Real regulation solution to high oil prices

September 20, 2011

by superadmin

This demands real government regulation because of the monopolistic nature of the oil industry

With the creation of an inter-agency task force to supposedly review oil overpricing, it is expected that the Aquino administration can already start taking steps to control the unreasonably high prices of oil products. According to research group IBON, this demands real government regulation because of the monopolistic nature of the oil industry.

As of end-August, the oil firms have increased the price of diesel 20 times and of gasoline 24 times. Diesel is now Php4.80 more expensive than at the start of the year and gasoline Php7.60 more expensive.

According to IBON, addressing rising oil prices is essentially about confronting monopoly control of the oil industry. Businesses understandably seek to maximize profits but this is inappropriate for such a vital and strategic sector as the oil industry. There needs to be real regulation of the oil industry, including protection against tacit or overt collusion on pricing. This should go beyond repealing the Oil Deregulation Law (RA 8479), which will merely return the country to the imperfect regulated situation of the 1990s.

Taking steps to return Petron to the hands of government is important to give it a firm anchor for intervening in the domestic market. Other possible interventions can include centralized procurement, some kind of fund for stabilizing prices, or the state exploring alternative trading arrangements. When the government has enough experience, capacity and technological capability it can move towards more complete nationalization of the oil industry. The relevant laws have to be changed, agencies have to be strengthened and multi-stakeholder processes put in place, said IBON.

In the immediate, IBON said that the Aquino administration could lower oil product prices by the removal of the reformed value-added tax (RVAT) on oil. The government can also push for full transparency with the oil firms opening up their books, supply sources and contracts, payments abroad, stocks and inventories, operating expenses and profits. These can be subjected to a multi-stakeholder review involving affected sectors and independent experts. The veil of secrecy that the oil firms and government have created must be broken, said the group. (end)