Dan Mariano
Manila Times

Get ready to start hearing more and more of “demand destruction.” It is a phrase that market analysts bandy about as a shortcut for the declining demand for oil and its byproducts.

Last Friday, for instance, figures from the US energy department showed that Americans consumed 2.4 percent less fuel over the past four weeks than they did over the same period in 2007. According to industry experts, it showed a significant shift by the world’s largest energy consumer. Additional data further indicated a bigger-than-expected rise in US gasoline supplies, a gauge that motorists are cutting back.

As a result, the price of the oil that the US imports has dropped. From a high of $147 earlier this month to $124.44 last Wednesday, the barrel-price of petroleum decreased by about 15 percent.

A similar trend has developed in our part of the world where declining demand has led to a buildup of fuel inventories. Unfortunately, however, no significant relief is in sight for harassed consumers of gasoline, diesel and other oil products—especially in the Philippines. Pump prices, whether here or in the US, are still stratospherically high.

True, the oil companies shaved P1.50 per liter from their diesel products last week—two days after they raised their price for the same product by P3. But if Malacañang is to be believed, it was not due to market forces but to President Arroyo’s intervention.

Of course, the government is in no position to set fuel prices, save for what Energy Secretary Angelo Reyes—half-jokingly, it seemed—called the President’s “persuasive powers.” With the passage of Republic Act 8479, also known as the Downstream Oil Industry Deregulation Act of 1998, the Philippine state has surrendered what power it had to shield consumers from rising oil prices.

RA 8479’s proponents had promised that competition among the oil companies would drive down fuel prices—and improve customer service besides. Never happened.

Industry collusion

Instead, Filipino consumers have become powerless as the oil companies—in far too evident collusion—relentlessly raised fuel prices, and raked in mind-boggling profits in the process.

As one result, the clamor for a return to oil-industry regulation, which used to be raised only by leftists, has been joined by some lawmakers. One of them, Ca­gayan de Oro Rep. Rufus Rod­riguez filed a bill that seeks to repeal RA 8479 and re-establish the Oil Price Stabiliza­tion Fund (OPSF).

In House Bill 4262, the freshman legislator said that RA 8479, instead of fostering a competitive market, has only strengthened the oil cartel in the country and brought up oil prices. He added that the dominant companies still dictate the price of oil because even new industry players get their supply from the oil majors.

When RA 8479 is out of the way, the government would be able to set fuel prices. Moreover, Rodriguez said, reviving the OPSF “would cushion the additional cost of crude oil and petroleum products’ importation due to fluctuations in the foreign exchange rates.”

Prior to RA 8479, fuel prices were set by the Energy Regulatory Board. The oil companies were reimbursed the difference between ERB-set prices and the actual cost of fuel in the regional market through drawdowns from the OPSF.

Oil companies complained that regulation curtailed their business operations. Nevertheless, the system served to stabilize fuel prices.

“The continuing increase in the price of oil adds misery to the people as it translates to lesser purchasing power on the part of the consumers,” Rod­riguez said. “We need to regulate the oil industry and return the OPSF to cushion the rising costs of crude oil.”

Where would the government get the money to sustain the OPSF?

Well, the Palace itself has been distributing handouts sourced from what it calls Katas ng E-VAT. Why can’t the government instead use the “windfall collections” from the expanded value-added tax imposed on oil to support the OPSF?

That way, everybody benefits—not just certain sectors, who do not appreciate Mrs. Arroyo’s multibillion-peso balato anyway, going by recent survey results.

Raking it in

Another congressman has revealed the megaprofits that at least two of the country’s biggest oil companies have been raking in—thanks to RA 8479.

According to Cebu Rep. Eduar­do Gullas, Pilipinas Shell and the partly state-owned Petron Corporation have netted P70 billion in profits during the first 10 years of deregulation.

According to the senior lawmaker, Shell posted P33.59 billion in cumulative net profits from 1998 to the first quarter of 2008. Petron cleared P35.18 billion in profits over the same period, he said. Gullas cited the regulatory filings of the two oil firms as the source of his figures.

“The Downstream Oil Industry Deregulation Law has definitely been a boon to the two oil refiners and other [industry] players,” Gullas said. “There is also no question that as a result of soaring world oil prices, industry players are enjoying enormous pricing power that has enabled them to pump up their profits.”

He warned: “Consumers are now extremely vulnerable to potential pricing abuses.”

Oil companies have raised diesel and kerosene prices 20 times, by a total of around P22 to P24 a liter so far this year. They have also raised gasoline prices 19 times, by a total of about P19 a liter.

dansoy26@yahoo.com