Bird-brain ideas on oil crisis abound

I am not surprised that some leftists keep sending press releases calling for the repeal of the Oil Deregulation Law. Using the letterhead of their aptly named so called "think tank", they advance the bird-brain notion that letting government regulate oil prices again would make things easier for consumers.

The leftists, as we all know, are after a totally different agenda. Their "think tank", whose ideas may seem to be really for the birds, is actually functioning as a kind of a propaganda machine for the local communist movement. They may not be really so "bird brained" to think their recommendations will work. In fact, I think they know their proposals won’t work. But they want to hasten government’s utter disintegration by proposing a program that is doomed to fail.

The frustrating part of it all is that some of our politicians are falling for it. Sen. Jamby Madrigal, supposedly an economics major, has filed a bill along the lines proposed by the left. Maybe, like the left, Jamby’s objective is not to seek a way of mitigating the problems brought about by escalating world oil prices. Maybe, Jamby, like the left, simply wants the Arroyo government to finally crumble under the weight of a proposal that has failed in the past.

We have been there before and we know fully well it won’t work, so why go back there? In fact, two of our Asean neighbors, Indonesia and Thailand, are in a tight fix today because their domestic oil trade is regulated and subsidized. In the case of Thailand, they even have in operation something like our Marcos-era OPSF, which they adopted from us. I know this because I was still with PNOC when in one of the sessions of the Asean Council on Petroleum, we shared with them the mechanics of the OPSF.

In the case of Indonesia, it was for many years a net exporter of oil and natural gas. Thus, the Suharto government found it easy to subsidize the domestic price of petroleum products. But times have changed and Indonesia now finds itself a net importer of oil. The Indonesian government also has fiscal deficit problems that make it difficult for them to carry on with the policy of subsidizing domestic fuel prices. They have been raising prices in stages, but they are so far below international market prices that they have a long way to go. In the meantime, the rupiah is falling fast under the weight of the fuel subsidy.

Believe it or not, the Philippines is actually in a better position to weather the oil price crisis precisely because we adopted market pricing for petroleum products some years ago. Can anyone imagine how bad the situation would be now if on top of all the divisive political problems and fiscal deficit situation we now have, we still have to add the politics of a government agency having to approve oil price movements?

I can almost imagine chaos in the streets, with the problem of supply on top of the problem of prices. Based on past experience with such an oil price regulatory agency, there would be endless debates on the merits of a price adjustment to the point that oil companies would refuse to import unless there is some assurance that they would be able to recover the cost of importation. With extremely short inventories of less than a month, the impact of a shortage would be immediate.

But, you ask, how do we know the oil companies are not overpricing? There are two ways to keep the oil companies honest. One is through Petron, which provides us a window on the industry forces that influence prices. Even if we do not own Petron a hundred percent, we have enough clout in the company to gain access to data that would tell us the real score. Nick Alcantara, Chairman of Petron, owes his position to Ate Glo.

The other way is through the powers vested on the Department of Energy by the Oil Deregulation Law to precisely check the way industry participants behave. As Sen. Mar Roxas keeps on pointing out, government is not helpless unless it chooses to be. There are enough powers in the existing law which Arroyo-era energy officials somehow chose not to exercise in the past. Luckily, one of the present undersecretaries is more proactive on the matter of monitoring the oil companies. And there is always Ronnie Concepcion, too.

This leads me to the other bird-brained reaction to the problem, this time coming from the Makati Business Club. I am surprised that Bill Luz took the "rationing" proposal of Energy Secretary Popo Lotilla out of context. While everything Bill said that is supposed to be wrong with rationing is true, Bill made it seem like rationing is imminent. From what I understand of Popo’s proposal, it is merely a contingency measure.

I think Popo should even be commended for the foresight of thinking of worse case scenarios and for planning for the eventuality. We have to give credit to our energy bureaucracy, whatever their inadequacies might be, to know that rationing is an extreme measure. But rationing is something that cannot be dismissed outright because there could be a need for it.

We also have to assume that Popo knows that unlike in the past, there is no problem of supply. OPEC is not withholding supply to anyone. In fact, they are trying to produce as much as they can to moderate prices a bit because they know it makes no sense to them to precipitate a world economic crisis arising from inflated oil prices. It is just that demand is high and the oil producers are reaching the limits of their production capacity.

Clearly, the problem is not supply but price. The Philippines imports virtually all of its oil, which according to government, amounts to about 126 million barrels per year. Higher crude prices have already caused the country’s oil bill to hit $2.308 billion in the first five months of 2005, a 27-percent increase over the same period in 2004, energy department figures showed. Total oil imports in 2004 hit $4.57 billion. Imagine what the oil bill would be if the per barrel cost goes up to $70 a barrel, assuming little or no conservation on our part.

In more brutal terms, our energy officials are effectively warning us that it is entirely possible that there might be available supply in the market but we cannot afford it because we do not have enough foreign exchange to buy it. Our $17-billion forex reserve isn’t exactly all that big. We have other uses for our foreign exchange, like paying for our debts and lubricating the cogs of business and commerce. And a worldwide economic downturn caused by high oil prices also puts the jobs of our OFWs at risk, and with it, our ability to earn foreign exchange.

Problematic as rationing might be, we may have to resort to it in the same way that housewives ration scarce family resources in the face of rising prices. In this case, the scarce resource is foreign exchange, not oil. It is just as well that we start discussing and debating early, an equitable way of rationing the volume of oil we can afford, which would most likely be less than what we normally need.

I guess Bill’s knee jerk response, as well as those of some politicians, was provoked by the proposal of Popo to give Ate Glo some emergency powers. The way I see it, she needs emergency powers only because she doesn’t have enough credibility to carry out such a harsh but necessary program. If she isn’t the political lameduck that she is now, people should naturally fall in line since the crisis situation is obvious to everyone, other than our feathered friends from the left.

As I wrote last Wednesday, only an inspiring leader can command our attention and cooperation with such tough measures that must be taken... such as oil rationing. I suspect... what the impeachment process will fail to do because of the administration’s political clout, would be achieved by an oil price crisis that’s serious enough to require oil rationing.

If that thought does not give her sleepless nights, then we know for sure there is something absolutely wrong with her mental and emotional state. We can only pray.

Valid Concern

Here’s Dr. Ernie’s medical anecdote for today.

A surgeon went to check on his blonde patient after an operation. She was awake, so he examined her. "You’ll be fine," he said.

She asked, "How long will it be before I am able to have a normal sex life again doctor?"

The surgeon seemed to pause, which alarmed the girl.

"What’s the matter, Doctor? I will be all right, won’t I?"

He replied, "Yes, you’ll be fine. It’s just that no one has ever asked me that after having their tonsils out."

Boo Chanco’s e-mail address is [email protected]