POSTSCRIPT / May 14, 2000 / Sunday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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OilEx proponents scared of compromise formula?

IT’S sad, but it appears that the proponents of the extremist National Oil Exchange (OilEx) have run out of new twists to their old arguments for the establishment of a state oil monopoly to replace the private oil oligopoly.

An indication that they are running out of ideas is that instead of arguing against our compromise formula (for the coexistence of the OilEx and the oil firms), they are peddling the lie that our formula was concocted and floated by the oil cartel.

Why are the OilEx extremists so scared of moving to a middle ground? Because if they agree to a compromise formula that gives the oil firms a sporting chance, their OilEx theory would be exposed as not workable in the Philippine setting.

* * *

THE OilEx is an extremist concept. It is the extreme opposite of the Big 3’s oil oligopoly. As proposed by Bataan Rep. Enrique Garcia, the OilEx would swing the market to the opposite extreme, creating a state monopoly to replace the Big 3 cartel.

Under the flawed deregulated setup, the oil giants (Petron, Shell and Caltex) continue to control our 30-day fuel supply and dictate prices without fear of any serious challenge.

In the alternative proposed by Garcia, a government-controlled oil exchange would have the exclusive right to trade (to buy and sell) oil products. The oil companies would be reduced to suppliers competing with other bidders to sell their stock to the OilEx.

While the local oil firms and refineries would not be able to sell their oil products to the OilEx unless they offered the lowest price, they also would not be allowed to retail their unsold stock through their own service stations. That’s slow death by strangulation.

* * *

SINCE it is obvious that neither side can win it all anyway, we said that the opposing camps may want to move toward each other and meet at some middle ground where they can best serve public interest while making some money.

We have offered this rough formula for a possible compromise:

  • The oil firms will continue to operate their refineries, storage facilities and gas stations retailing their branded products. They can join the international bidding to be called by the National Oil Exchange, but will not be required to buy refined products from the OilEx.
  • Operating parallel to them, the National Oil Exchange will buy gasoline, diesel and other petroleum products directly from the lowest bidder anywhere in the world. The OilEx will store its supply initially in the Subic-Clark depots left by the Americans, and compete with the Big 3 and other players.

* * *

THE government’s Subic-Clark storage facilities can hold eight days’ supply. Compared to the 30-day inventory of the Big 3, the government depots can ensure OilEx a potential 25-percent share of market supply.

A 25-percent share for a newcomer is not to be sniffed at since even Caltex, one of the Big 3, enjoys only a 23 percent share of the market.

Now if the claim is true that OilEx can supply cheaper fuel, it should not be afraid to compete openly against avaricious oil ogres and prove the validity of Garcia’s thesis.

* * *

UNDER our compromise formula, there is no need to castrate the oil firms just to prove OilEx’s superiority.

It’s a different story, of course, if it turns out that the basic OilEx concept is fatally flawed — in which case no amount of government subsidy, no amount of disinformation against well-meaning proposals, could help it in a truly deregulated market.

If OilEx proponents know what’s good for them, they would abandon their extremism and consider a live-and-let-live compromise setup.

* * *

IS it really cheaper to just import gasoline, diesel and other refined petroleum products? If importation is the best option, how come the smarter economies have not embraced Garcia’s OilEx concept?

We’ve noticed also that until this late date, the OilEx advocates have not produced a list of their foreign sources of fuel that would sell (at the retail pump) cheaper than that of the Big 3. We cannot continue talking vaguely of “40 refineries and traders” waiting to drown us in cheap gasoline.

So far, only Singapore has been casually mentioned as selling gasoline from its refinery gate cheaper by $3 per barrel than stock coming from the local refineries of the Big 3.

But will imported gasoline still come out cheaper after we add the shipping and insurance costs, taxes, as well as the markup of the OilEx and the gas station operator? Will the distance between the Philippines and the country-source make a big difference?

OilEx advocates should convince the public with a price breakdown showing how imported fuel could come out cheaper at the pump. If they have such a breakdown.

* * *

WITH the proposed OilEx monopolizing the buying and selling of fuel, there is a possibility that the Big 3 would have to close their expensive refineries.

Why would anybody import and refine crude oil when he is not sure that he could sell his products even in the domestic market? Retailing gasoline directly through an oil firm’s own gas stations would not be allowed. Per Garcia’s bill, the refineries must course their sales through the OilEx (another intermediate step that adds to handling cost).

With the refinery business suddenly a high-risk operation, some of the oil firms may just mothball their refineries and instead try to make money by bidding and selling imported oil products to the OilEx.

What happens if for some reason the OilEx suddenly cannot import oil products in the quantity and at the price that it wants? Without the local refineries, what is our alternative to dwindling supply?

* * *

ASSUMING there are cheaper oil products to buy/import, where will the OilEx – operating as the sole trader for the country’s total fuel requirements — get the billions needed to maintain a strategically safe inventory?

It has been estimated that the 360,000 barrels of crude needed daily requires $8 million (P320 million) daily, or $240 million (P9.6 billion) for a safe 30-day supply. Where will OilEx get this money?

Assuming we can divert the needed capital from the outlays of other concerns (education, defense, pork barrel, etc.), what is the assurance that the OilEx will not go the way of other government corporations that ended up neck-deep in debt and bled dry by graft and corruption?

* * *

PUTTING up the OilEx and entrusting it with those billions would be a blind affirmation of our boundless faith in the goodness of man, particularly those who would manage the government-controlled OilEx.

We thought the Estrada administration and the one before it had lost faith in the ability of government to profitably run a business. Isn’t that the reason why we are selling or privatizing one government corporation after another?

Are we now to take several steps backward in the case of the oil industry, take a deep breath and close our eyes while a generally incompetent government grabs the business from the existing private players and investors?

* * *

EVERYTHING considered, will the two chambers of Congress pass a law virtually nationalizing the oil industry and making a new government corporation swim against the current of privatization and expect it to perform better than the experts in the private sector?

Assuming Congress passes the National Oil Exchange bill in its present form, will President Estrada sign it into law and take responsibility?

From where we sit, it looks like the OilEx bill as it is now worded will have a hard time negotiating the legislative minefield.

This possible defeat of the OilEx bill saddens us, because the oil exchange concept has many fine gems imbedded in it despite its still rough edges.

* * *

PARTLY to salvage the bill’s precious provisions and ensure passage of a fair amended version, we came up with our compromise formula — a middle ground between the two extremes of the private oil oligopoly of the Big 3 and the state oil monopoly of OilEx.

Realistically, we think that neither the oil cartel nor Garcia can win it all. And as the debate drags on, the unsatisfactory status quo festers and continues to prejudice us captive consumers.

The oil cartel must not pretend not to hear the cries of a public reeling from continually rising fuel prices. But neither must the OilEx proponents seize the moment to impose their own brand of monopoly.

On a personal note, we ask the OilEx proponents to stop peddling the lie that our compromise formula is an idea floated by the oil cartel.

They should just stick to arguments and keep an open mind about exploring a compromise formula. As it is now worded, the OilEx bill does not have a chance. It is not workable. It is not feasible.

* * *

(First published in the Philippine STAR of May 14, 2000)

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