Oil industry is a free market

As of this writing, the issue between the Petroleum Distributors and Services Corp (PDSC) and Chevron is still brewing. PDSC filed a petition before the Department of Justice to hold the officers and directors of Chevron criminally liable for organizing themselves and subsequently engaging in the retail business through the so-called COCOs.

Because this is the first suit of its kind in the Philippines, I am naturally intrigued, as with many others, and for whatever it is worth, I am trying to learn the nitty-gritty of the issue to understand it better.

First off, these so-called COCOs. These are company-owned, company-operated stations which, from my research, were put up by Chevron in 2003 (Chevron markets the Caltex brand of fuels). It was also in this same year that the Retail Trade Law was liberalized to allow 100 percent foreign-owned entities to engage in the retail business in the Philippines, and which prohibits monopolies and combinations in restraint of trade. Prior to this, Chevron has been in the business of supplying fuel products to its local dealers for decades.

Chevron proceeded to build these COCOs, a total of 24 retail sites until 2009, by which time, the company realized that they were not making money and the COCO stations could barely recoup capital investments. These continued to operate at a loss until they were all either closed down or converted to retail-operated gasoline stations. Incidentally, all these COCOs were concentrated in the Metro Manila area and superhighways.

Why were these company-owned and company-operated sites not making money? According to some Chevron officers that I talked to and met by chance in one recent automobile launch, these COCO retail sites were set up to serve as model sites. As such, they were designed to incorporate all the disciplines and models that Caltex has benchmarked for its brand. They were to serve as training ground for the Chevron staff to meet the regional standards of the brand and to enhance their expertise. In short, the main direction for these retail units was not for profit-generation but to serve as model sites.

It was also pointed out that these COCOs had lower sales volumes than other privately-owned retail sites. For one, they did not accept credit like all other service stations in the country today. Being just a handful (a total of 24), they could also not be prioritized in terms of delivery of fuel and fuel products.

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PDSC has raised the issue of having these COCOs situated in the same areas where other Caltex stations are located. The organization is also alleging that Chevron has the ability to set the prices on the supply and retail ends, but isn’t that true for the other giants like Petron and Shell as well? If the allegations are that the prices were controlled during the lifetime of these COCOs, can this, in fact, be proven?

The Petroleum Distributors and Services Corp. is also contending that as supplier and at the same time as operator of gasoline stations and retailer of Caltex fuels and other products, Chevron could control the street prices of fuel products. This, they construed, provided unfair competition to Caltex dealers.

I am personally against unfair trade competition or any form of strangled flow of commerce where Davids are pitted against Goliaths, but hard as I look, I fail to see any of these here. If, say Chevron or Petron chooses to set higher prices for their products, isn’t the consumer free to go somewhere else where fuel is cheaper? Does having a company-owned and company-operated retail station give them the edge of commanding higher prices? Does it, in fact, allow them to prevent the free commerce of retail fuel gasoline in the Philippine market? I really cannot see how having these can give them the clout to dictate higher retail prices of fuel.

Ours is a free market, so any business can dictate its own prices. Since the oil deregulation, government has left the matter of pricing to the oil companies. But which oil company operating in the country has the stupid sense to price its fuel higher than prevailing market prices? All the oil companies sell uniform prices (give or take a few centavos for some dealers) because the consumer will simply walk away from the expensive one and drive to the next station that gives better prices. Haven’t you noticed this when there is a reported price hike? So, even if Chevron should decide to sell at higher prices, which I think does not make sense at all, does this decision hold the consumer hostage to their own pricing scheme? The fact is, the public has always had a choice, and they still do.

As a consumer, I have not taken a stand on the issue because I still cannot see the light of PDSC’s contentions. I still cannot see how the existence of the COCOs can control the distribution and pricing of Caltex products and how this directly impacts the other local Caltex dealers. Is the fuel sold in these COCOs cheaper than that sold in other independently-owned Caltex dealers? I haven’t heard of any such case, but if this were true, it simply does not make sense.

I have read the press releases, presumably from the PDSC, on the organization’s stand in this issue, but I still have to read Chevron’s stand. It should be interesting reading. In the meantime, the Office of the City Prosecutor of Makati has dismissed the complaint of PDSC which found the charges as leveled by PDSC as unsubstantiated. The organization, in seeking for a reconsideration of the initial decision based on a preliminary investigation, has maintained that there was no need for concrete evidence to support their claim. The Petition for Review was likewise dismissed, which is why it has found its way to the Dept. of Justice.

As I said, it would be interesting to hear the official side of Chevron on this issue so that the ordinary consumer can gauge for himself: how can these COCOs cause higher fuel prices for consumers?

Mabuhay!!! Be proud to be a Filipino. –Ray Butch Gamboa (The Philippine Star)

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