OPSF: Best recipe for disaster

Just last week, we were witnesses of the big three dominant oil industry players’ tirade against Unioil for the latter’s “big oil price rollback” announcement. Certainly unscripted, we saw a good indicator that while the big three might have an informal cartel, competition in the oil industry is very much alive and well. These healthy disagreements, therefore, is something that the general public must help propel.

Indeed, disagreements are just normal. Depending on the person’s preferences, views on issues of common concerns will always be diverse. Despite these diversities, however, some differences are mended and bitter fights are ending in a truce. However, other disagreements are just so deeply rooted that even a tiny room for compromises is virtually unavailable.

Undeniably, biblical and ideological differences are harder to resolve. The roots of other conflicting views, however, are just too trivial and are simply borne out of slight misunderstanding and huge pride.

Similarly, amidst this debilitating global recession, the world’s finance and economic ministers’ views on solving the menace are so divergent that no common stand can be attained. Even the smaller but very influential Organization of Petroleum Exporting Countries (OPEC) cannot agree on production cuts to stave off the decline in oil prices. Likewise, heads of states, though on the same page as far as their assessments of the extent of their economic difficulties are concerned, have different modes of quelling them.

Likewise, our country is in the midst of a lot of conflicts. Some are offshoots of political maneuverings while others are plain and simple misunderstandings due to everyone’s sincere efforts to get out of the economic quagmire we are in today.  

Foremost in every Filipino’s agenda is the retail price of oil products that have remained relatively high despite huge global decline.   Adding insult to this ongoing drama are the insensibilities of some sectors in not giving even a nominal reduction in the prices of products or services on account of the token reduction made by the oil retailers. Pressured by the general public, they found an easy and very convenient excuse. They tried to divert public attention to the oil retailers who, they claimed, have formed a cartel and pegged oil prices exorbitantly high for their own good.   

With the accusing fingers pointing at them, oil retailers passed on the blame to the lawmakers for their stubbornness in not lifting the Value Added Tax (VAT) on oil. Clearly, it has become a vicious cycle of passing on blames among selfish members in a circle of opportunists.

Apart from this endless exercise of buck passing, however, some sectors presented a different approach. They wanted a more serious effort from lawmakers of abolishing the Oil Deregulation Law. The main argument, oil companies have formed a cartel and are dictating the prices. In effect, such proposal means that we have to go back to the controlled era where prices are fixed and an Oil Price Stabilization Fund (OPSF) is set up.  

While there is a big possibility that this proposal will gather steam and maybe popular in the end, its popularity may not be at all the solution we need. It can be recalled that the OPSF was set up in 1984. Then, as part of the policy, the OPSF was supposed to help protect consumers from fluctuations in product prices while providing refiners with adequate margins. In 1996, the OPSF was running a large deficit and was financed by taxpayers’ money to the tune of US$40 million a month. Knowing fully well that crude oil is the Philippines’ largest single import (which accounts for 7 percent of the country’s total import bill) the amount involved was just too material.   Then, President Ramos’ economic and finance ministers had seen enough. There was then a need to stop the bleeding. Thus, on April, 1998, President Fidel V. Ramos signed Republic Act 8479 otherwise known as the “Downstream Oil Industry Deregulation Act of 1998”. Said Act was envisioned “to liberalize and deregulate the downstream oil industry in order to ensure a truly competitive market under a regime of fair prices, adequate and continuous supply of environmentally-clean and high-quality petroleum products.” Same Act also provides that the “State shall promote and encourage the entry of new participants in the downstream oil industry, and introduce adequate measures to ensure the attainment of these goals.”

To attain this goal procedurally under the Deregulation Act, 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 good. 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 external auditors do. 

Generally, therefore, the call for the Act’s abolition is improper. Worst, reestablishing the OSPF may even be the best recipe for disaster.

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