POSTSCRIPT / October 29, 2009 / Thursday


Philippine STAR Columnist

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Where’s P300-M fund for small fuel retailers?

WHERE IS IT?: As the country reels from an emergency compounded by the manipulation of fuel prices, we ask what ever happened to the P300 million that was supposed to help small retailers entering the deregulated oil industry.

Section 10 of the Downstream Oil Industry Deregulation Act (RA 8479) mandates the Department of Energy to promote retail competition “by way of information dissemination, networking, and management/skills training, the active and direct participation of the private sector and cooperatives in the retailing of petroleum products through joint venture/supply agreements with new industry participants for the establishment and operation of gasoline stations.”

For this, RA 8479 created “a gasoline station and loan fund” with an initial P300,000,000 from the Philippine Amusement and Gaming Corp. (PAGCOR) and administered by the DoE.

That was way back in 1998. It has millions to throw away for non-productive projects, such as street marches and the candidacy of favored politicians, but did PAGCOR put up the P300 million needed by the DoE?

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THREATS: While threatening to prosecute oil executives defying Executive Order 839 for them to lower fuel prices to Oct. 15 levels, Executive Secretary Eduardo Ermita expressed hope the government will not have to open their company books.

Our take is that even if the oil companies follow the price-reduction order, their books should still be examined. The law allows it, and public interest demands it.

Several small players promptly complied with EO 839, but some big oil firms warned that lowering prices could result in (1) a supply shortage or (2) a hefty post-calamity price increase to recover losses incurred under the forced price reduction.

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UNTOUCHABLE: The oil giants been having their way for so long that the public thinks they are untouchable — because either key officials have been co-opted or the oil industry deregulation law is toothless.

Stepping into the picture, however, Justice Secretary Agnes Devanadera discovered that despite its shortcomings, RA 8479 could still be used to coax oil firms to moderate their greed for mega-profits.

No-nonsense prosecution is one option being considered by the Joint Task Force of the departments of energy and justice looking into the operation oil firms and their response to EO 839.

Devanadera said the government is authorized to take drastic steps to protect the consuming public, including taking over oil firms refusing to cooperate during the emergency.

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REMEDIES: The justice secretary stands on Section 14 of the deregulation law which says: “(e) In times of national emergency, when the public interest so requires, the DOE may, during the emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any person or entity engaged in the Industry.

With takeover as the maximum emergency action available to the government, other measures include the imprisonment of officers of errant oil firms.

Section 11 on anti-trust safeguards and remedies against prohibited acts, says: “Any person, including but not limited to the chief operating officer, chief executive officer or chief finance officer of the partnership, corporation or any entity involved, who is found guilty of any of the said prohibited acts shall suffer the penalty of three to seven years imprisonment, and a fine ranging from P1,000,000 to P2,000,000.

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SHOWDOWN: The 11-year-old deregulation law is far from toothless. And over and above it, there is a higher law — the paramount public interest, especially in the context of a national emergency.

Neither are the oil giants helpless. Used to having their way, and with their mother companies abroad behind them, they can always fight back.

But for them to punish the administration — and ultimately the public! — by creating a false short supply of fuel and thereby justifying higher prices would only aggravate their legal and public relations situation.

While an incensed consuming public may be able to handle the oil giants, we are not certain the Arroyo administration can.

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BUSINESS TRICKS: In the review of RA 8479, we suggest a closer study of transfer pricing and the retailing of oil products.

Oil companies have mother companies abroad from or through whom they get their crude oil (for those with refineries) or their refined petroleum products (for those importing processed oil and fuels).

The mother company prices higher the crude or refined products sold to its local subsidiary. This boosts the profits of the mother firm but lowers the book profits of the local outlets for pricing and tax purposes.

But note that despite their crying losses, the oil giants always manage to register substantial profits every year. The lies should be exposed by the Joint Task Force.

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CHAIN SAW: There should be a law or an amendment that prohibits refiners from also owning a network of gas stations, an arrangement that enables the refiner to control pricing at the pump.

Using its service stations, a giant can kill small players by underpricing them all over the place. Under deregulation, a giant can dictate pump prices in areas where it has a dominant presence.

In the power industry, a firm that is into generation cannot also be into distribution. In the United States, a hardware manufacturer (like IBM) cannot go into software making, and a software house (like Microsoft) cannot be manufacturing hardware.

In the same spirit of preventing a monopoly-in-the-making, oil refiners should not be allowed to own and manage their own network of retail stations.

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(First published in the Philippine STAR of October 29, 2009)

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