POSTSCRIPT / April 30, 2000 / Sunday


Philippine STAR Columnist

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We offer a compromise between Big 3 and OilEx

THERE was no rejoicing yesterday over the reduction of gasoline prices by 30 to 40 centavos per liter. Why should there be, when the price reduction was minuscule (barya lang)?

The benefits of the price slash was even illusory at 10 centavos per liter for diesel which fuels most mass transport vehicles and various industrial machines.

And there was no “Salamat po, Ginoong Pangulo!” from the public. Everybody knew that even without Sir Erap galloping onto the scene on his white charger, the oil companies had to lower their retail prices with the reduction of crude oil prices.

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EVEN the oil companies, it seems, were not happy over what they were made to do after a brief (30-minute) meeting with the President at Malacañang.

While still carrying a one-month inventory based on higher prices of crude, they had planned to reduce prices only about middle of May.

It seems the media handlers of the President stampeded him into ordering an immediate price rollback.

Without checking, they swallowed raw press reports that pump prices in the United States had gone down lower than Philippine prices while the local oil giants were still holding on and raking it in.

That’s what happens when you do not have a seasoned police reporter (who routinely double-checks information) within whispering distance of the President.

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THE oil industry is supposed to be under a regime of deregulation, that the oil lords set prices solely on the basis of their own assessment of a market that they control.

But how can we describe the market as truly deregulated when the oil executives are routinely made to play cameo roles in a zarzuela where the hero (the President, who else?) parades his synthetic bleeding heart and tells the oil bigwigs to lower prices now?

Why don’t we just end the charade of false deregulation and go back to open regulation and price-control carried out not by the acting of the President but by a regulatory act of Congress?

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PARDON our intruding, but we think the dilemma between imposed price-setting and deregulation, between the Big 3 cartel and the National Oil Exchange (OilEx) being pushed by Bataan Rep. Enrique Garcia will just drag on – with consumers groaning under capricious fuel price fluctuations while the debate drags on.

To cut short the debate going around in circles, we hereby propose a compromise, a mestizo-type market of petroleum products.

Our proposed compromise will leave the Big 3 with a fair hold on their multi-billion-peso investments, and the government being able to make good its commitments to strategic investors.

But our compromise formula will also leave enough working area for congressman Garcia and those who believe in his National Oil Exchange to demonstrate that their idea could work.

* * *

THIS is the mestizo market under our proposed compromise:

  • The Big 3 will keep their refineries, their storage facilities and their network of gas stations. They will not be required to buy refined oil products from the National Oil Exchange.
  • Operating parallel to them, the Garcia group will establish a National Oil Exchange to directly import gasoline, diesel and other petroleum products from the lowest bidder They will store the supply initially in the Subic-Clark depots left by the Americans.

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THE government’s Subic-Clark storage facilities, which are now being used by the oil firm Coastal, have a capacity of eight days, compared to the 30-day inventory in the depots of the Big 3. OilEx will then control almost a fourth or 25 percent of market volume.

With a 25-percent share to start with, the OilEx should be able to play with a reasonable chance of increasing its market share if it makes good its claim that it will be able to import and retail cheaper gasoline.

The OilEx’s 25 percent is nothing to sniff at since the market share of Caltex, one of the established Big 3 players, is only some 23 percent. Properly positioned and managed, OilEx can start off bigger than Caltex, so that should be good enough for Garcia’s group.

* * *

GARCIA says that the OilEx will import directly only the cheapest oil products from some 40 refineries and traders expected to participate in the OilEx bidding.

Now since the OilEx will be able to deliver cheaper fuel, it should be able to nibble at the Big 3 market, grow and eventually beat the more expensive cartel.

This compromise formula should be reasonable enough for both the Big 3 and the OilEx as it enables them to coexist in a market that neither would be able to monopolize. The competition will be good for the consuming public.

Consumers can be trusted to know which products to patronize. If the OilEx makes good Garcia’s promise of cheaper gasoline, people reeling from rising prices can be expected to go for it.

* * *

WE cannot presume that Big 3 officials and congressman Garcia, busy as they are, read POSTSCRIPT.

If they do, we would appreciate their sending in their reactions to our compromise formula as broadly described above. (The experts should be able to flesh out the details after we get the initial general reactions of the two opposing camps.)

If the key parties don’t read us, we ask their friends to please tell them about our compromise formula and to suggest sending their reactions.

Of course, our ever-alert and loyal readers, those watching in the gallery, the ubiquitous usisero – the ultimate consumers– can join the debate.

As in our occasional surveys in the past, one-paragraph reactions can be sent to Kindly write ‘POSTSCRIPT POLL” in the subject line of your email so the item can be easily sorted out of our bulging mailbox.

* * *

THIS is only the preliminary stage, so reactions should be limited to just saying “AGREE” or “DISAGREE” (agreeing or disagreeing with POSTSCRIPT’s formula), followed by a very brief comment.

There will be enough time later for detailed discussions, deep backgrounding, and presentation of statistical charts. For now, we just want to divide the house, so to speak, and cull a few choice remarks to start the discussion. Email that has attachments and those that are too long will be deleted without being read.

It would be constructive to know if the main protagonists themselves — the oil giants and the OilEx proponent — agree or disagree with our compromise formula.

From the oil companies and congressman Garcia, however, we expect reactions that are a little longer, but they should not go beyond two pages of double spaced text. If we excerpt from their text, we reserve the right to edit and boil down their arguments.

* * *

TO recap for our readers some of the published arguments of Garcia and the oil companies –

For Garcia’s OilEx: The oil exchange will ensure lower pump prices since it will import only the cheapest oil products from whatever source. It will resort to transparent public bidding to make sure it pays the lowest price. With Oilex giving competition, the Big 3 will be forced to lower their prices. In the worst scenario, the foreign-controlled oil firms will close down and thus free the country from their meddling.

For the oil companies: The OilEx is unfair to investing oil firms, confiscatory if it takes over their storage facilities, and a big disincentive to foreign investors. It will kill the oil industry, put to waste the billions poured into it over the years, and displace thousands of workers. It will install a government monopoly that will fail like previous state monopolies. There is no security and stability in OilEx since it has no backup refinery in case its intended sources fail to deliver cheaper products in the volume and the quality that we want.

AGREE or DISAGREE? Let’s hear from you!

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(First published in the Philippine STAR of April 30, 2000)

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