World B

ank MEN

A K

nowledge S

haring S

ubsidy Reform

Regional W

orkshop D

ead Sea, Jordan

Sept. 7

-11

, 20

14

PHILIPPINE PUBLIC TRANSPORT ASSISTANCE PROGRAM: TARGETED

FUEL SUBSIDY APPROACH ATT Y. JOSE M. LAYUG, JR.

Senior Partner , Puno & Puno Law Offices Professor of Law, U.P. College of Law

OUTLINE

q  Overview of Philippine Downstream Oil Industry q  Energy Situationer

q  Supply and Demand q  Issues in Downstream Oil q  Revisiting Downstream Oil Industry Act

q  Factual Antecedents (1960s, 1970s, 1980s) q  Republic Act 8479

q  2008 vs. 2011 Oil Price Fluctuations q  Philippine Government Mitigating Measures

q  Public Transport Assistance Program

PRIMARY ENERGY SUPPLY MIX

Imported Ethanol, 0.3

Imported Coal, 8.6

Imported Oil, 33.6

Oil, 2.3

Coal, 8.6

Natural Gas, 7.4

Hydro, 4.8

Geothermal, 21

Biomass, 13.1

Wind/Solar, 0.01

CME/Ethanol, 0.3

Indigenous Energy, 57.51

CRUDE OIL IMPORTATION

Others, 8.2%

Indonesia, 0.7%

Malaysia, 10.2% Saudi Arabia, 45.3%

UAE, 27%

Qatar, 6.4%

Oman, 1% Iraq, 1.2%

Middle East 81%

I.  Energy  Reform  Agenda    II.  Renewable  Energy  Resources  

III.  Upstream  Oil  and  Gas  Resources  

IV.  Coal  Resources    V.   Downstream  Oil  and  Gas  Resources  

DISCUSSION OUTLINE

DUBAI CRUDE PRICES/FOREX March 1984 – MTD August 2011

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

M-84

J-85

N-85

S-86

J-87

M-88

M-89

J-90

N-90

S-91

J-92

M-93

M-94

J-95

N-95

S-96

J-97

M-98

M-99

J-00

N-00

S-01

J-02

M-03

M-04

J-05

N-05

S-06

J-07

M-08

M-09

J-10

N-10

S-11

0

5

10

15

20

25

30

35

40

45

50

55

60

Dubai US$/bbl Dubai P/li Forex P/1$

$/bbl P/$

FACTUAL ANTECEDENTS - 1960S-1980S

1960s: Regime of Free Market Forces

q  No government intervention – laissez-faire economics q  Market share by competition; 4 refiners and 6 marketing companies

1970s: Dawn of Regulation q  Creation of Philippine National Oil Company; government enters oil industry q  Creation of 2 separate agencies: (1) Board of Energy to regulate domestic oil

prices and (2) Dept. of Energy, later renamed to Ministry of Energy, to formulate energy policies and programs

1980s: The Subsidy Regime

q  Consumer Price Equalization Fund (CPEF) was established to avoid frequent oil price movements; CPEF was abolished in June 1983

q  Oil Price Stabilization Fund (OPSF) created to stabilize the domestic price of petroleum products; review and reset domestic oil prices every 2 months

FACTUAL ANTECEDENTS – 1990S

Sinking OPSF: Deficit, Rising Oil and Supply Crunch

q  OPSF deficit reached P16.6B in November 1990 q  ERB adjusted OPSF impost; prices increased substantially

resulting in reduced OPSF deficit at P49M in August 1991 q  Highest OPSF surplus in June 1992 at P8.3B q  RA 7639 - mandated the use of the OPSF (P3B) as payment in

part to the capital stock of the National Power Corp. q  OPSF remained positive until April 1995 and deficit continued q  In 1996, Congress, through the 1996 General Appropriations Act,

provided a special provision in the PNOC budget allocating P10B to partly wipe-out OPSF deficit

OIL PRICE STABILIZATION FUND

-18 -16 -14 -12 -10

-8 -6 -4 -2 0

2 4 6 8

Jan-87 Jun

Nov

Apr

Sep

Feb

Jul

Dec

May

Oct Ma

r

Aug

J 92

Jun

Nov

Apr

Sep

Feb

Jul

Dec

May Oc

t

Mar

Aug

J 97

Jun

Nov

Apr

Sep

Billio

n Pe

sos

P5Bn Petroleum

Price Standby

Fund (RA 6952)

P3Bn equity infusion to NPC

(RA 7639)

P5Bn Remitted by

PNOC

P4Bn Remitted by

PNOC

APM implemented mid-Aug 1996

FACTUAL ANTECEDENTS – 1996

Onset of Deregulation

q  Oil industry left with three refiners: (1) Caltex, which acquired Mobil; (2) Shell, which acquired Getty; and (3) PNOC, which bought Filoil and Esso

q  OPSF had a P2.5B deficit when RA 8180 was passed into law in March 1996; oil price became highly politicized

q  With rise in international oil prices, government decided to

relax regulatory functions and let market forces take over.

q  RA 7638 (1992) – created the DOE with mandate to encourage free and active private sector participation

q  Supreme Court declared RA 8180 unconstitutional in 1997

FACTUAL ANTECEDENTS – 1998

Transition Phase to Full Deregulation

q  RA 8479 – New Downstream Oil Deregulation Law signed in February 1998

q  Automatic pricing mechanism - adjusted the wholesale posted prices of petroleum products based on the changes in Singapore Posted Prices. APM enabled adjustments in domestic prices to approximate closely and reflect promptly the movement of international prices of oil

q  Executive Order No. 471 (1998) declared full deregulation of

the downstream oil industry

REPUBLIC ACT NO. 8479

How government monitoring oil prices?

q  DOE Circular 2005-08-007: “Oil companies shall notify DOE within 1 day but not less than 6 hours prior to implementing any intended price increase and prior to any public announcement of said movement”

q  DOE-Transport-Consumer Agreement: Monthly Movements pre-2009; Weekly Movements post 2009

q  Garcia vs. Executive Secretary (GR 157584, April 2, 2009): “That oil firms have same prices and changes them at the same rate at the same time are not sufficient evidence to conclude that collusion exists…”

REPUBLIC ACT NO. 8479

What is “Fair Price”?

q  Law does not define the term. q  Depends on perspective: (1) For investors: investment return +

reasonable profit; (2) For government: at least cost is recovered by oil players; (3) For consumers: low and affordable

q  DOE uses APM: Estimated price adjustments based solely on changes in import cost and foreign exchange movement; does not consider movements in other costs, such as biofuels cost, labor and operating costs, etc.

2011 PRICE MONITOR

Scenes in the International Market

Middle East Unrests q  Crude oil price remained above $100 per barrel with political

situation in Egypt, Libya, Bahrain, Yemen, Iran, Iraq

Economic Uncertainties q  Spain debts, Greek default, Euro tanks, US weak economy outlook

OPEC Discord and IEA Strategy q  OPEC abandons 24.845M b/d but Saudi boosts output q  IEA releases 60M barrels over 30 days or 2M b/d Japanese Tsunami and Earthquake World Oil Demand and Asian Economies Increase

2011 PRICE MONITOR

q  WTI, Brent and Dubai

$/bbl

30

40

50

60

70

80

90

100

110

120

130

140

150

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Dubai Brent WTI

30

40

50

60

70

80

90

100

110

120

130

140

150

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Sep-07

Jan-08

May-08

Sep-08

Jan-09

May-09

Sep-09

Jan-10

May-10

Sep-10

Jan-11

May-11

Sep-11

Dubai Brent WTI

$/bbl

INTERNATIONAL PRICES January 2005 – MTD October 2011

$/MT

35

55

75

95

115

135

155

175

195

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

250

350

450

550

650

750

850

950

Dubai ULG ADO CP

EVOLUTION OF PUBLIC TRANSPORT ASSISTANCE

PROGRAM: PANTAWID PASADA

PH

ILIPP

INES

PANTAWID PASADA

q  President issued AO No. 6 “Organizing the Inter-Agency Energy Contingency Committee (IECC)

✦  A precautionary measure to ensure that necessary preparation are in place in the event of oil supply cut

✦  Update the Oil Contingency Plan

q  DOE issued Circulars on Biofuels, Minimum Inventory and MPSA Included DBM and NEDA in the IECC

q  DOE created the DOE Energy Security Committee and the Secretariat

q  IECC identified the transport sector as one of the vulnerable sectors hardest hit by the oil price hikes

PANTAWID PASADA

q  President issued EO No. 32 “Instituting the Public Transport Assistance Program-Pantawid Pasada”

✦  A targeted relief to the public transport sector: jeepneys and tricycles

✦  Cushion the impact of high fuel prices considering its cascading effect to other vulnerable sectors of the society

q  DOE in coordination with DOTC-LTO/LTFRB will issue a smart cards to public utility jeepneys

✦  An assistance for the fuel purchase of legitimate franchise holders and for the continuous availment of the fuel discount offered by oil companies

q  DOE to execute a MOA with the DILG for support to about 1 million tricycles

VULNERABLE SECTORS

TRANSPORT GROUPS • Jeepney drivers earn $6/day net income • PUJ fares are regulated and no auto adjustment

WORKING CLASS CITIZENS • Impact on fare increases • No transport subsidies

FARMERS AND FISHERMEN • Use petrol-run machinery and equipment • No government support

PANTAWID PASADA

PROGRAM DETAILS (in Pesos)

Allotment 300,000,000

5% for admin cost 15,000,000

Amount for card loading 285,000,000

Load for 100,548* cards 105,575,400

Balance for reloading 179,424,600

Additional load to 100,548* cards, per 1,784.47

Original load, per 1,050.00

Total benefit, per 2,834.47

PANTAWID PASADA

PANTAWID PASADA

! !

! ! !

!

PANTAWID PASADA

KEY LEARNINGS

q  Program well received by many sectors – transport, politicians, local government except economists

q  Jeepney drivers felt direct assistance of government

q  Program emphasizes need to operate jeepneys legally

q  Good collaboration among government offices

q  Lack of interconnected government database for jeepney registration

q  Budgetary and manpower constraints in distribution

q  Need for more media campaign

World B

ank MEN

A K

nowledge S

haring S

ubsidy Reform

Regional W

orkshop D

ead Sea, Jordan

Sept. 7

-11

, 20

14

PHILIPPINE PUBLIC TRANSPORT ASSISTANCE PROGRAM: TARGETED

FUEL SUBSIDY APPROACH ATT Y. JOSE M. LAYUG, JR.

Senior Partner , Puno & Puno Law Offices Professor of Law, U.P. College of Law