POSTSCRIPT / May 18, 2000 / Thursday

By FEDERICO D. PASCUAL JR.

Philippine STAR Columnist

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Proof of OilEx pudding is at the gas station pump

REP. Enrique T. Garcia, author of the bill establishing a National Oil Exchange, has rejected our compromise formula, saying that the OilEx is “the only way we could source and buy our country’s total requirement of refined petroleum products (gasoline, diesel, kerosene, fuel oil, LPG, etc.) at the lowest possible price.”

The Bataan congressman insisted on requiring the Big 3 oil companies to “compete, through bidding and negotiation (term contract), with the rest of the oil refineries and traders in the world for the right to supply our refined petroleum requirements.”

He said the OilEx, proposed in his House Bill 8710, would put an end to the “present situation where the Big 3 dominate and control 95 percent of the market at prices they themselves dictate.”

* * *

GARCIA was reacting to our proposal for a middle ground where the OilEx would leave the oil companies to do business as usual, but would then proceed to expose and cut them down by bringing in cheaper oil products.

We said that by giving consumers the alternative of cheaper oil products, the OilEx would be able to force the oil giants to lower their prices in a deregulated market or they perish in the competition.

For storage, we proposed that the OilEx use the government’s Subic-Clark storage facilities now being leased by the oil firm Coastal. These depots can hold an eight-day supply of fuel, or about 25 percent of the 30-day capacity of the Big 3.

We said that with a potential 25 percent share of supply, a properly managed OilEx should be big enough to compete and eventually bring down the oil cartel. We pointed out that Caltex, one of the Big 3, has only a 23-percent share of the market but is making money.

* * *

GARCIA rejected the idea of gas stations continuing to get their supply from the oil companies. He wanted the entire retail market feeding from the hands of the OilEx.

He said that for the OilEx to succeed, it must have full control of (1) sourcing the total fuel requirements of the country and (2) supplying the total needs of all outlets, including the gas stations of the oil companies.

Under his OilEx concept, the oil companies would have to course their supply through the OilEx by winning in its bidding. We had said that this blanket takeover of both sources and outlets would merely replace the oil oligopoly of the Big 3 with a state monopoly of the OilEx. The congressman denied it would be a monopoly.

* * *

SO far, we know only of Petron among the oil giants publicly saying it was willing to compete under our compromise formula that proposes a middle ground between the two extremes of a Big 3 oligopoly and a state monopoly (OilEx).

Petron chairman Jose Syjuco Jr. said, however, that they welcomed our formula only if: (1) the OilEx can secure the funds for its operation, (2) the existing oil companies are not forced to buy their supplies through it, and (3) the OilEx will not enjoy government subsidies and thus compete on equal terms with the other oil companies.

Spokesmen of Shell and Caltex said they were studying our compromise proposal and would send their reactions soon.

* * *

IT would be helpful, meantime, if congressman Garcia would list the “40 refineries and traders” ready to sell us finished oil products at lower prices — to show that there are really sources of cheaper fuel outside the Big 3. So far he has mentioned only Singapore.

For better appreciation of the list of potential bidders, it would also help if their average ex-refinery prices per record were indicated.

To their ex-refinery price, we can then add the transport, insurance and other handling costs, plus the administrative costs of OilEx, and the markup of the gasoline stations to get roughly the resulting pump price.

We can then compare the pump price of OilEx generic oil products with that of the branded products of the Big 3 and other players.

After all is said and done, the ultimate proof of the OilEx pudding is at the pump.

* * *

GARCIA conceded that if the oil firms would be allowed to supply their own network of gas stations and the OilEx is not given total and exclusive hold of the distribution, the OilEx would have a hard time competing.

In effect, he added, the OilEx would become not an oil exchange but a National Oil Company, another new player in a deregulated market. He said also that the OilEx’s potential 25 percent share of supply is not necessarily a 25-percent share of the market.

“If at all, it would be a long pull for the proposed compromise National Oil Company,” he said. “Meanwhile, the Big 3 monopoly will remain, the OPEC cartel pricing on crude oil will go on unabated, the transfer pricing on crude will continue, the local Big 3 overpricing can recur.”

* * *

BEING pragmatic, we fear that if neither the Big 3 nor the OilEx proponents move from their respective extreme positions, the unsatisfactory status quo with its regime of continually rising fuel prices would continue to bleed us consumers.

To compound the problem, President Estrada has said a number of times that he was helpless in the face of the deregulation law. (We disagree. The President is not helpless. He just does not know what to do.)

To make things move, we believe that Malacañang and other pressure sectors should force the two extremes to explore a middle ground. After all, the market is big enough for everybody wanting to make a living and still put up a façade of serving the public.

* * *

WHILE Petron, for one, appears ready to explore a reasonable compromise, it seems that Garcia is standing pat at the moment on total OilEx control of the market.

Of course we understand that this is just the congressman’s starting position. Politicians are among the world’s most flexible creatures. In the halls of Congress and the backrooms, deals and compromises are a way of life.

Faced with rough sailing, the sponsor of a bill usually has no choice but to accept amendments to be able to shepherd his measure through the legislative maze.

We hope deliberations on the bill and any proposed amendments are conducted faster, because the longer the unsatisfactory status quo remains the worse it is for us captive consumers.

* * *

ALREADY, there is disturbing talk again of a possible increase in the price of gasoline and other petroleum products because of a rise in the price of crude oil and the weakening of the peso.

The price of Dubai oil, upon which Philippine oil prices are based, has risen to an average of $25.24 this May from $22.10 per barrel last month. At the same time, the exchange rate of the peso continues to sink toward P41.60 to the US dollar.

These two factors conspire to force up the price of oil products whose raw material, oil, is imported. Will the government just watch helplessly while the oil oligopoly arbitrarily raises its prices?

* * *

UNPREDICTABLE fluctuations in fuel prices could be a nightmare for anybody attempting to micro-run a fuel-driven business or to macro-manage the economy.

Note that when the prices of gasoline, diesel and other oil products go up, there is pressure to raise fares and prices of sensitive items. (But when fuel prices drop, fares and prices are not necessarily adjusted downwards.)

It is messy frantically changing fares and prices with every movement in the price of crude in an active market. There must be a way of making fares and prices more stable over a reasonably long period despite fluctuations in the prices of fuel.

* * *

THIS problem was addressed by the former Oil Price Stabilization Fund, which ensured that the retail prices of petroleum products remained stable regardless of the price of crude. We were spared the stress of always adjusting fares and prices whenever crude prices fluctuated.

Under the OPSF mechanism, a small part of the price of petroleum products was contributed to the special fund to build up a buffer. When the crude price went up, there was no need to raise pump prices because the oil companies just recovered the differential from the fund.

The OPSF was not a perfect answer to volatile oil and fuel prices, but it made for stability over long periods. It made rational planning possible.

We were then spared the spectacle of a President pleading helplessness and begging the oil gods to spare the cup.

How come we discarded the OPSF? As usual, something went wrong. Somebody had the bright idea of raiding the OPSF and using the buffer fund for something else.

* * *

(First published in the Philippine STAR of May 18, 2000)

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