OPSF: Never a good move

FULL DISCLOSURE - Fidel O. Abalos (The Freeman) - December 30, 2019 - 12:00am

While political squabbles usually dominate discussions and discourses in all sorts of media, unreasonable hikes and the unsubstantial reductions of oil prices (if global prices go down) by giant importers and retailers will always take precedence among citizens (whether rich or poor) in offices, coffee shops, market places, barbershops/parlors, etc.

Basic need as it is and the most favorite excuse for price increases by major users, regardless of the original intent of their discussion, it will always end with it.

This month’s price increases are no exception. It is a fact that as Brent Oil (the benchmark) ended in November at US$62.43, the price as of this writing is US$68.16 per barrel. However, while it is true that it increased, the question is, are the consequential increases in retail prices in the country reasonable?

To recall, 2008 saw the global rise of oil prices to an all-time high of US$147.00 per barrel in July. That’s more than double today’s prices. Yet, we never experienced retail prices in 2008 reaching P120.00 per liter. Thus, the consumers are grumbling and groaning.

With these and the usual tendencies of oil retailers to abuse, expect therefore that local prices will unbearably shoot up. If not attended to, few weeks from now, the country will usher in another distasteful sight that may be viewed before a nationwide audience – the left-leaning organizations’ way of solving problems.

Apparently infiltrated by ideologues, jeepney operators’ and drivers organizations will certainly join the call. They will again stop plying their routes to the inconvenience of the general public. Obviously, they will use their (ideologues) mastery of blowing peoples’ pent-up sentiments into wild and uncontrollable emotions.

Though hollow to most of us, their misinformed flock will surely take their rhetoric as gospel truth. All these misguided statements and seemingly libelous invectives stemming from a singular root of perceived and felt miseries - the inevitable increase in oil prices.

Certainly, questions will again be raised on the effectiveness of the oil deregulation law and some sectors may again opt for the oil price controlled era. In effect, such proposal means that we have to go back to the controlled era where prices are fixed and an Oil Price Stabilization Fund (OPSF) is set up.

While there is a big possibility that this proposal will gather steam and maybe popular in the end, its popularity may not be at all the solution we need. It can be recalled that the OPSF was set up in 1984. Then, as part of the policy, the OPSF was supposed to help protect consumers from fluctuations in product prices while providing refiners with adequate margins.

In 1996, the OPSF was running a large deficit and was financed by taxpayers’ money to the tune of US$40 million a month. Knowing fully well that crude oil was the Philippines’ largest single import (it accounted for 7 percent of the country’s total import bill at that time) the amount involved was just too material.

Then, President Ramos’ economic and finance ministers had seen enough. There was then a need to stop the bleeding. Thus, on April, 1998, President Fidel V. Ramos signed Republic Act 8479 otherwise known as the “Downstream Oil Industry Deregulation Act of 1998”.

Procedurally, setting up prices should not be difficult as global prices are transparent.  Determining the landed cost should not be confusing too as transport costs and taxes are not confidential as well. Clearly, therefore, a base data is supposedly at hand for price determination purposes. Palpably, it is purely mathematical and is therefore an exact science. So that, arguments on prices are issues that are not supposed to surface.

Furthermore, while the general public accuses these oil companies of forming a cartel, the same act explicitly prohibits this practice. The Act defines cartelization as “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 of trade or free competition, including any contractual stipulation which prescribes pricing levels and profit margins.”

Obviously, therefore, the law is good and complete. However, some unscrupulous businessmen are just toying with it and have unduly taken advantage of the general public’s helplessness. Unfortunately too, while the Act requires periodic submission of reports, the same Act does not explicitly authorize the Department of Energy or any government agency to examine their books of accounts or financial records like external auditors do.

Generally, therefore, the call for the Act’s abolition is improper. Worst, reestablishing the OPSF may even be the best recipe for disaster.


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