Oil Deregulation Law review must focus on pricing and profits

September 19, 2011

by superadmin

The review will be more effective if it is a multi-stakeholder process involving not just government agencies but affected sectors and independent experts

The review of the oil deregulation law ordered by Malacañang is welcome but should not pre-judge that the problem in the oil industry is only the lack of competition. According to research group IBON, among the key issues in the oil industry involve the pricing schemes and profits of the oil firms.

The group added that the review will be more effective if it is a multi-stakeholder process involving not just government agencies but affected sectors and independent experts.

The review of the Oil Deregulation Law (RA 8479) ordered by Malacañang last week will reportedly look into ways of making the local oil industry more competitive. This reportedly includes ensuring a level playing field, encouraging the entry of more players and cracking down on smuggling.

However, presuming that mere lack of competition as the only flaw is problematic. It drastically limits the scope of the review and diverts from the main issue of monopoly pricing and excessive profits from an economically vital service industry. This bias will then also drastically limit the options for bringing down the high price of oil. At best, this might result in just making insignificant revisions in the RA 8479.

IBON added that eleven years since the full downstream oil industry deregulation in 1998 have confirmed how the oil firms increase pump prices by more than is warranted by increases in the global price of crude oil, and how they decrease pump prices by less than the decreases in the global price of crude.

Initial estimates of IBON indicate that the oil firms have been charging an additional 20-22% more for diesel, for instance, than is called for by the increases in the price of Dubai crude. Meanwhile, Shell, Chevron and Petron have reported net income of at least Php152 billion over the period 2001-2010. The government is also benefiting from high oil prices, collecting Php239.6 billion in oil VAT revenues in the last five years, or an average of some Php48 billion per year.(end)