Oil Deregulation in the Philippines (Part 1)
Introduction
Historically, the Philippine oil industry has been deregulated. There was a time when the country had four refining (Bataan Refining, Filoil, Caltex, Shell) and six marketing companies (Esso, Filoil, Caltex, Getty, Mobil, Shell). This was before the first “oil shock” in 1973, which saw soaring oil prices resulting from the decision made by the Organization of Petroleum Exporting Countries (OPEC). From $ 3.39 a barrel in 1972, prices rose to $ 3.89 in 1973, and soared to $ 6.87 in 1974. Prices would never return to the $ 3 level. In response to the oil shock, President Ferdinand E. Marcos signed Presidential Decree (PD) 334. The decree was to create the Philippine National Oil Company (PNOC). It was subsequently amended by PD 572. In the main, the purpose of this company are as follows: a) provide and maintain an adequate and stable supply of oil and petroleum products for the domestic requirement, b) promote the exploration, exploitation and development of local oil and petroleum sources, and c) foster oil or petroleum operation conditions conducive to a balanced and sustainable growth of the company. To achieve these ends, the company acquired Esso and Filoil. The merger resulted to the creation of Petron, which then had control of around 35% of the market. By 1975, Petron had 40% share of the market. Major realignments occurred in 1983, when Caltex acquired Mobil, Shell acquired Getty, and PNOC acquired Bataan Refining. The oil industry, therefore, was slimmed down into three major companies – the so-called “Big Three.” In 1984, President Marcos signed PD 1936. The decree was to create the Oil Price Stabilization Fund (OPSF) to, basically, stabilize oil prices. Again, this was a response to another oil crisis. This time, it was caused by the revolution in Iran in 1979. From $ 9.00 a barrel in 1978, prices rose to $ 12.64 in 1979, $ 21.59 in 1980, and $ 31.77 in 1981. While the prices would slightly plummet to $ 28.52 a barrel by 1982, oil would remain within that range until 1985. The setup was that when oil prices in the world market were higher, oil companies would use the fund to keep prices stable. When oil prices were lower, the companies would contribute to the fund. In 1986, President Corazon C. Aquino abolished the Ministry of Energy and transferred all connected agencies, PNOC included, to the Office of the President. This was in virtue of Executive Order (EO) 20. Subsequently, President Aquino signed EO 172, which created the Energy Regulatory Board (ERB). The ERB essentially took over the functions of the OPSF. These reversals of Marcos programs began the eventual deregulation of the oil industry. The road back to deregulation went on through the administration of President Fidel V. Ramos. While the ministry that once administered PNOC was restored with the creation of the Department of Energy (DOE) in 1992, it also signalled the provision for competition and free market principles in the oil industry. The DOE was created by virtue of RA 7638. The thrust towards deregulation was characterized by the passage of RA 8180 (An Act Deregulating the Downstream Oil Industry) in 1996, which basically deregulated the oil industry. The act allowed oil companies to set their own prices. Accompanying oil deregulation was the abolishment of the OPSF. However, in 1997, the Supreme Court nullified the act when a number of legislators filed a petition in response to the rising prices of oil and the oil companies kept adjusting. It is true that oil prices slightly dipped from $ 18.46 a barrel in 1996 to $ 17.23 in 1997. However, the peso depreciated from 28 pesos to the dollar to 40 pesos due to the 1997 Asian Crisis. Thus, while world prices dropped by 6.7%, it actually amounted to a net increase of 33.7% in domestic prices. The Congress was quick to replace the revoked act with RA 8479 (Downstream Oil Industry Deregulation Act) in 1998. What is aimed then is to introduce the state of the oil industry with the current legislation and government policies in effect. Also, it is aimed to examine issue/s that arose after the old deregulation law was replaced, and explore possible legislation and government policy/policies that might aid in the resolution of the issue/s.
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| Philippine Oil Production and Consumption, 1980-2005 Photo courtesy of Philippines Energy |
Historically, the Philippine oil industry has been deregulated. There was a time when the country had four refining (Bataan Refining, Filoil, Caltex, Shell) and six marketing companies (Esso, Filoil, Caltex, Getty, Mobil, Shell). This was before the first “oil shock” in 1973, which saw soaring oil prices resulting from the decision made by the Organization of Petroleum Exporting Countries (OPEC). From $ 3.39 a barrel in 1972, prices rose to $ 3.89 in 1973, and soared to $ 6.87 in 1974. Prices would never return to the $ 3 level. In response to the oil shock, President Ferdinand E. Marcos signed Presidential Decree (PD) 334. The decree was to create the Philippine National Oil Company (PNOC). It was subsequently amended by PD 572. In the main, the purpose of this company are as follows: a) provide and maintain an adequate and stable supply of oil and petroleum products for the domestic requirement, b) promote the exploration, exploitation and development of local oil and petroleum sources, and c) foster oil or petroleum operation conditions conducive to a balanced and sustainable growth of the company. To achieve these ends, the company acquired Esso and Filoil. The merger resulted to the creation of Petron, which then had control of around 35% of the market. By 1975, Petron had 40% share of the market. Major realignments occurred in 1983, when Caltex acquired Mobil, Shell acquired Getty, and PNOC acquired Bataan Refining. The oil industry, therefore, was slimmed down into three major companies – the so-called “Big Three.” In 1984, President Marcos signed PD 1936. The decree was to create the Oil Price Stabilization Fund (OPSF) to, basically, stabilize oil prices. Again, this was a response to another oil crisis. This time, it was caused by the revolution in Iran in 1979. From $ 9.00 a barrel in 1978, prices rose to $ 12.64 in 1979, $ 21.59 in 1980, and $ 31.77 in 1981. While the prices would slightly plummet to $ 28.52 a barrel by 1982, oil would remain within that range until 1985. The setup was that when oil prices in the world market were higher, oil companies would use the fund to keep prices stable. When oil prices were lower, the companies would contribute to the fund. In 1986, President Corazon C. Aquino abolished the Ministry of Energy and transferred all connected agencies, PNOC included, to the Office of the President. This was in virtue of Executive Order (EO) 20. Subsequently, President Aquino signed EO 172, which created the Energy Regulatory Board (ERB). The ERB essentially took over the functions of the OPSF. These reversals of Marcos programs began the eventual deregulation of the oil industry. The road back to deregulation went on through the administration of President Fidel V. Ramos. While the ministry that once administered PNOC was restored with the creation of the Department of Energy (DOE) in 1992, it also signalled the provision for competition and free market principles in the oil industry. The DOE was created by virtue of RA 7638. The thrust towards deregulation was characterized by the passage of RA 8180 (An Act Deregulating the Downstream Oil Industry) in 1996, which basically deregulated the oil industry. The act allowed oil companies to set their own prices. Accompanying oil deregulation was the abolishment of the OPSF. However, in 1997, the Supreme Court nullified the act when a number of legislators filed a petition in response to the rising prices of oil and the oil companies kept adjusting. It is true that oil prices slightly dipped from $ 18.46 a barrel in 1996 to $ 17.23 in 1997. However, the peso depreciated from 28 pesos to the dollar to 40 pesos due to the 1997 Asian Crisis. Thus, while world prices dropped by 6.7%, it actually amounted to a net increase of 33.7% in domestic prices. The Congress was quick to replace the revoked act with RA 8479 (Downstream Oil Industry Deregulation Act) in 1998. What is aimed then is to introduce the state of the oil industry with the current legislation and government policies in effect. Also, it is aimed to examine issue/s that arose after the old deregulation law was replaced, and explore possible legislation and government policy/policies that might aid in the resolution of the issue/s.
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Want to continue this series? Read Part 2 of the Oil Deregulation series.
See the references by clicking here.
See the references by clicking here.
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