A Second Look at Oil Deregulation-a repost

8/11/2019 A Second Look at Oil Deregulation-a repost

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A second look at oil deregulation

By Danilo Suarez | Posted on Apr. 16, 2013 at 12:01am | 1,701 views

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On Feb. 10, 1998 Republic Act 8479, or the Oil Deregulation Law, was passed by the10th Congress. Under this law the state shall liberalize and deregulate the downstream oilindustry, with the aim of boosting the petroleums competitive market and promote the

influx of more new players in the industry. The Department of Energy was entrusted athree-percent tariff coupled with the responsibility of monitoring violations of fair tradepractice, safety requirements or environmental laws together with the Department of

Trade and Industry.

On paper , the law seeks to achieve a truly competitive market that runs with fair pricesand a suitable supply of environmentally-clean and high quality petroleum products. Inpractice, however, this has not been the case. For this reason, the oil deregulation law hasbecome one of the most contentious laws in the country since its enactment. Itsconstitutionality had been the subject of several petitions at the Supreme Court and manylegislators, including this representation (HB 00347 An act regulating the downstreamoil industry), have filed bills to amend or repeal it.

One of the more enduring controversial issues up to now is overpricing. Instead ofachieving competitive prices for the benefit of the consuming public, unabated andquestionable increases in petroleum prices have been a public outcry in the past 15

years.

In February 1998, the month the current oil deregulation law was enacted, the pump priceof gasoline was P12.62. As of the first week of this month, official DOE records show theretail price of gasoline in the NCR ranged from P48.65 to P54.64 per liter, which is morethan 300 percent higher than its 1998 prices.

What exacerbates this and continues to fuel negative speculation is that the public has noway of knowing whether the price adjustments are reasonable or not, even based on thesupposed factors that affect local prices, namely global oil prices and the rate of foreignexchange. Our consumers are forced to unconditionally accept whatever explanation theoil firms and the Department of Energy give for the price increases. Deregulation lawnotwithstanding, this representation is of the firm opinion that the public needs to knowthe origin of petroleum imports the volume and the price at which they are bought,together with other details that are hidden from the consumers under the current set -upof decentralized importation.

In this, the government has a primary role to play, being accountable to the people.Moreover, initiatives in this direction will also make significant headway in addressing
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another national issue gravely affecting the industry and the Filipino consumers ingeneralthat of oil smuggling. The country is especially vulnerable because while wehave one of the most oil intensive economies in the Asia, we are also one of the mostimport-dependent for petroleum.

Pilipinas Shell and Petron Corporation have recently made public that the government islosing P30 billion to P40 billion in revenues a year due to oil smuggling, a staggeringamount which is comparatively bigger than what the government expects to generate thisyear from higher taxes on sin products. Ramon S. Ang of Petron Corporation, thecountrys largest oil company, claimed that smuggled oil products account for at least athird of the total volume sold in the market, adding that about one out of every threelitters of gasoline or diesel sold in the Philippines is smuggled. The claim of Petron is thatsmugglers are using the special economic zones to evade paying the 12 percent value-added tax and the excise tax. This allows some retailers to sell cheap oil. Customssources confirmed as well claims by Shell and other players in the oil industry that

petroleum products are smuggled into the country.

What is most sure is that smuggling remains unabated and that it has even worsenedunder this administration. This administration needs to buckle down and find ways toaddress this urgent concern within the framework of deep reforms in the industry to curbpossible price abuses and improve efforts against tax leakages. A study done by theNational Economic and Development Authority last year estimated individual taxleakages to reach at least P35.69 billion a year from 2011 to 2016 proving thatbureaucratic corruption, inefficiency, and wastage continue to deprive government ofpotential revenues under this administration.

There are currently more than 600 players in the downstream oil industry. One option wewould like to propose is for the government to impose safety nets and controlmechanisms within the purview of the oil deregulation law, to include limiting industryplayers to the top five honest taxpaying oil players (i.e., Petron, Shell, Chevron, Totalplus another independent player). This will effectively limit the channels of opportunityfor smugglers and present a more wieldy structure to plug tax leaks.


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Scrapping oil deregulation law wont stop price increases DoE

Written by Ed Velasco

Wednesday, 19 September 2012 00:00

The Department of Energy (DoE) said yesterday scrapping the irritating oil deregulation law willnot solve the problem of non-stop oil price increases as the scenario is a global problem.According to the DoE, the Philippines shifted to oil deregulation law in 1998 after the marketsubsidy in the form of oil price stabilization fund (OPSF) incurred losses of billions of pesoswhich the government had to bear through the Philippine National Oil Co. (PNOC).Oil price deregulation law was originally enacted in 1996 but the first version of the law wasdeclared unconstitutional by the Supreme Court (SC).DoE Undersecretary Jay Layug reminded the media that scrapping the law will not solve theproblem of wanton oil price increases.

With continuing volatility and increase in international oil prices, the government could nolonger cover OPSF deficits for lack of funds, Layug told The Daily Tribune before leaving

abroad.The undersecretary claimed that on the basis of attracting new players in the industry andwidening the base of downstream oil industry players, the oil deregulation law met its primaryobjective.As a lawyer, the official said there are many gray areas in the oil deregulation law that allowsprofiteering among oil firms and liquefied petroleum gas sellers.There is room, however, to improve the oil deregulation law in order to provide the DoE

with administrative powers to punish parties who fail to comply with DoE rules andregulations, including compliance with Philippine national standards for petroleum products,dispensing of pumps, LPG retail rules, etc., he said.Layug said the DoE is helpless against profiteers and violators in the oil industry because theoil deregulation law does not prescribe any specific formula consistent with the regime ofderegulation.Notwithstanding deregulation, however, the oil industry players must adhere to the

fundamental principle of fair prices as provided by law, Layug said.

Layug added the DoE assures the pubic that they continue to actively monitor oil pricemovements to ensure that price adjustments are reasonable and consistent with the movementof oil prices in the international market.
http://www.tribune.net.ph/index.php/business/itemlist/user/132-edvelascohttp://www.tribune.net.ph/index.php/business/itemlist/user/132-edvelasco


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Republic of the Philippines

Congress of the PhilippinesMetro Manila

Tenth Congress

Republic Act No. 8479

February 10, 1998AN ACT DEREGULATING THE DOWNSTREAM OIL INDUSTRY AND FOR OTHER

PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congressassembled::

CHAPTER I

GENERAL PROVISIONS

Section 1. Short Ti tle.This Act shall be known as the "Downstream Oil Industry DeregulationAct of 1998."

Section 2. Declaration of Poli cy.It shall be the policy of the State to liberalize and deregulatethe downstream oil industry in order to ensure a truly competitive market under a regime of fairprices, adequate and continuous supply of environmentally-clean and high-quality petroleumproducts. To this end, the State shall promote and encourage the entry of new participants in thedownstream oil industry, and introduce adequate measures to ensure the attainment of thesegoals.

Section 3. Coverage.This Act shall apply to all persons or entities engaged in any and all

activities of the domestic downstream oil industry, as well as persons or companies directlyimporting refined petroleum products for their own use.

Section 4. Definiti on of Terms.For purposes of this Act, the following terms are hereinbelowdefined:(a)Basel Conventionshall refer to the international accord which governs the trade or movementof hazardous and toxic wastes across borders;(b)Boardshall refer to the Energy Regulatory Board;(c)BOIshall refer to the Board of Investments;(d) Crude Oilshall refer to oil in its natural state before the same has been refined or otherwisetreated, but excluding water, bottoms, sediments and foreign substances;(e)Dealer shall refer to any person, whether natural or juridical, who is engaged I the marketingand direct selling of petroleum products to motorists, end users, and other consumers;(f)DOE shall refer to the Department of Energy;(g)DOJ shall refer to the Department of Justice;(h) Downstream Oil Industry(DOI) or Industry shall refer to the business of importing;exporting, re-exporting, shipping, transporting, processing, refining, storing, distributing,marketing and/or selling crude oil, gasoline, diesel, liquefied petroleum gas (LPG), kerosene,and other petroleum products;


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(i) Hauler shall refer to any person, whether natural or juridical, engaged in the transport,distribution, hauling, and carriage of petroleum products, whether in bulk or packed form, fromthe oil companies and independent marketers to the petroleum dealers and other consumers;(j) LPG Distributorshall refer to any person or entity, whether natural or juridical, engaged in

exporting, refilling, transporting, marketing, and/or selling of LPG to end users and otherconsumers;(k) New Industry Participants shall refer to new participants in a particular sub-sector of thedownstream oil industry with investments and initial business operations commencing afterJanuary 1, 1994;(l)Personshall refer to any person, whether natural or juridical, who is engaged in any activityof the downstream oil industry;(m) Petroleum shall refer to the naturally occurring mixture of compounds of hydrogen andcarbon with a small proportion of impurities and shall include any mineral oil, petroleum gas,hydrogen gas, bitumen, asphalt, mineral wax, and all other similar or naturally-associatedsubstances, with the exception of coal, peat, bituminous shale and/or other stratified mineral fuel

deposits;(n) Petroleum Products shall refer to products formed in the case of refining crude petroleumthrough distillation, cracking, solvent refining and chemical treatment coming out as primarystocks from the refinery such as, but not limited to: LPG, naphtha, gasolines, solvents,kerosenes, aviation fuels, diesel oils, fuel oils, waxes and petrolatums, asphalt, bitumens, cokeand refinery sludges, or other such refinery petroleum fractions which have not undergone anyprocess or treatment as to produce separate chemically-defined compounds in a pure orcommercially pure state and to which various substances may have been added to render themsuitable for particular uses: Provided, That the resultant product contains not less than fiftypercent (50%) by weight of such petroleum products;(o) Singapore Import Parity(SIP)shall refer 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 thatproduct at the time of loading;(p) Singapore Posting shall refer to the price of petroleum products periodically posted by oilrefineries in Singapore and reported by independent international publications; and(q) Wholesale Posted Price (WPP)shall refer to the ceiling price of petroleum products set bythe Board based on its duly approved automatic pricing formula.

CHAPTER II

LIBERALIZATION OF THE DOWNSTREAM OIL INDUSTRY AND PROMOTION OF

FREE COMPETITION

Section 5. L iberali zation of the I ndustry.Any law to the contrary notwithstanding, any personor entity may import or purchase any quantity of crude oil and petroleum products from aforeign or domestic source, lease or own and operate refineries and other downstream oilfacilities and market such crude oil and petroleum products either in a generic name or his or itsown trade name, or use the same for his or its own requirement: Provided,That any person whoshall engage in any such activity shall give prior notice thereof to the DOE for monitoringpurposes:Provided, further,That such notice shall exempt such person or entity from securingcertificates of quality, health and safety and environmental clearance from the proper


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governmental agencies: Provided, furthermore,That such person or entity shall, for monitoringpurposes, report to the DOE his or its every importation/exportation: Provided, finally,That alloil importations shall be in accordance with the Basel Convention.Section 6. Tari ff Treatment.(a) Any law to the contrary notwithstanding and starting with the

effectivity of this Act, a single and uniform tariff duty shall be imposed and collected both onimported crude oil and imported refined petroleum products at the rate of three percent (3%):Provided, however, That the President of the Philippines may, in the exercise of his powers,reduce such tariff rate when in his judgment such reduction is warranted, pursuant to RepublicAct No. 1937, as amended, otherwise known as the Tariff and Customs Code:Provided, further,That beginning January 1, 2004 or upon implementation of the Uniform Tariff Program underthe World Trade Organization and ASEAN Free Trade Area commitments, the tariff rate shallbe automatically adjusted to the appropriate level notwithstanding the provisions under thisSection.(b) For as long as the National Power Corporation (NPC) enjoys exemptions from taxes andduties on petroleum products used for power generation, the exemption shall apply to purchases

through the local refineries and to the importation of fuel oil and diesel.Section 7. Promotion of F air Trade Practices.The Department of Trade and Industry (DTI)and DOE shall take all measures to promote fair trade and prevent cartelization, monopolies,combinations in restraint of trade, and any unfair competition in the Industry as defined inArticle 186 of the Revised Penal Code, and Articles 168 and 169 of Republic Act No. 8293,otherwise known as the "Intellectual Property Law". The DOE shall continue to encouragecertain practices in the industry which continue to encourage certain practices in the Industrywhich serve the public interest and are intended to achieve efficiency and cost reduction, ensurecontinuous supply of petroleum products, and enhance environmental protection. Thesepractices may include borrow-and-loan agreements, rationalized depot and manufacturingoperations, hospitality agreements, joint tanker and pipeline utilization, and joint actions on spill

control and fire prevention.The DOE shall monitor the relationship between the oil companies (refiners and importers) andtheir dealers, haulers and LPG distributors to help ensure the observance of fair and equitablepractices and to ensure the enforcement of existing contracts: Provided, That the DOE shallconciliate and arbitrate any dispute that may arise with respect to the contractual relationshipbetween the oil companies and the dealers, haulers and LPG distributors involving the dealers'mark-up, the freight rate in transporting petroleum products and the margins of LPG distributorsfor the protection of the public and to prevent ruinous competition: Provided, further,That thearbitration award of the DOE shall be subject to judicial review under existing law.

Section 8. Program to Encourage the Entry of New Parti cipants in the I ndustry.The DOE,the Department of Foreign Affairs (DFA) and the DTI shall jointly formulate and establish aprogram that will promote the entry of new participants in the Industry. Such program shall,among others, include a strategic international information campaign to be implemented throughselected embassies and consular offices of the Philippines. This program shall commenceimplementation after three (3) months from the effectivity of this Act.In this regard, the DOE shall provide a "Philippine Downstream Oil Industry Investment Guide"to new industry participants and prospective participants. This guide, shall, among others,contain:


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(a) An introduction to the Philippine Downstream Oil Industry and the government's unwaveringcommitment to deregulation;(b) The entry requirements;(c) Information on the benefits and incentives for new industry participants which shall specify:

(i) all the incentives and benefits they can enjoy, and (ii) the procedural and substantiverequirements needed for entitlement; and(d) Such other information the DOE may deem necessary to promote the entry of newparticipants.

Section 9. I ncenti ves for New Investments. To the extent applicable, persons with newinvestments as determined by the DOE and registered with the BOI in refining, storage,marketing and distribution of petroleum products, shall be extended the same incentives grantedto BOI-registered enterprises engaged in a preferred area of investments pursuant to ExecutiveOrder No. 226, otherwise known as the "Omnibus Investments Code of 1987".Such incentives shall include:

(1) Income tax holiday;(2) Additional deduction for labor expenses;(3) Minimum tax and duty of three percent (3%) and value-added tax (VAT) on imported capitalequipment;(4) Tax credit on domestic capital equipment;(5) Exemption from contractor's tax;(6) Unrestricted use of consigned equipment;(7) Exemption from the real property tax on production equipment or machineries;(8) Exemption from taxes and duties on imported spare parts; and(9) Such other applicable incentives under Article 39 of Executive Order No. 226.Any provision of the law to the contrary notwithstanding, the said incentives may be availed by

persons with new investments for a period of five (5) years from registration with the BOI:Provided, however, That in the storage, marketing and distribution of petroleum products, onlythe investments of new industry participants shall be entitled to incentives provided in the saidCode. As used herein, "marketing of petroleum products" shall include the establishment ofgasoline stations.For this purpose, the industry shall be included in the annual Investment Priorities Plan (IPP):Provided, That nothing in herein contained shall preclude qualified persons or entities asprovided under the "Omnibus Investments Code" from applying from or continue enjoyingincentives and benefits under the said Code.

Section 10. Promotion of Retail Competit ion.To achieve the social and policy objective offair prices, facilitate the attainment of a truly competitive product market in the retail level, theDOE shall promote and encourage by way of information dissemination, networking, andmanagement/skills training, the active and direct participation of the private sector andcooperatives in the retailing of petroleum products through joint venture/supply agreements withnew industry participants for the establishment and operation of gasoline stations: Provided,That the training herein shall include LPG retailing.To this end, the DOE shall, in accordance with the Technology and Livelihood Resource Center(TLRC) and Technical Education and Skills Development Authority (TESDA), coordinate with


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new industry participants and existing petroleum dealers' associations in the formulation andimplementation of a two-fold program on management and skills training for the establishment,operation, and maintenance of gasoline stations.Persons who successfully complete the two-fold program shall be entitled to government

assistance being extended by government lending agencies, in the form of medium- to long-termloans with low interest rates and to the gasoline training station training and loan fund providedhereunder, to serve as capital for the establishment and operation of gasoline stations.For these purposes, there is hereby established a gasoline station and loan fund with the initialamount of Three hundred million pesos (P 300,000,000.00) to be provided by the PhilippineAmusement and Gaming Corporation (PAGCOR) and administered by the DOE under aseparate account.Of this amount, two percent (2%) plus any additional funding shall be allocated for he two-foldprogram; one percent (1%) plus any additional funding shall be set aside for administrative,maintenance, and other operating expenses; ninety-four percent (94%) shall be used exclusivelyfor lending and financial assistance; the remaining three percent (3%) shall be utilized in

accordance with the provisions of Section 26 of this Act: Provided,That the loans to be awardedherein shall be from short- to medium-term with low interest rates;Provided, further,That theseloans shall be awarded to qualified persons who are able to comply with the conditions set forthin the next two (2) preceding paragraphs.

CHAPTER III

ANTI-TRUST SAFEGUARDS, OTHER PROHIBITED ACTS AND REMEDIES

Section 11. Anti-Tr ust Safeguards. To ensure fair competition and prevent cartels andmonopolies in the Industry, the following acts are hereby prohibited:(a) Cartelization which means 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 oftrade or free competition, including any contractual stipulation which prescribes pricing levelsand profit margins;(b)Predatory pricingwhich means selling or offering to sell any oil product at a price below theseller's or offeror's average variable cost for the purpose of destroying competition, eliminating acompetitor or discouraging a potential competitor from entering the market: Provided, however,That pricing below average variable cost in order to match the lower price of the competitor andnot for the purpose of destroying competition shall not be deemed predatory pricing. Forpurposes of this provision, "variable cost" as distinguished from "fixed cost", refers to costs suchas utilities or raw materials, which vary as the output increases or decreases and "averagevariable cost" refers to the sum of all variable costs divided by the number of units of outputs.Any person, including but not limited to the chief operating officer, chief executive officer orchief finance officer of the partnership, corporation or any entity involved, who is found guiltyof any of the said prohibited acts shall suffer the penalty of three (3) to seven (7) yearsimprisonment, and a fine ranging from One million pesos (P 1,000,0000.00) to Two millionpesos (P 2,000,000.00).

Section 12. Other Prohibited Acts.To ensure compliance with the provisions of this Act, therefusal to comply with any of the following shall likewise be prohibited:


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(a) submission of any reportorial requirements;(b) use of clean and safe (environment and worker-benign) technologies;(c) any order or instruction of the DOE Secretary issued in the exercise of his enforcementpowers under Section 15 of this Act; and

(d) registration of any fuel additive with the DOE prior to its use as an additive.Any person, including but not limited to the chief operating officer or chief executive officer ofthe partnership, corporation or any entity involved, who is found guilty of any of the saidprohibited acts shall suffer the penalty of imprisonment for two (2) years and a fine ranging fromTwo hundred fifty thousand pesos (P 250,000.00) to Five hundred thousand pesos (P500,000.00).

Section 13. Remedies.(a) Government Action.Whenever it is determined by the Joint TaskForce created under Section 14 (d) of this Act, there is a threatened or imminent or actualviolation of Section 11 of this Act, it shall direct the provincial or city prosecutors havingjurisdiction to institute an action to prevent or restrain such violation with the Regional Trial

Court of the place where the defendants reside or has his place of business. Pending hearing ofthe complaint and before final judgment, the court may at any time issue a temporary restrainingorder or an injunction as shall be deemed just within the premises, under the same conditionsand principles as injunctive relief is granted under the Rules of Court.Whenever it is determined by the Joint Task Force that the Government or any of itsinstrumentalities or agencies, including government-owned or controlled corporations, shallsuffer loss or damage in its business or property by reason of violation of Section 11 of this Act,such instrumentality, agency or corporation may file an action to recover damages and the costsof the suit with the Regional Trial Court which has jurisdiction as provided above.(b) Private Complaint.Any person or entity shall report any violation of Section 11 of this Actto the Joint Task Force. The Joint Task Force shall investigate such reports in aid of which the

DOE Secretary may exercise the powers under Section 15 of this Act. The Joint Task Force shallprepare a report embodying its findings and recommendations as a result of any suchinvestigation, and the report shall be made at the discretion of the Joint Task Force. In the eventthat the Joint Task Force determines that there has been a violation of Section 11 of this Act, theprivate person or entity shall be entitled to sue for and obtain injunctive relief, as well asdamages, in the Regional Trial Court having jurisdiction over any of the parties, under the sameconditions and principles as injunctive relief is granted under the Rules of Court.

CHAPTER IV

POWERS AND FUNCTIONS OF THE DOE AND DOE SECRETARY

Section 14. Monitoring.(a) The DOE shall monitor and publish daily international crude oilprices, as well as follow the movements of domestic oil prices. It shall likewise monitor thequality of petroleum products and stop the operation of businesses involved in the sale ofpetroleum products which do not comply with the national standards of quality that are alignedwith the national standards/protocols of quality. The Bureau of Product Standards of the DTI,together with the Department of Environment and Natural Resources (DENR), the DOE, theDepartment of Science and Technology (DOST), representatives of the fuel and automotiveindustries and the consumers, shall set the specifications for all types of fuel and fuel-related


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products to improve fuel composition for increased efficiency and reduced emissions. The BPSshall also specify the allowable content of additives in all types of fuels and fuel-relatedproducts.(b) The DOE shall monitor the refining and manufacturing processes of local petroleum products

to ensure that clean and safe (environment and worker-benign) technologies are applied. Thisshall also apply to the process of marketing local and imported petroleum products.(c) The DOE shall maintain a periodic schedule of present and future total industry inventory ofpetroleum products for the purpose of determining the level of supply. To implement this, theimporters, refiners, and marketers are hereby required to submit monthly to the DOE their actualimportations, local purchases, sales and/or consumption, and inventory on a per crude/productbasis.(d) Any report from any person of an unreasonable rise in the prices of petroleum products shallbe immediately acted upon. For this purpose, the creation of the DOE-DOJ Task Force is herebymandated to determine within thirty (30) days the merits of the report and initiate the necessaryactions warranted under the circumstance: Provided, That nothing herein shall prevent the said

task force from investigating and/or filing the necessary complaint with the proper court oragency motu propio.Upon the effectivity of this Act, the Secretaries of Energy and Justice shall jointly appoint themembers of a committee who shall be tasked with the drafting of the rules and guidelines to beadopted by the Task Force in the performance of its duty. These guidelines shall ensure theefficiency, promptness, and effectiveness in the handling of its cases. The Task Force shall beorganized and its members appointed within one (1) month from the effectivity of this Act.(e) In times of national emergency, when the public interest so requires, the DOE may, duringthe emergency and under reasonable terms prescribed by it, temporarily take over or direct theoperation of any person or entity engaged in the Industry.Section 15. Additi onal Powers of the DOE Secretary.In connection with the enforcement of

this Act, the DOE Secretary shall have the following powers:(a) To gather and compile appropriate information concerning, and to investigate from time totime the organization, business, conduct, practices, and management of any person or entity inthe Industry;(b) To require, by general or special orders, persons or entities engaged in a particular activity ofthe industry: (i) to file an annual or special report, or both in such form as the Secretary mayprescribe; or (ii) to answer specific questions in writing, furnishing to the Secretary suchinformation as he may require as to the organization, business, conduct, practices, management,and relation to other corporations, partnerships, and individuals of the respective persons orentities filing such reports or answer. Such reports and/or answer shall be filed with theSecretary under oath and within such reasonable time as the Secretary may prescribe;(c) Upon the direction of the President or either House of Congress, to investigate and report thefacts relating to any alleged violation of this Act by any person or corporation;(d) Upon the application of the Secretary of Justice, to investigate and make recommendationsfor the readjustment of the business of any person or entity alleged to be violating this Act inorder that such person or entity may thereafter maintain his or its organization, management, andconduct of business in accordance with law;(e) To recommend to the proper government agency the suspension or revocation andtermination of the business permit of an offender;


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(f) Concomitant with the policy of ensuring a continuous, adequate and economic supply ofenergy to exercise his powers and functions provided under Section 5 (c) of Republic Act No.7638;(g) To make public from time to time such portions of the information obtained by him

hereunder as are in the public interest; and to make annual and special reports to Congress and tosubmit therewith recommendations for additional legislation; and to provide for the publicationof his reports and decisions in such form and manner as may be best adapted for publicinformation and use: Provided,That the Secretary shall have any authority to make public anytrade secret or any commercial or financial information which is obtained from any person orentity which is privileged or confidential, except that the Secretary may disclose suchinformation to officers and employees of appropriate law enforcement agencies or to any officeror employee of any such law enforcement agency upon the prior certification by an officer ofany such law enforcement agency that such information will be maintained in confidence andwill be used only for official law enforcement purposes; and(h) Whenever a final order has been entered against any defendant in any suit brought by the

government to prevent and restrain any violation of the anti-trust provisions of this Act to makeinvestigation, upon his initiative, of the manner in which the decree has been or is being carriedout, and upon the application of the Secretary of Justice, it shall be his duty to make suchinvestigation. He shall transmit to the Secretary of Justice a report embodying his findings andrecommendations as a result of any such investigation, and the report shall be made public at thediscretion of the Secretary.

CHAPTER V

TRANSITION PHASE

Section 16. Phases of Deregulation. In order to provide a smooth implementation of

deregulation, the policy shift shall be done in two (2) phases: Phase I (Transition Phase) andPhase II (Full Deregulation Phase).Section 17. Buffer Fund.The President may, when the interest of the consumers so requires,taking into account the rise in the domestic prices of petroleum products, use the "ReserveControl Account" as a buffer fund in an amount not exceeding Two billion nine hundred millionpesos (P 2,900,000,000.00) to cover increases in the prices of petroleum products, exceptpremium gasoline, during the Transition Phase over the prices prevailing as of the date of theeffectivity of this Act. The "Reserve Control Account" refers to a lump sum collation of reserveimpositions deducted from the appropriations approved by Congress for the operation of thegovernment and the implementation of projects and programs.

Section 18. Automatic Oil Pr icing Mechanism.To enable the domestic price of petroleumproducts to approximate and promptly reflect the prices of oil in the international market, anautomatic pricing mechanism shall be established. To this end, the following laws are herebyamended:(a) Paragraph (a), Section 8 of Republic Act No. 6173, as amended by Section 3 of ExecutiveOrder No. 172, to read as follows:"SEC. 8.Powers of the Board Upon Notice and Hearing.The Board shall have the power:"(a) To set the wholesale posted price of petroleum products during the Transition Phase.


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"For this purpose and for the protection of the public interest, the Board shall, after due noticeand hearing, at which any consumer of petroleum products and other parties who may beaffected may appear and be heard, and within one (1) month after the effectivity of this Act,approve a market-oriented formula to determine the WPP of petroleum products based solely on

the changes of either the Singapore Posting of refined petroleum products, the SIP or the crudelanded cost."Thereafter, the Board shall at the proper times automatically adjust the WPP of petroleumproducts based on the approved formula, through appropriate orders, without the need for noticeand hearing."The Board shall, on the dates of effectivity of the automatic oil pricing formula, the initial WPPor the adjusted WPP, publish the same, together with the corresponding computation in two (2)national newspapers of general circulation."(b) Paragraph 1 of Letter of Instruction No. 1441, to read as follows:"1. To review and reset the prices of domestic petroleum products up or down as necessary on orbefore the third Monday of each month to reflect the new WPP of refined petroleum products

based on the approved automatic pricing formula."(c) Paragraph 2 of Letter of Instruction No. 1441 is hereby deleted. In lieu thereof a newparagraph is inserted to read as follows:"2. The price adjustment shall be reflected automatically in the approved WPP of each petroleumproduct."(d) The provisions of Section 3 (a) and (c) and Section 5 of Executive Order No. 172 to thecontrary notwithstanding, the Board shall, during the Transition Phase, maintain the currentmargin of dealers and rates charged by water transport operators, haulers and pipelineconcessionaires. Depending on the basis of the APM, the Board shall, within one (1) month afterthe effectivity of this Act and after proper notice and full public hearing, prescribe a formulawhich will automatically set the margins of marketers and dealers, and the rates charged by

water transport operators, haulers and pipeline concessionaires: Provided, That such formulashall take effect simultaneously with the effectivity of the automatic oil pricing formula.Thereafter, the Board shall set the said margins and rates based on the approved formula withoutthe necessity for public notice and hearing.The Board shall, on the day of the effectivity of the aforesaid formula, publish in at least two (2)newspapers of general circulation the mechanics of the formula for the information of the public.

CHAPTER VI

FULL DEREGULATION PHASE

Section 19. Start of Full Deregulation.Full deregulation of the Industry shall start five (5)months following the effectivity of this Act:Provided, however,That when the public interest sorequires, the President may accelerate the start of full deregulation upon the recommendation ofthe DOE and the Department of Finance when the prices of crude oil and petroleum products inthe world market are declining and the value of the peso in relation to the US dollar is stable,taking into account the relevant trends and prospects: Provided, further, That the foregoingprovisions notwithstanding, the five (5)-month Transition Phase shall continue to apply to LPG,regular gasoline, and kerosene as socially-sensitive petroleum products and said petroleum


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products shall be covered by the automatic pricing mechanism during the said period.Upon the implementation of full deregulation as provided herein, the Transition Phase is deemedterminated and the following laws are repealed:(a) Republic Act No. 6173, as amended;

(b) Section 5 of Executive Order No. 172, as amended;(c) Letter of Instruction No. 1431, dated October 15, 1984;(d) Letter of Instruction No. 1441, dated November 15, 1984;(e) Letter of Instruction No. 1460, dated May 9, 1985;(f) Presidential Decree No. 1889; and(g) Presidential Decree No. 1956, as amended by Executive Order No. 137:Provided, however,That in case full deregulation is started by the President in exercise of theauthority provided in this Section, the foregoing laws shall continue to be in force and effectwith respect to LPG, regular gasoline and kerosene for the rest of the five (5)-month period.

Section 20. Jur isdiction on Pricing of Piped Gas.Section 3 of Executive Order No. 172, is

hereby amended to read as follows:"SEC. 3. Jurisdiction, Powers and Functions of the Board. The Board shall, upon propernotice and hearing, fix and regulate the rate of schedule or prices of piped gas to be charged byduly franchised gas companies which distribute gas by means of underground pipe system."

CHAPTER VII

FINAL PROVISIONS

Section 21. OPSF Balance.All outstanding claims against OPSF as of the effectivity of thisAct, subject to the existing auditing rules and regulations of the Commission on Audit (COA),shall be considered as accounts payable of the National Government. For this purpose, and any

law to the contrary notwithstanding, the reimbursement certificates issued by the DOE coveringthe said outstanding claims shall be honored and accepted by the Bureau of Customs and theBureau of Internal Revenue as payment to the extent of ten percent (10%) per payment of thetariff duties and specific taxes from the creditor-claimants against the OPSF until such claimsare settled in full:Provided,That the reimbursement certificates shall not be transferable.Section 22. Initial Public Offering. In compliance with the constitutional mandate toencourage private enterprises to broaden their base of ownership and in recognition of the vitalrole of oil in the national economy, any person or entity engaged in the oil refinery businessshall make a public offering through the stock exchange of at least ten percent (10%) of itscommon stock within a period of three (3) years from the effectivity of this Act or thecommencement of its refinery operations: Provided, That no single person or entity shall beallowed to own more than five percent (5%) of the stock offering: Provided, further,That anycrude oil refining company and any stockholder thereof shall not acquire, directly or indirectly,any share of stock offered by any other crude oil refining company pursuant to his Section:Provided, finally,That any such company which made the requisite public offering before theeffectivity of this Act shall be exempted from the requirement.

Section 23. Implementing Rules and Regulati ons.The DOE, in coordination with the Board,the DENR, DFA, Department of Labor and Employment (DOLE), Department of Health


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(DOH), DOF, DTI, National Economic and Development Authority (NEDA) and TLRC, shallformulate and issue the necessary implementing rules and regulations within sixty (60) daysafter the effectivity of this Act.

Section 24. Penal Sanction.Any person who violates any of the provisions of this Act shallsuffer the penalty of three (3) months to one (1) year imprisonment and a fine ranging from Fiftythousand pesos (P 50,000.00) to Three hundred thousand pesos (P 300,000.00).

Section 25. Public Information Campaign.The DOE, in coordination with the Board and thePhilippine Information Agency (PIA), shall undertake an information campaign to educate thepublic on the deregulation program of the Industry.

Section 26. Budgetary Appropriations. Such amount as may be necessary to effectivelyimplement this Act shall be taken by the DOE form its annual appropriations, the DOE' SpecialFund created under Section 8 of Presidential Decree No. 910, as amended, and such amount

allocated under Section 10 of this Act.

Section 27. Separabil ity Clause. If, for any reason, any section or provision of this Act isdeclared unconstitutional or invalid, such parts not affected thereby shall remain in full force andeffect.

Section 28. Repeali ng Clause. All laws, Presidential decrees, executive orders, issuances,rules and regulations or parts thereof, which are inconsistent with the provisions of this Act arehereby repealed or immediately modified accordingly.

Section 29. Effectivity.This Act shall take effect upon its complete publication in at least two

(2) national newspapers of general circulation.Approved:February 10, 1998
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REPUBLIC ACT NO. 6361

AN ACT PROVIDING FOR THE FIXING OF THE MAXIMUM SELLING PRICEOF ESSENTIAL ARTICLES OR COMMODITIES, CREATING THE

PRICE CONTROL COUNCIL AND FOR OTHER PURPOSES

SECTION 1. It is hereby declared to be the national policy to prevent monopoly, hoarding,injurious speculation, manipulation and profiteering with respect to the supply, distribution andmarketing of the following articles or commodities, whether imported or locally produced ormanufactured, and to fix the maximum prices, consistent with the policies of the State toincrease production and productivity, of such of these commodities as are essential to the publicinterest.

(1) Medicines, drugs, surgical, optical and dental supplies;

(2) Essential food and foodstuffs including milk, soft drinks and other beverages;

(3) Animal and poultry feeds and veterinary supplies;

(4) Clothes, clothing, and sewing and weaving materials and supplies;

(5) Fuels, lubricants, crude oil and petroleum products, without prejudice to any action whichthe Oil Industry Commission may hereafter take under the provisions of R.. 6173.

(6) Construction materials;

(7) Educational and office supplies and equipment;

(8) Fertilizers, insecticides, pesticides and other agricultural inputs;

(9) Motor vehicles and spare parts, tires, batteries, engines and other machineries;

(10) Household utensils, appliances and other household necessities;

(11) Footwear including all the components thereof.

SECTION 2. To carry out the above policy, there is hereby created a Price Control Council

hereinafter referred to as the "Council"), which shall be composed of the Secretary of Commerceand Industry, the Secretary of Agriculture and Natural Resources, the Secretary of Health, theChairman of the National Economic Council, and three representatives of consumers one ofwhich shall be from qualified nominees of nationwide government employees' organization, thesecond from qualified nominees of the private labor sector and the third from qualified nomineesof nationwide women's organization, who shall be appointed by the President of the Philippineswith the consent of the Commission on Appointments and who shall have the followingqualifications: a natural-born Filipino citizen; at least thirty years of age; and not connected with


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the production, supply, distribution or marketing of any of the items mentioned in Section One:provided, that the above-named government officials, except the Chairman, may authorize theirrespective undersecretaries to represent them in the meetings of the Council. A majority of themembers shall constitute a quorum and four affirmative votes shall be necessary for any action

or decision of the Council: provided, further, that the representative of consumers shall receiveas emolument or compensation for services rendered to the Council a per diem of P50.00 forevery meeting attended: provided, finally, that the total emolument or compensation that may bereceived by said representative of the consumers shall not exceed the amount of P1,000.00 amonth. The Council shall elect the Chairman from among themselves. The Director ofCommerce shall serve as the Executive Director of the Council and the Bureau of Commerce(hereinafter referred to as the "Bureau") shall provide staff support to the Council.

Within 10 days after the assumption of office of the Chairman or any member of the Council,the members thereof including the Executive Director of the Council shall submit a statement oftheir assets and/or liabilities and a full and fair disclosure of all their interests and professional

connections as of the date of their assumption of office. A copy each of said statements shall befiled with the office of the Secretary of the Senate and with the Office of the Secretary of theHouse of Representatives.

In each province and chartered city, there shall be a local price council whose composition,functions and scope of authority shall be determined by the Price Control Council, and whichshall be under its immediate control and supervision: provided, that the government employees,the private labor sector and the women's organization in the area are each represented therein.

SECTION 3. The maximum prices of any of the articles or commodities mentioned in sectionone hereof established by the Price Control Council under Republic Act No. 6124 and enforced

as of June 30, 1971, shall become effective immediately upon approval of this Act, subject tosuch modifications as the Council may authorize under the provisions of Section 4 of this Act:provided, that the Council shall, within thirty days after the filing of any petition for review, acton the same in accordance with the guidelines established in Section 4 hereof.

SECTION 4. Whenever the market price of any of the articles or commodities mentioned inSection One hereof has risen or threatens to rise by 20% or more over its price on March 1,1970, or whenever the Council deems that the prevailing price should be reduced because it hasrisen due to monopoly, hoarding, injurious speculation, manipulation and profiteering, theCouncil shall, after notice and hearing, establish or order such maximum price as shall be fair,just and reasonable: provided, that the maximum price shall not exceed the production cost plus

a mark-up of ten per centum thereof to the manufacturer or producer, five per centum of the netcost of acquisitions to the wholesaler and ten per centum to the retailer if the articles orcommodities are locally manufactured, or the landed cost plus a markup of five per centum toimporter or indentor, and ten per centum to the retailer, if the articles or commodities areimported.

The following factors shall be taken into consideration by the Price Control Council in the fixing


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of the maximum prices of articles, commodities or goods to be used by the producer ormanufacturer:

1. In case machineries are used, if obtained through credit, the increase in the price brought

about by the enforcement of the floating rate;

2. The increase in the interest for amortization purposes also brought about by the floatingrate;

3. Increase in the price of ingredients or materials used as a result of the floating rate:

(a) The increase in the cost of labor brought about by the increase of the minimum wage;

(b) Cost of raw materials, imported or domestic, and in case of imported raw materials, thelanded cost of the same, meaning the price paid, cost of transportation to the Philippines,

customs and other government imposts, storage fees and transportation expenses to the site ofthe factory or plant;

(c) Increase in the cost of transportation and such other factors as may be brought about by theincrease in the cost of production.

The prices fixed by the Council shall become effective ten days after publication in twonewspapers of general circulation in the Philippines, one in English and one in the NationalLanguage.

Production cost shall include all ordinary and necessary expenses paid or incurred in

manufacturing or producing the commodity, but shall not include marketing costs unless at least70% of the total volume of sales are made directly by the manufacturer or producer.n no caseshall the production acquisition cost include any taxes which are passed on to consumers; andmarketing costs shall in no case exceed the average marketing cost for the period from 1966 to1970, inclusive, as allowed by the Bureau of Internal Revenue and certified by an independentcertified public accountant.

SECTION 5. (a) Whenever any of the articles or commodities mentioned in Section Onehereof is in short supply, the Council, after notice and hearing, shall certify to the needs of localproducers or manufacturers thereof and recommend to the Monetary Board that the CentralBank make available the foreign exchange to import adequate raw materials and supplies which

may be necessary to produce or manufacture said article or commodity in the quantity requiredto cover the shortage in supply.

(b) If said article or commodity in short supply is not locally produced or manufactured or ifthe local producers or manufacturers thereof can not fully cover the shortage in supply, theCouncil after notice and hearing shall certify to such shortage or to the deficiency which thelocal producers or manufacturers cannot cover, and recommend to the Monetary Board that theCentral Bank make available to importers the necessary foreign exchange to import said article


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or commodity in the quantity required to cover the shortage in supply.(c) If these measures should still fail to arrest the rise of the market prices of such article orcommodity in short supply, the Council, after notice and hearing, may recommend, and thePresident may authorize, any agency of the government, including any government-owned or

controlled corporation, except government financial institutions, to import directly the article orcommodity in short supply for distribution in the local market through such channels as may bechosen for the purpose.

SECTION 6. The Council shall promulgate such rules and regulations as shall be deemednecessary for the effective implementation of the provisions of this Act subject to the approvalof the President of the Philippines. The rules and regulations that may be promulgated by theCouncil shall take effect fifteen days after their publication once a week for two consecutiveweeks in at least two newspapers, one in English and another in the National Language ofgeneral circulation in the Philippines. They shall be posted at the entrance of the City Hall orMunicipal Building of each city, municipality or municipal district in English and in the local

dialect.

In the exercise of its powers, the Council, by unanimous vote shall have the power to issue,under the signature and authority of the Chairman, subpoenas and subpoenas duces tecum,which shall be duly entered in a record book indicating the facts attendant thereto, and,notwithstanding the provisions of sections 81, 347 and 349 of the National Internal RevenueCode, to require the Bureau of Internal Revenue to submit any sales, income or other tax returnsfiled by any producer, manufacturer or retailer of products listed in section one hereof wheneverrelevant to any public hearing and any inquiry under this Act.

The Council shall submit a quarterly report to Congress of all its actuations under this Act

beginning January 1, 1972 and every quarter thereafter.

SECTION 7. Imprisonment for a period of not less than six months nor more than five yearsor a fine of not less than two thousand pesos nor more than twenty thousand pesos, or both, shallbe imposed upon any person who sells any commodity in excess of the maximum selling priceestablished by the Council, or who violates any provision of this Act or any order, rule orregulation issued pursuant to the provisions of this Act. Provided, however, that in the case ofaliens, in addition to the penalty herein provided, the offender shall, upon conviction and afterservice of sentence, be immediately deported without any further proceedings.

Whenever any of the offenses described above is committed by a corporation or association, the

president and each of the directors or managers of said corporation or association, or its agent orrepresentative in the Philippines in case of a foreign corporation or association who shall haveknowingly permitted or failed to prevent the commission of such offenses, shall be held liable asprincipals thereof.

Any government official or employee, who by neglect or connivance has in any manner aided orabetted in the violation or circumvention of the provisions of this Act, shall be held criminallyliable as co-principal under this section and shall, in addition, suffer the penalty of perpetual


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absolute disqualification to hold public office. Any government official or employee who, beingduly authorized by the Council to act as its authorized agent, shall divulge to any person, ormake known in any other manner than may be authorized by law, any information regarding theincome, method of operation or other confidential information regarding the business of any

person, association or corporation, knowledge of which was acquired by him in the course of thedischarge of his official duties, shall be punished by both fine of not less than two thousandpesos nor more than twenty thousand pesos and imprisonment of not less than two years normore than five years.

SECTION 8. If any provision of this Act or the applicability of such provision to any personor circumstance shall be held invalid, the validity of the other provisions of this Act and theapplicability of such provisions to other persons or circumstances shall not be affected thereby.

SECTION 9. The President is hereby authorized to allot from the unprogrammedappropriations for the Executive Departments from the General Fund under Republic Act No.

6130, the sum of Two hundred fifty thousand pesos for necessary operating expenses to carryout the provisions of this Act during the fiscal year ending June 30, 1972, and under the nextGeneral Appropriations Act, the sum of one million pesos for the same purpose during the fiscalyear ending June 30, 1973: provided, that not more than one hundred thousand pesos shall bespent for personal services for a full year.

The Council and the Bureau of Commerce may call upon any official, agent, employee, agencyor instrumentality of the government for staff or any other assistance that they may deemnecessary to carry out the purposes of this Act and said agency or instrumentality of thegovernment shall, with the approval of the President, assign the official, agent, or employee andprovide the assistance requested by the Council and the Bureau of Commerce.

SECTION 10. The decisions of the Council on questions of fact shall be final and executorywhile those involving questions of law shall be reviewable by the Supreme Court by certiorari.

SECTION 11. This Act takes effect upon its approval and shall continue in force up to June30, 1973: provided, however, that convictions rendered under this Act or under the dulypromulgated orders, rules and regulations issued pursuant thereto shall remain valid andenforceable, and prosecutions of offenses committed during the effectivity thereof shallcommence and shall not be barred until terminated by convictions or acquittal of the accused.Approved: July 27, 1971


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How to Slay the Oil Price Monster

ByWalden Bello

INQUIRER.net

8:49 pm | Tuesday, April 3rd, 2012

6 575 242

Leaders are elected in order to take decisive action to solve problems. What isdemanded from a leader isafter a careful weighing of costs and benefitsaction that cutsthe Gordian Knot of a seemingly complex reality.

President Aquino behaved in such a fashion when he pushed for the impeachment ofChief Justice Renato Corona, boldly taking a risk after assessing the pros and cons ofsuch a course of action. He likewise acted decisively when he pushed through the $39billion Conditional Cash Transfer Program to alleviate mass poverty over the objectionsand hesitations of many of his allies in Congress.

The energy crisis awaits similar action from Mr. Aquino. So far, inaction and contendingviews among his advisers and allies have marked the administrations performance in this

area. Part of the reason may have to do with the conservative bent of some of thepresidents key advisers. Part of the problem may be a sense among them that, unlike thepolitical sphere, the economy is a much more complex arena. Whatever the source of theperceived inaction and indecisiveness of the government, the discourse of Mr. Aquinos

advisers and subordinates has increasingly defined the administrations image in the faceof mounting problems, and it is an image of the administration that just says no: no torepealing the Oil Deregulation Law or other measures to discipline Big Oil, no to theabolition or reduction in the Value Added Tax (VAT) on oil, no to significant wageincreases, no to consumer subsidies.

It is a posture that is increasingly indefensible as the price of gasoline is poised to breachthe record price of P60 per liter that it reached in 2008, triggering inflation while at thesame time threatening the return of recession. Inability to effectively address the rise inthe price of oil was one of the factors that eroded the legitimacy of the Arroyoadministration. Failure in this area may likewise sour President Aquinos relationshipwith the citizenry despite his securing the conviction of Chief Justice Corona.

Market Forces or Monopoly?

Department of Energy (DOE) Secretary Rene Almendras is a well-intentioned person andhe knows the energy sector inside out. However, he has unfortunately come to personify
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the administrations impotence in dealing with the oil issue. In his latest much-circulated text message, Almendras has taken to invoking President Barack Obama tojustify his helplessness: Even the president of the United States acknowledged that hehas no silver bullet tosolvethis global problem of fuel prices. That is from one of the

worlds most powerful personalities.

Whether they intend to or not, Almendras and other advisers to P-noy project the attitudethat the Philippines is helpless in the face of international market forces. The realitythough is that rising oil prices reflect mainly monopoly pricing or corporate greed. True,the rise in the price of oil stems partly from the peak oil phenomenon, or rising demand inthe context of declining supply, as well as from conjunctural political factors, like thethreat of war over Irans nuclear program. But the most significant contributor to theprice rise factor is the monopoly mark-up. Two of the three key players in the Philippine,Chevron and Shell, are subsidiaries of Big Oil, and the third, Petron, simply follows theirlead. There is no competition to speak of among the oil majors. There is collusion, plain

and simple, and the figures are emphatic: the Wall Street Journalreported a few daysago that Big Oil (ExxonMobil, Shell, BP, Texaco and Chevron) altogether had a firstquarter profit surge of 45 percent or $36 billion, which would place them on track tosurpassing the $80 billion they made in 2011. Contributing to that first-quarter surgehave been the 10 oil price increases the oil majors triggered in the Philippines just in thefirst three months of 2012!

How do we deal with Big Oil? First of all, get rid of the fear of retaliation. SecretaryAlmendras evoked this fear when he said last year, in response to demands on him todiscipline the oil companies, What can we do when the oil companies tell us they wantto back out? Let us not be naive: these companies cannot afford to leave the

Philippines, since it will remain a profitable market even if their superprofits are trimmedby government action. A key rule in capitalist economics is, never, never leave a marketyou dominate.

Is there empirical evidence for this claim? In late 2009, when there was a temporaryfreeze on the price of oil owing to Typhoon Ondoy, none of the oil majors withdrew,though they complained loudly. Why? Because the market was so profitable that they,the majors, still recorded significant profits. According to Petron Corporation, in fact, thecompany posted a net income of P4.3 billion in 2009. No, withdrawal is simply not acredible option.

Second, get it into our heads that far from being helpless, we have the instruments tomount an effective response to the problem. We may not be able to drive down oilprices, but if we only liberate our minds and imagination, we can slow their risesignificantly, if not stabilize them.

Need for a Comprehensive Strategy
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Of course, the long-run solution is to decrease reliance on oil as a fuel and shift torenewable fuel sources in both transportation and power generation. But the short-runchallenge is slaying the oil price monster. What is needed is a comprehensive strategy totame the oil majors. So far, proposed solutions, while useful, have been advanced in a

largely piecemeal fashion, and these have largely been defensive moves with limitedimpact.

Wage Increases

Raising the basic wage is critical to helping workers and their families contain the rapiderosion of their living standards. In this regard, the increase in the basic wage proposedby Secretary Rosalinda Baldoz of 13 to 21 pesos is very inadequate to allow workers todeal with the acceleration in the cost of living brought about by the oil price rise. At aminimum, workers should be granted a 100 peso increase either in the form of aminimum wage increase or an increase in the cost of living allowance (COLA) in order to

allow them to at least recover a significant part though probably not all of their losses toinflation over the last year.

Targeted Subsidies

Like wage increases, targeted subsidies area good idea. When it comes to thetransportation sector, they are much better than mandating fare hike increases. In thisregard, the administration says that it has renewed thePantawid Pasadaprogram,providing this time around a 1,200 peso subsidy for jeepneys compared to the 1,050pesos given in 2011.

While a good idea, the implementation of thePantawid Pasadaprogram suffers from twodefects. The first is that it mainly benefits the owners of jeepneys because it awards thecards only to owners who can produce the franchise, original registration certificate, androute designation. The owner would merely calculate the 1,200 pesos into hisboundary, and this would amount to two days worth of owners income in one month.The second is that the 1,200 pesos is too small in the context of rapidly rising oilprices, being a one-time subsidy.

A more effective approach would be for the administration to 1) set up an ID system thatwould allow jeepney drivers, not the owners and operators, to claim and calculate the1,200 pesos into their boundary; and 2) renew the subsidy every three months should oil

prices continue to rise. Currently, the program costs the government $125 million.Raising the program to 500 million pesos to cover four reloads in one year would not betoo much of a strain on the government, considering that there are as yet untappedgovernment to absorb the added costs, as we shall see below.

Suspending or Eliminating the VAT on Oil Products


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Eliminating, suspending, or reducing VAT on oil is a suggestion that has increasinglybeen floated by a diverse set of people, including Vice President Jejomar Binay, SenatorRalph Recto, University of the Philippines Professor Ed Diokno, and Finance SecretaryCesar Purisima. Immediate relief may indeed be the result of such a move, with some,

like Ibon Research, calculating that the price of oil could go down by as much as 6 pesosa liter with VATs elimination.

Palace spokespeople like Abigail Valte have responded by saying that eliminating orreducing VAT will mean a drop in government revenues that could negatively affectmany programs of the government. This is not convincing since, as Senator Recto haspointed out, the revenue lost by reducing VAT can be offset by revenues from thegovernments off-budget agencies such as the Philippine Amusement and GamingCorporation, Philippine Charity Sweepstakes Office, and the Malampaya project. Indeed,freezing and rechanneling even a minute fraction of 20 per cent of the 1.8 trillion pesogovernment budget that the administration now allocates for paying for foreign debt that

is already paid many times over would more than make up for the revenue foregone byeliminating VAT.

To be effective, however, there must be a foolproof method to determine that thereduction or elimination of VAT on oil is reflected in the pump price, a task that must notbe underestimated given the sophisticated collusive practices of the oil majors. Morecritical is the fact that while reducing or eliminating the VAT on oil might bring instantrelief and double consumers savings if prices go down, that relief will only be temporarywhen prices are on a sharp upward trend. The savings will be wiped out sooner ratherthan later. In short, intervening in some way to directly contain the rise in the price of oilcannot be avoided in any viable solution, and this course of action will necessitate more

than the Department of Energy examining the books of the oil giants, a concession that,to his credit, Mr. Almendras appears to have wrung from the oil majors.

The Need for Flexible Price Management

Given this need for government intervention, we propose the establishment of a flexibleprice-setting mechanism and complementary measures that will bring significantdownward pressure on oil prices.

1. Fair Oil Price Setting Mechanism

Government must establish an oil price setting mechanism that will keep oil prices withina range or band that is fair and affordable to consumers, while allowing oil companies areasonable level of profit. The range of the price band should be computed based on threemain factors, namely: the purchasing capacity of consumers (e.g., an indicator based on apredetermined ratio of oil-related expenditures to total household expenditure), anapproximation of a fair and reasonable level of profit for oil companies, and theprevailing price of oil in the international market. The price band must be reviewed andreset on a monthly basis.


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President Aquino must create a committee that will set and review the price band. Thecommittee should be convened by the Department of Energy, and should be composed ofrepresentatives of government, consumers groups, the oil companies, and three

independent experts.

For this mechanism to work, the oil majors will have to bare their bookswhich, asSecretary Almendras says, they have already assented to. Should the monthly balancesheet of the oil corporations reflect a loss, the government will not be held accountablefor reimbursing this loss. Should the balance sheet reflect a more than moderate rise inprofitssay, for the sake of illustration, 2 per cent and abovethis surplus should besubjected to a windfall profits tax that goes to fund government economic reliefprograms.

2. Setting up a Strategic Oil Reserve

To protect itself from price and supply volatilities of oil in the international market,government must seriously consider building oil reserves as a strategic objective, aproposal that was earlier suggested by Secretary Almendras though he seems to havebeen quiet about it recently. Establishing a strategic oil reserve will help providegovernment the capability to cushion oil consumers from the vagaries inherent in the oilmarket, and also provide it with the necessary stocks to influence prices.

President Aquino must direct the DOE to create a blueprint for the establishment andmanagement of such reserves, including identifying sources of funding for building thecountrys oil stocks. The DOE can look at tax revenues from oil companies as possible

sources of funding for the creation of the reserve.

Establishing an oil reserve might require legislation, but it would be best if the initiativeis be put in motion immediately by invoking the charter of the Philippine National OilCorporation (PNOC).

3. Strategic plan to regain control of Petron

President Aquino must begin developing a medium-term plan to regain control of Petron,as a strategy to increase governments capability to intervene in the market and break the

oligopolistic tendencies of oil companies. Petrons share in the domestic oil market is

about 38 per cent, giving it the clout to effectively lead and influence oil prices in a

downward direction, as it did prior to its being privatized. Buying back Petron wouldalso bring back to the governments control one of the states most profitable companiesbefore it was privatized, a move that would undo probably the worst mistake of theprivatization program.

Regaining control of Petron can be achieved by government buying back at least 51% ofPetron shares, or by a combined action of acquiring a substantial share of Petron andleveraging its share in the San Miguel Corporation Board, which now controls the oil


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company. The President must direct the Department of Finance, the Department ofBudget and Management and the Department of Energy to lead this planning process, inconsultation with relevant members of the Cabinet.

While this process is in motion, the administration must exercise moral suasion onPetron, which is now majority Filipino-owned, to serve as a price-setter. Industryinsiders still see as a model of effective moral suasion the pressure exercised by formerPresident Joseph Estradas Energy Secretary Mario Tiaoqui in keeping down prices.These tactics included the threat of imposing negative sanctions.

Separate but related to these considerations is the issue of who controls Petron at present.The president should direct the Securities and Exchange Commission and Department ofJustice to investigate who actually controls Petron at present, and if it is true that it hasindeed fallen under the control of a predatory family, then it is all the more important forthe government to put in motion a process of regaining control of the firm, perhaps

through sequestration using Republic Act 1379, the Forfeiture Law, which allowsgovernment to confiscate the ill gotten wealth of public officials.

4. Support UN Advocacy for International Oil Price Controls

The Philippines must support the United Nations call for an international negotiation todetermine a fair cost of oil, and to limit international oil price movements within a certainband. However, this should not be a conference limited to OPEC and the G 20 but a UN-sponsored meeting bringing together the oil-consuming and oil-producing nations, alongwith the oil majors.

The Philippines must actively lead in creating an international coalition of governmentsto support a price control system. This advocacy can begin by promoting a united fronton the issue in the Association of Southeast Asian Nations and the East Asian Summit.

Legal Considerations

This is all fine and good but would not interventionist acts like those proposed above be,in fact, precluded by law? Is not the government powerless to act owing to the OilDeregulation Law (Republic Act No. 8479)? The answer is no. The president caninvoke Section 14 e of the law as the former administration did, under popular pressure,with EO 839 on Oct 23, 2009, to protect consumers against predatory pricing by oil

companies in the aftermath of Typhoon Ondoy. Section 14 e reads: In times of nationalemergency, when the public interest so requires, the Department of Energy (DOE) may,during the emergency and under reasonable terms prescribed by it, temporarily take overor direct the operation of any person or entity engaged in the industry.

By any definition, a situation of unregulated, sharp price increases at the pump broughtabout by a more than 400 per cent rise in the price of crude in three years, which sparks


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inflation and brings an economy to the edge of recession at the same time, qualifies as annational emergency.

However, to enhance the effectiveness of temporary government intervention, it will be

necessary to amend the Oil Deregulation Law, if one cannot scrap it altogether. In otherwords, Congress must review and amend RA 8479 with the goal of introducingprovisions that will (1) institutionalize flexible intervention in the market to protect theinterest of retail oil consumers through methods such as the Flexible Oil PricingMechanism, (2) integrate the purchasing capacity of consumers as an important factor inconsidering the operation of the Flexible Oil Pricing Mechanism, (3) formally define acondition of national hardship brought about by extreme oil price volatility as anemergency, and (4) allow better monitoring and ensuring the compliance of oilcompanies in providing reports on, among other things, oil price and supply as well as ontheir revenues to the DOE.

Conclusion

The foregoing program, which combines subsidies and tax reductions with mechanismsto moderate the rise in the price of oil, if implemented with sensitivity cumdetermination, will achieve two things: 1) it will significantly slow down the erosion ofpeoples living standards by lowering inflation; and 2) it will eliminate the chaos inducedby oil prices that rise arbitrarily and thus allow households and firms to more rationallyplan their production and consumption.

That there is no smooth road to containing the drastic rise in the price of oil. Whilereasonable, these measures will provoke much lightning and thunder from the oil majors

and their propagandists. There might even be threats of supply disruption emanating fromthem. Such threats must, however, be expected from them. Carrying them out is anotherthing, for this will cross the line to illegality, and the oil majors will find it difficult totake this course on pain of courting both popular condemnation and legal action from thegovernment that would significantly affect the future profitability of their operations inthe Philippines.

The flexible price-setting mechanism and its associated components outlined above arereasonable. They will not harm the oil majors interests; they will simply encourage themto be satisfied with moderate profits.

The deepening of the energy crisis must put an end to the discussion and debate onstrategy among the presidents advisers. It is time the president intervened and rallied thecountry against the economic crisis in the same way he has rallied it against corruption.He needs to cut the Gordian Knot of the seemingly intractable problem that is the oilprice conundrum. The comprehensive strategy we propose may not be perfect, but itprovides a sword that he can wield to get to the heart of the problem.


27/27

*Inq.net columnist Walden Bello represents the party-list Akbayan in the House ofRepresentatives.

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A Second Look at Oil Deregulation-a repost

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