Amid Overpricing by Oil Firms, Repeal of Deregulation Law Now a Must

No matter how oil firms deny the allegations that they are overcharging the consumers, the widespread public perception that oil companies are abusive and profit-hungry will remain. This will be the case as long as the oil industry is deregulated and oil companies are allowed to automatically increase their prices and at the same time not compelled to publicly divulge how they compute their price adjustments.

MANILA - After steeply declining in the second half of 2008, global oil prices have again started to increase this year. Dubai crude prices, for instance, jumped from about $41 a barrel in December 2008 to almost $72 in August this year. Despite the recent rollback oil firms implemented (except for LPG, whose retail prices they hiked), overall trend in local pump prices has been on an upward trend since the start of the year.

Amid all these, persistent allegations of overpricing continue to hound the oil firms and public pressure on the Department of Energy (DOE) to address such abuses intensifies. In fact, the issue of overpricing has become so intense that it caused a rift between Secretary Angelo Reyes of the DOE and Secretary Ralph Recto of the National Economic and Development Authority (Neda). The latter, who eventually resigned, accused the oil companies of overpricing their gasoline products by P8 a liter as of April 2009.

Deregulating Abuses

Latest computations by multisectoral group Bagong Alyansang Makabayan (Bayan) pegged overpricing at around P6.71 per liter. The group tracked the movement of Dubai crude prices and foreign exchange (forex) rate from January 2008 to July this year, the latest available data. It then computed the impact on local pump prices of the monthly movement in Dubai crude and forex rate and compared the results with actual price changes during the said period.

In January 2008, Dubai crude was pegged at $87.37 per barrel while forex was at P40.90 per dollar. By July 2009, Dubai crude has declined to $64.97 and forex moved up to P48.15. This should have translated to a net reduction in prices of about P4.57 per liter but actual price adjustments during the period in review hiked petroleum prices by an average of P2.14, thus an overpricing of P6.71.

Last year, oil firms implemented price reductions that were significantly lower than what they should have done based on drastic declines in world prices, particularly in the second half. In a separate study, Bayan estimated that Dubai crude prices in 2008 fell five times faster than local pump prices, resulting in huge overpricing.

Oil firms should not claim that their petroleum products are based on movements in the Mean of Platts Singapore (MOPS) and their LPG on the LPG international contract price to dismiss allegations of overpricing such as Bayan's. In the first place, Shell and Petron, which together account for around 69 percent of the domestic market, should be using Dubai crude as benchmark since they are refiners. More importantly, all oil products - including LPG - are processed from crude oil and thus should still reasonably reflect crude prices such as Dubai.

No matter how oil firms deny the allegations that they are overcharging the consumers, the widespread public perception that oil companies are abusive and profit-hungry will remain. This will be the case as long as the oil industry is deregulated and oil companies are allowed to automatically increase their prices and at the same time not compelled to publicly divulge how they compute their price adjustments.

Public Sentiment

Unabated oil price hikes and unresolved allegations of overpricing have contributed the public sentiment against the Oil Deregulation Law (Republic Act 8479). Even the conservative Consumer and Oil Price Watch (COPW) has somewhat backtracked from its strong pro-deregulation stance. At first, the self-styled consumer group called for regulation, but in a later paid ad, it toned down its position to amending certain provisions of the law. Meanwhile, the House's energy committee under Rep. Mikey Arroyo has been forced to concede to public opinion and demanded an audit of the oil firms.

Despite these generally favorable developments, consumers and advocates of regulating the oil industry must not hold back in the campaign to repeal the law. At present, the prevailing view among policymakers and the mainstream media is either the law just needs fine-tuning or that it is not properly implemented.

In a sense, the DOE's Reyes is correct in his counter to critics that he could not curb overpricing because of deregulation. But it does not mean he must not be held accountable for conspiring with and defending the Big Three.

Curbing Overpricing

At the same time, it is wrong to assume that replacing Reyes and/or amending the Oil Deregulation Law would ensure reasonable oil prices. This is because allowing the DOE to determine and impose fair oil prices directly hits the very heart of deregulation, which is non-state intrusion in supposedly market-dictated prices. Thus, the only way overpricing can be averted or at least lessened is by repealing the law and instituting a new law to regulate the oil industry.

There are pending bills at the House to make this possible. House Bills filed by the progressive bloc of party-list groups, for instance, call for the repeal of the law (HB 3029), centralized importation of oil (HB 3030), and re-nationalization of Petron (HB 3031). These proposals have been pending deliberation since November 2008 and have reportedly been merged with other bills that seek to amend the Oil Deregulation Law.

To be sure, the legislative wheels will not roll unless consumers strongly and actively press lawmakers to act on these bills. The expected continuing uptrend in global oil prices in the months ahead amid strong public opinion against overpricing gives favorable conditions for a compelling consumer lobby against the law.