Govt will needed to enforce oil price unbundling – IBON

June 29, 2019

by IBON Foundation

Research group IBON said that the Department of Energy (DOE) circular ordering oil companies to unbundle prices is a welcome and overdue measure for greater transparency to help prevent overpricing of oil products. However, the government must have the political will to implement this and the involvement of the public and consumer groups must be ensured, said IBON.

Last May 2019, DOE Secretary Cusi signed Department Order Circular No. DC2019-05-0008 or the “Revised Guidelines for the Monitoring of Prices in the Sale of Petroleum Products by the Downstream Oil Industry in the Philippines”. The circular aims to make oil price rollbacks or hikes more transparent as the detailed breakdown of the changes is shown. The unbundling of oil prices is expected to take effect in July. However, private oil companies filed a temporary restraining order (TRO) against the DOE Circular, arguing that it is against fostering market driven competition.

IBON said that unbundling will allow consumers to see the reasons behind price movement such as the international content, taxes and duties, biofuel cost, and oil company take components. The government and the public will be in a better position to assess price movements because the oil companies have to explain their price adjustments including providing supporting documents.

But the group pointed out the oil companies’ long history of overpricing especially after the Oil Deregulation Law (ODL) of 1998 where government surrendered its power to regulate oil prices.

IBON recalled government’s claim that the ODL would result in fairer and more stable fuel prices. Government also promised that the ODL would dismantle the local oil cartel by allowing the entry of new players to challenge the domination of Shell, Caltex and Petron, thus supposedly letting market forces determine real oil prices. But deregulation only worsened oil industry monopoly pricing and allowed oil companies to set prices opaquely with the consent of government that gave up much of its regulatory powers, according to IBON.

Shell, Caltex, and Petron still dominate the Philippine oil industry and they remain among the most profitable firms in the country. In 2000, Shell Philippines had a net loss of Php334 million that grew to a net income of Php43.7 billion in 2017. Caltex Philippines had a net loss of Php3 billion in 2000 that changed to a net income of Php6.4 billion in 2017. Petron Philippines had a net loss of Php1 billion in 2000 that became a net income of Php8.9 billion in 2017.

IBON said that the government should insist on transparency through the DOE circular as an initial step to rein in the oil firms’ monopoly overpricing and profiteering. But beyond this, said the group, the government should also restore the regulatory powers over the oil industry that it gave up under the ODL and steadily work towards the strategic goal of a nationalized oil industry. ###