not wish to sell at a loss. Incidentally, Luzon comprises 80 percent of the Philippine petroleum market.

Other scenarios, the according to the statement, included the consequent negative impact on the capacity and growth of the Philippine economy; arbitrage between Luzon and the Visayas- Mindanao regions, given that there will be an incentive to direct currently remaining oil inventories in Luzon to be sold in the Visayas and Mindanao where the prices are higher; and with potential forced loses in petroleum sales, a disincentive to any further investment in the sector which will affect future supply over the longer term.

Earlier, petroleum companies—with the exception of independent player Unioil—warned of possible shortages resulting from the price-control measures. Still, they grudgingly said that they would heed the President’s order.

But the Palace appealed to their sense of corporate responsibility while the state of calamity was in place, even as it threatened legal action against violators.

The Joint Chambers said, “Our members understand and accept that price control may have to be used as a last resort to prevent profiteering by some unscrupulous firms and ‘middlemen.’”

The statement added, “In the current situation, however, there is no evidence of profiteering by the oil companies, with it clear that the recent price increases in supply are a direct result of an increase in the import costs of the products due to recent increases in international prices which are set by oil exporting governments and global demand.”

“Furthermore, the oil companies have been very responsive to assisting the population affected by the flooding in Metro Manila and other parts of Luzon and have provided substantial support in terms of products, people, equipment and money available.

“Finally,” according to the Joint Chambers, “we note that oil industry representatives initiated extensive discussions in good faith with the Departments of Energy and Justice in order to find ways to secure availability of petroleum products at fair prices in the affected parts of Luzon. The sudden, unilateral imposition of EO 839 has seriously undermined the future potential of these constructive joint efforts.”

In earlier reports, the Management Association of the Philippines (MAP) and the central bank also warned about the harmful consequences of price controls.

The MAP, which was against profiteering and hoarding, warned that price control could create a black market that in the long run could hurt consumers that the President’s Executive Order was aiming to protect. –Ben Arnold O. De Vera, Reporter, Manila Times