Avoid pricing controversies: Adopt a formula

Today, the country is deluged with a lot of newsworthy developments. Issues run from the very serious health concerns (swine flu) to the possible repercussions of the constantly increasing prices of oil in the global market; and from Richard Gutierrez’ car mishap to the sex video of Katrina Halili and Hayden Kho. Sadly, however, despite the more serious health ramifications of the increasing threat of the H1N1 virus and the economic implications of increasing prices in oil, the Katrina Halili’s sex video is getting more media mileage and attention.

For awhile, let us pause feasting on Katrina’s sex video. Let’s look into the more serious implications of the constantly increasing oil prices. Knowing fully well that oil prices in Cebu are several notches higher than Manila, Davao, Ilo-ilo and Cagayan de Oro, this issue is even more important to us than the residents in Luzon and Mindanao. 

As we are all aware, Gov. Gwen Garcia filed a complaint against the three major players in the industry with the joint Department of Justice and Department of Energy task force on oil deregulation. She was supported in this crusade by some prominent businessmen and Chamber presidents. However, as if adding insult to injury, just two days after she filed the complaint, the retail prices increased again. 

While we are joining with Gov. Garcia in her crusade against the disparity of oil retail prices among the country’s major cities, we can’t join on whatever insinuations to stop them from increasing. On account of the US looming recovery and China’s increasing demand for oil, the global prices for oil will certainly increase. As of yesterday, the world is already staring at prices going beyond US$60.00 per barrel. This will continue to increase until it plateaus at US$75.00 in the coming months (in my previous columns, I wrote that oil prices will be hovering between US$55 and US$75.00 per barrel and have mentioned my justifications). Consequently, therefore, local prices will certainly be on the rise.

However, in trying to agree that global oil prices will certainly be on the rise, there are at least two issues that should be appropriately addressed domestically. First issue that should be settled is the price differential between the global price and the domestic retail prices. Have we adopted an easily understandable formula that meticulously computes from globally determined crude oil price per barrel to the station’s price per liter? That formula, in essence, should impute refining costs, transportation costs, duties and taxes, and other related expenses plus the desired profits among the players in the supply chain. The second issue that should be addressed is the price differential among the country’s major cities. Certainly, the only component that should be settled in this concern is the transport cost. Surprisingly, however, if the refineries are in Luzon, it left the Cebuanos wondering why the farthest (and therefore, will have higher transport cost) among the major cities that is Davao has cheaper oil than Cebu.

Adopting a formula won’t be difficult. The Deregulation Act is very explicit on how oil prices must be pegged domestically. The Deregulation Act clearly stipulates that domestic fuel prices will be adjusted automatically based on the Singapore Import Parity, an average of costs at Singapore refineries, and in line with international prices. Singapore Import Parity (SIP) refers to the deemed landed cost of a petroleum product imported from Singapore at a free-on-board price equal to the average Singapore Posting for that product at the time of loading. Singapore posting on the other hand refers to the price of petroleum products periodically posted by oil refineries in Singapore and reported by independent international publications. Clearly, therefore, a base data is supposedly at hand for price determination purposes. Palpably, it is purely mathematical and is therefore an exact science. So that, arguments on prices are issues that are not suppose to surface.

Furthermore, while the general public accuses these oil companies of forming a cartel, the same act explicitly prohibits this practice. The Act defines cartelization as “any agreement, combination or concerted action by refiners, importers and/or dealers, or their representatives, to fix prices, restrict outputs or divide markets, either by products or by areas, or allocate markets, either by products or by areas, in restraint of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins.”

Obviously, therefore, the law is broadly complete. However, some unscrupulous businessmen are just toying with it and have unduly taken advantage of the general public’s helplessness. Unfortunately too, while the Act requires periodic submission of reports, the same Act does not explicitly authorize the Department of Energy or any government agency to examine their books of accounts or financial records like auditors do. 

Therefore, what is important now is for the Department of Energy to establish a “womb to tomb” formula that details conversions from the global prices to the oil company’s retail stations’ prices. Moreover, it is important that it shall be given more teeth. Teeth planted on solid gums that are strong enough to bite and cut the evils of these opportunists’ greed and selfishness.  

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