Neda, DoE agree Recto’s oil overprice claim baseless

Published by rudy Date posted on November 15, 2009

Acting National Economic Development Authority (Neda) chief Augusto Santos has dismissed as baseless the claim made by his predecessor, Ralph Recto, that prices of petroleum products in the country are overpriced by at least P8.

In a letter to President Arroyo, which was coursed through Executive Secretary Eduardo Ermita, Santos said “Neda does not have an economic model or formula to determine what the pump prices (of petroleum) should be” and therefore cannot make a judgment if oil firms are indeed selling their products at a higher price than what they should be implementing.

“To be able to determine what the pump prices should be, ideally we would need to know the revenues, the costs and the required or desired return on investments of the oil firms which are data that may not be readily provided by the oil firms by virtue of the Oil Deregulation Law. Under this law, it is only the Department of Energy (DoE) that can possibly access such data, being the agency mandated by the law to determine the reasonableness of oil prices,” Santos said in his letter to Arroyo.

This being, Santos said Recto could not have possibly had any access to the necessary data used by oil companies in setting the prices of their products like gasoline, diesel, kerosene and liquefied petroleum gas or cooking gas and could not have properly computed for the correct level of oil prices.

He said Recto may have simply made “a simple interpolation or extrapolation” in estimating pump prices based on the historical Dubai crude oil prices, the prevailing peso-dollar exchange rate and actual pump prices.

By doing that, Santos said Recto’s computations were faulty because they were arrived at without including such required variables that only the oil companies could determine, such as the cost of importing crude, the desired amount of return on investments, among others.

He also stressed that “the oil industry is deregulated (allowing it to be a free market) and therefore oil firms are allowed to set their own prices.”

The DoE agreed with Santos’ statements.

Nonetheless, the acting Neda chief recommended to Arroyo to boost the capability of the DoE in monitoring and analyzing the prices of petroleum products and their inventories by increasing the number of its personnel, raising its budget, etc.

“For the DoE, in coordination with the Bureau of Internal Revenue, to collect data/info on the volume (in liters) and amount of revenues generated from the sale of petroleum products from oil companies, it must have the capacity to do so,” Santos said.

He also recommended for the DoE to be tasked to conduct regular monitoring of the inventories of oil companies to determine the reasonableness of their pump prices.

Such a recommended task, however, is already being done by the DoE through its issuance of a circular to all local oil firms.

The circular provides that all oil companies must submit to the Oil Industry Management Bureau of the DoE weekly reports, prepared under oath, of their inventory on a per crude and per product basis, including their actual and projected importations and local purchases. –Daily Tribune

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