Oil Deregulation in the Philippines (Part 2)

For the first part of this series, read here.

2012 pump prices compared to 1998 rates
Photo courtesy of Pinoy Weekly

The major reasons for deregulation of the Philippine oil industry were to: 1) stabilize and provide reasonable prices, 2) encourage competition, 3) encourage investments, and 4) remove cross product subsidies. True enough; subsidies were eliminated with the OPSF abolished. When oil prices increased from $ 15.86 a barrel in 1989 to $ 20.03 in 1990, Congress had to pass RA 6952. This added 5 billion pesos to the OPSF. This at a time when the economy shrank after five years of continuous growth at a pace of 5.2% on average. Competition was evident with three players in 1996 (prior to RA 8180) to 53 players in 1998 and to more than 80 players in 2010.15 Up to 2009, these new players had poured in more than 30 billion pesos of investments. What would have been the issue of concern would be the very first reason for deregulation. The public would be in agreement that domestic oil prices kept increasing, and the prices increase frequently. This is in sharp contrast to the time when the industry was regulated, since prices were increased one-time big-time then. Then again, the pricing of oil products fell only in the hands of the oil companies mainly because of government policy of deregulation. This problem would be highlighted by House Bill (HB) 255 of the 16th Congress. The bill essentially called for the repeal of Republic Act (RA) 8479. Indeed, thoughts of repealing the law had been around even during the Arroyo Administration. In a speech in 2005, Arroyo herself acknowledged that the frequent oil price increases threaten to erode the very fiber of Philippine society. What makes the Philippine situation precarious is because we have been a net importer of oil historically. This is so despite efforts even during the Marcos administration to develop local oil sources. It was in 1979 when the Nido-1 well was opened for commercial production at a rate of 40,000 barrels a day. Thereafter, the Philippines had never been producing oil. It was only until recently that the country began oil production once more, this time with 12,000 barrels per day. Still, it is not enough even if oil consumption plummeted from 340,000 barrels per day in 2005 to 318,000 barrels per day in 2015. The current oil production also is not even half of the Nido-1 production, whereas oil consumption was around 246,000 barrels per day in 1979. Can it be observed how oil prices behave today? In 2009, prices of unleaded gasoline in Metro Manila were at 36.16 pesos a liter, while prices of diesel were at 28.23 pesos a liter. In 2010, unleaded gasoline was at 40.34 pesos and diesel at 31.50 pesos. In 2011, the prices were 54.29 pesos and 44.32 pesos respectively. This was in the wake of the 2007-2008 oil crisis, when world oil prices rose from $ 66.52 to $ 94.04 a barrel. The highest that was reached was $ 145 a barrel in July of 2008. In 2009, oil dropped to $ 56.35, but rose once more to $ 74.71 a barrel in 2010. Prices peaked again in 2011, when oil was at $ 95.73 a barrel. In the period 2009-2011, unleaded gasoline price in Metro Manila increased by 50.1% while diesel price increased by 57%. Prices in the world market, meanwhile, had increased by 70% in the same period. This might seem that price changes in the Philippines are not exactly equal to that of the moves in the world market. However, another factor is yet to be considered in this equation. We have to buy our oil in dollars, and so the peso-dollar exchange rates play a role. The peso was 9.1% stronger in 2011 than it was in 2009. Thus, if the world oil prices are to be converted into pesos, the net increase would be 54.5%. Evidently, oil price changes in the domestic market moves along with the changes in the world market. An official of the Department of Energy said that, “We’ve been able to [determine] whether companies have been abusing or not whenever they announce price hikes.” This is not, however, the case at hand. The issue of concern then would be this: if deregulation aimed for stabilization and fairness in pricing, why do the Philippines have to “go with the flow” with the volatile world market?

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Want to continue this series? Read final part of the Oil Deregulation series.

See the references by clicking here.