After the storms, oil a touchy Manila issue

The New York Times
Published: October 30, 2009

MANILA — When the three largest oil companies in the Philippines increased the pump prices of diesel, gasoline and kerosene on Oct. 20, they set off more than the usual grumbling from consumers and transport groups. With millions of Filipinos still reeling from the effects of successive typhoons, the corporations were criticized as greedy, insensitive, callous and predatory.

The companies — Royal Dutch Shell, Petron and Chevron (known here under the brand Caltex) — increased the per-liter prices of diesel by 2 pesos, or 4 cents, an increase of about 6.7 percent. Gasoline prices went up 1.25 pesos a liter, or a 4.74 pesos a gallon, and kerosene by 1.50 pesos. According to the Ibon Foundation, an independent economic research group, the increases were the biggest of the year. The companies insist the increases reflect world oil prices; crude has risen from as low as $32.40 in December to about $79 this week.

Changes in the price of fuel have been a touchy subject here since 1998, when the government passed the Oil Deregulation Law. In addition to taking away government control of pricing and opening the industry to foreign investment, the law removed longstanding government subsidies of oil products. Although the deregulation has been unpopular with voters, the government has not backtracked — until now.

President Gloria Macapagal Arroyo issued Executive Order 839 in the past week, demanding that the oil companies reduce their prices on the main island, Luzon, or face penalties.

Many consumers praised the decision and her “political will” and said the decree could help millions of Filipinos recover from the recent calamities. But economists, business groups and industry analysts said the unprecedented intervention could scare investors away from the country, and create fuel shortages and a new black market.

“This government seems to have lost its sense of what it should be doing,” said Peter Wallace, founder of the Wallace Business Forum, a consulting group that advises some of the largest multinational companies in the Philippines. The country, he said, “is attracting the lowest level of foreign investments among major countries in Asia. So you have to ask the question why it issued the executive order.”

Mr. Wallace said if the government wanted to reduce the cost of fuel for consumers, it could have given out discount coupons to those directly affected by the typhoons. As it is, he said, “those with S.U.V.’s are the ones that will benefit from the price controls, not the poor people.”

Except for Shell and Petron, which refine oil in the Philippines, all oil companies here import their finished products. Because the prices of these refined products are tied to world markets, the companies now might think twice about importing more, given the possibility of losses, said Benjamin Diokno, an economist and former budget secretary.

“The wisdom of E.O. 839 will come to its severest test once oil product supply is disrupted,” Mr. Diokno wrote in BusinessWorld, a Manila newspaper. “For the oil firms who were enticed by the downstream oil industry deregulation law, this recent E.O. is a nightmare.”

The oil companies have complied with the order, and rolled back prices. But they warned that the order might have grave consequences, among them “supply disruptions and negative impact on the investment climate in our country,” according to Roberto Kanapi, a Shell spokesman.

Even now, just days after the order was announced, the oil companies are saying that their losses stemming from the directive will be large, with Petron alone estimating a 1.5 billion-peso loss in the fourth quarter. The government has not indicated when it might lift the executive order.

Oil consumers, meanwhile, have welcomed the decree. Raul Concepcion, a Filipino industrialist who heads the nonprofit Consumer and Oil Price Watch, said the oil companies had it coming. The companies’ “predatory pricing” in the years since the Oil Deregulation Law was passed created the conditions that prompted the reimposition of price controls, he said.

“If there was total transparency in the pricing of oil products, then the oil companies would not be suspected of predatory pricing,” Mr. Concepcion said. Ralph Recto, Ms. Arroyo’s economic planning secretary, had accused the oil companies of overpricing by as much as 8 pesos per liter of gasoline, a charge the companies denied.

The companies have insisted, now and in the past, that their prices are dictated by the market. None have been prosecuted for predatory pricing, despite allegations from groups including Mr. Concepcion’s. But because prices at the pump tend to move all at once, and because the companies have refused to open their books to scrutiny, suspicion has grown among the public.

Some people are urging the government to expand the price freezes nationwide. “Why impose the price controls only in Luzon? The other islands should also be covered, especially because the price of oil in the Visayas and Mindanao are 5 to 7 pesos more expensive compared to Luzon,” said George San Mateo, secretary general of Piston, the country’s largest group of public-transport operators and drivers. Visayas and Mindanao are the two other main island groups in the archipelago.

Mr. San Mateo said he was worried that the oil companies would try to offset their losses in Luzon by overpricing in other areas — a concern shared by Mr. Recto, who recently resigned as Ms. Arroyo’s economic adviser. He said the order would “penalize” consumers in other places.

The executive order may have helped shift the political atmosphere and opened up new opportunities for opponents of deregulation. Already, there are resolutions pending in Congress seeking to repeal the 1998 law.

Satur Ocampo, a congressman, said the law “is a mistake and a burden to poor Filipinos.” It has made the oil companies abusive, he said.

“Even without the administration admitting it, and despite its adherence to deregulation, the recent price hikes have shown that the deregulation policy is a failure,” said Renato Reyes Jr., secretary general of the New Patriotic Alliance, an umbrella group of grass-roots organizations that has pushed for the repeal. “An alternative to deregulation is now in order,” he said.

About Carlos H. Conde

Researcher at Human Rights Watch (@condeHRW @hrw_ph). Former journalist (NYT, IHT, among others).
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