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Is Fuel Overpriced in the Philippines?

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Oil TankerOil. That, in a single word, is what modern Middle Eastern geopolitics has been about.

The growing unrest in Libya, the social turmoil in Egypt, Tunisia, Turkey, Bahrain, Yemen, Oman, Iraq, Kuwait, and Syria, and the earthquake/tsunami in Japan—all have driven the price of oil through the roof. What did it was not only the fear of supply interruption but also because some speculative oil traders took advantage of the situation.

The effects are already being felt in Asia, which relies on the Middle East for most of its oil imports. Countries like India and Thailand expect high defi- cits as their economies are oil-intensive and their government resources are overextended. Vietnam, Malaysia, and Indonesia, on the other hand, which subsidize fuel costs, face a large oil bill if prices re- main at current levels.

Unlike these nations, the Philippines is quite fortunate to have fuel resources from other parts of the globe. Although 80% of the country’s oil imports come from the Middle East, only 35% are sourced from nations fraught with unrest. The other 45% comes from Saudi Arabia—where disputes have been temporarily averted. Some 12% of Philippine oil is sourced from other Asian countries, while the remaining 8% comes from Russia.

Records from the Department of Energy show that in 2010, the country’s total demand for pe- troleum products registered an increase of 4.2% to 111,809 MMbbl from 107,299 MMbbl in 2009. Fuel oil recorded the largest increase at 13.4%, followed by unleaded gasoline at 3.5%. Oil imports in the Philippines were primarily used in transportation (at least 60%).

Why It Is Overpriced
If consumer groups are to be believed, fuel prices are “most of the time” overpriced. Since the industry has been deregulated, prices are supposedly dictated by market forces. But militant groups, such as Bayan (Bagong Alyansang Makabayan), argue that the Phil- ippines has not seen any competition at all between the Big Three (Petron, Shell, and Caltex).

“Rather, what we have seen is cooperation; a cartel where they raise prices together,” says Bayan secretary general Renato Reyes Jr. Bayan points out that this is one of the most fundamental defects of the Oil Deregulation Law—companies were given more opportunities to exploit and abuse people.

Bayan cites its own study looking at monthly changes in the levels of Dubai crude vis-a-vis the foreign exchange rate. The study was based on a formula used by a local oil firm to determine if fluc- tuations in the price of Dubai crude corresponded with changes in the price of petroleum products in the Philippines. By Bayan’s own calculations, the oil sold in the Philippines is indeed overpriced when compared to those sold in other countries.

Why It Is Not
Energy officials disagree with Bayan’s claims. Using Dubai crude prices as the benchmark, a top official says, “The price of oil is really cyclical, so it goes up really high then suddenly goes down.”

The DOE points out that in July 2008, Dubai oil prices went up to as high as US$135 per barrel. But six months later, on December 2008, prices plum- meted to as low as US$35 per barrel. This has been the trend ever since.

There is no prescribed formula for computing oil prices under Philippine law. However, energy of- ficials have been using the Energy Regulatory Board formula for calculating the weekly price of oil in the country.

The DOE is adamant that oil is not overpriced in the Philippines. “We’ve been able to [determine] whether companies have been abusing or not when- ever they announce price hikes,” the same official explains, saying that oil companies have been very consistent according to the Energy Department’s formula.

“If ever there is a discrepancy of a few centavos, the DOE does not deem that abuse,” he concludes.

What the Philippine government did to mitigate the effect of the string of oil price hikes was to give incentives to public transport drivers. Whenever the drivers gassed up, the Public Transport Assistance Program (PTAP) or the Pantawid Pasada Program would unleash a subsidy, among other benefits, via a smart card. It is primarily aimed to cushion PUJ drivers from oil price increases, specially in season of low ridership.

Alternative Oil Sources The current unrest in both the Middle East and North Africa (particularly in Bahrain, Oman, Ye- men, Iraq, Kuwait, and Syria) have set off alarm bells, not only for the Philippines but in other parts of Asia as well.

But Philippine energy officials have allayed fears about any possible disruption in local oil supply since the affected nations are not oil suppliers of the country. Officials assured the public that there will be no oil shortage because the supply to address the global demand in both the short and medium term is sufficient.

This same assurance was also made by Saudi Ara- bia officials, the Organization of Petroleum Export- ing Countries, and the International Energy Agency. The IEA even says it can actually supply the Philip- pines with two million barrels per day for the next two years. Be that as it may, the agency is readying an Oil Contingency Plan “in case the situation worsens.”

For the record, the Philippines does not have its own source of oil. Yes, it has Nido Petroleum Philip- pines Ltd. But the quality of oil is not suitable for cur- rent refineries and the output volume is not enough. So to fill local demand, the country imports.

For both crude oil and finished products, the DOE says the best ‘alternative’ sources will still be found in Saudi Arabia, plus the UAE, Singapore, and Russia.

print ed: 07/11

 

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