Controlling oil prices

Published by rudy Date posted on March 31, 2011

IF it still has escaped your attention, the prices of oil products have already risen 10 times this year. Diesel prices have increased by P7.95 per liter in less than only three months. Kerosene and gasoline rose by an average of P7.30 and P5.30 per liter respectively within the same time period. The recent price increases would seem to surpass the rapid rise in oil prices in 2008 when diesel reached P56 and gasoline topped at around P60.

On top of the more obvious direct impacts of price increases in LPG and kerosene, the impact of oil prices in the prices of goods adds to the burden of an already suffering public. The prices of goods and services have already started to follow the increase in oil products like the pending increase in bus fares as well as the P1 per kilo increase in rice. The last-mentioned was attributed to the increased cost in transporting the rice to market places. Those sectors, such as farmers, fisherfolk and jeepney drivers, that directly use diesel or gasoline would obviously be hard pressed with the increases.

Government’s bogeyman is the Middle East and North African crises since being our source of oil imports, the instability in Libya, Egypt, Yemen, Bahrain and other countries would definitely affect the prices of oil. On the other hand, government pleads its inability to peg controls due to the Oil Deregulation Law. The “Big Three” of the local oil industry, Caltex, Petron and Shell, account for more than 80 percent of the total number of pump stations nationwide, nearly 86 percent of petroleum products sold in the domestic market, and control 100 percent of the country’s refining capacity.

Yet looking at the actual production of oil from the region, the Middle East and North African crises have not resulted in any large drop in the volume of output from the major oil fields. Oil prices have mainly risen from speculation and fears of supply shortages and not from any actual drop in production. Even so, the oil reserves here should have been a buffer against any instability in world prices especially since none (except the ongoing “invasion” of Libya) of the crises panned out more than one month. With regard to Libya, the impact is on overseas contract workers there, but not on oil prices because we do not import oil from that country. If the increase in world prices is artificial, why are the oil merchants here blindly raising local pump prices?

According to the driver group Piston, the increases would also be like a cha-cha dance. It is best summed up in a new driver’s idiom: “kapag nagtataas ng presyo, piso-piso, at kapag nagrorolbak ay beinte singko.” In 2009, Sen. Ralph Recto, while he was in the National Economic and Development Authority, computed that there was overpricing in gasoline of around P8.00 per liter. Continuing Senator Recto’s argument, Piston computed that in 2010, the overpricing is on the average P8.12 per liter overpriced.

I wrote in this column sometime ago about the work of my student (now a Ph.D.) on the delay in rollbacks of prices in oil and diesel. The overpricing and delays in rollbacks, if taken collectively, are large. Multiply the overpricing (in March it is P7.50 according to Piston) with the daily consumption of oil of 48.8 million liters, we end up with P366-million total overpricing every day. In a month, this would cumulatively amount to P11 billion.

On top of this, there is a 12-percent value-added tax (VAT) on petroleum products. In 2010, the government received P47 billion from VAT receipts. The VAT would amount to around P44 million per day.

The Oil Deregulation Law passes on to the consumers all of these add-on costs—from speculation, from overcharging and government’s VAT. With automatic increases, oil pricing is prone to abuse especially from the cartel. It seems that the Aquino government is indifferent to calls to scrap the Oil Deregulation Law and to control oil prices. It has also no plans to remove the VAT on oil. Together, the overpricing and VAT alone can already remove more than P8.50 from the price of oil products. With proper price controls, the impact of oil price increases can be minimized.

At the end of the day, we sympathize with the drivers who are launching their “tigil-pasada” and mass actions since they are the ones that are at the receiving end of the oil burden. The general public might experience a slight inconvenience with no jeepneys plying around but this is small compared with the burden of weekly oil price increases.

The Oil Deregulation Act should be scrapped and the oil industry should be nationalized. Sadly, this is not being done by Malacañang. The PNoy administration’s policy seems no different from that which came before. –GIOVANNI TAPANG, Ph.D., Manila Times

Dr. Tapang is the chair of AGHAM-Advocates of Science and Technology for the People.

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