Applicability

Is The Policy Working?

The answer is obviously “No.” IBON Foundation reported that the Oil Deregulation Law
has further strengthened the monopoly of the big oil companies as automatic oil price hikes are
allowed. Consequently, other oil companies took advantage of the policy, hiking pump prices of
all petroleum products by around 535% since the Oil Deregulation Law was first implemented in
April 1996 (Bicol Today 2007). The policy is also unable to solve or, at least, mitigate the effects
of global oil crisis.

What's the difference? After deregulation took effect, prices of petroleum products still
continued to rise, prompting many consumers to complain and associate such increases with
deregulation. But the price increases were not a direct effect of deregulation. The country has
been experiencing oil price increases even before deregulation took effect. The reason: we are a
net importer of petroleum. Thus, when prices of petroleum products abroad increase, the local oil
industry has little choice but to adopt the rise in prices. The bottom line is increasing oil prices
are due to the increases in the world price of oil compounded by the depreciating value of the
peso.

Exorbitant oil prices

Instead of competitive prices, the past 14 years saw steep, unabated, and questionable
increases in petroleum prices. To illustrate, in February 1998, the month the current ODL was
enacted, the pump price of diesel was just P8.33 per liter; unleaded gasoline, P12.62; and LPG,
P140 per 11-kilogram tank. Today, diesel is about P46.79 per liter or almost 462% higher than its
price when the law was enacted; unleaded gasoline, P56.83 (350% higher); and LPG, almost
P800 (about 471%). To have an idea of how steep the increases were, we can compare them to
price adjustments during the 14-year period prior to the enactment of the ODL (1984 to 1998).
During this period, the pump price of diesel increased by just 36%; gasoline, around 61%; and
LPG, about 28 percent.

The impact of these increases on the livelihood of the people is tremendous. A jeepney
driver, for instance, used to spend P250 per daily trip for diesel; today, he needs to shell out more
than P1,400 (based on the average daily trip consumption of 30 liters) under oil deregulation. A
small fisher used to spend less than P117 per fishing trip for gasoline; today, that has gone up to
almost P570 (based on the average consumption of 10 liters per fishing trip). A tricycle driver
used to spend just P50 per daily trip for gasoline (based on the average consumption of 4 liters
per daily trip); today, that amount would not be enough to get even one liter. Aside from the
direct impact of oil price hikes on the people’s livelihood, there is also the domino effect that
pushes up the overall cost of living.

Deregulation and its provision on automatic price adjustment aggravated the global
monopoly pricing imposed by the biggest oil transnational corporations (TNCs) in the US and
Europe. The tight control over the global industry of these oil companies which include TNCs
that have local units in the Philippines like Royal Dutch Shell, Chevron, and Total makes oil
prices artificially high whether oil price hikes are implemented or not.

Because the increases are automatic under the Oil Deregulation Law, the excessive and
oppressive global prices are fully imposed on the people. Worse, the public has no way of
knowing whether the price adjustments are reasonable or not even based on the supposed factors
that affect local prices, namely global oil prices and the rate of foreign exchange. The people are
forced to take hook, line, and sinker whatever explanation the oil firms and the Department of
Energy (DOE) give for the price increases. This setup has paved the way for further abuses by
the local oil companies at the expense of the people. One way is by implementing higher price
hikes or lower rollbacks relative to global prices and the foreign exchange, or what is called as
local overpricing.

Global monopoly

Indeed, the biggest flaw of the deregulation policy is that it assumes that there exists a
free competition among oil players in the global and local markets. As such, removing state
regulation on pricing and other activities in the downstream oil sector is supposed to result to
more reasonable prices that are determined by so-called market fundamentals. Automatic price
adjustments supposedly quickly reflect the true price of oil based on global and local
competition, with the end-consumers ultimately benefiting. But these assumptions are false.
Throughout its history, the global oil industry has always been under the domination of a few
American and European transnational corporations that dictate the price of oil. These TNCs have
remained in control despite the nationalization of oil supplies, the rise of national oil companies
(NOCs), and the establishment of the Organization of Petroleum Exporting Countries (OPEC).
They have maintained such control and domination because even though the NOCs hold the
largest oil reserves, the TNCs still have the stronger financial muscle and access to capital, the
more advanced technological capacity and know-how, and the much wider and more
sophisticated infrastructure and network worldwide. In fact, the NOCs are still compelled to
partner with the TNCs for their crude oil to be refined and reach the market. To illustrate, Saudi
Aramco, the world’s largest NOC and owns the biggest oil reserves at 259.4 billion barrels, have
refining and marketing deals with ExxonMobil, the world’s largest oil TNC. State-owned
PetroChina also has partnerships with British Petroleum, Total, and Shell. The units and partners
of these giant TNCs are also the dominant oil players in the Philippines.