Body to resolve fair trade issues in oil sector proposed

The creation of a Fair Trade Commission (FTC) has been proposed as a solution to the problem of anti-competition practices in the oil industry. According to the Asian Institute of Management (AIM)-Washington Sycip Policy Center (WSPC), such a commission could acquire the functions of the joint Department of Energy-Department of Justice (DOE-DOJ) task force which is mandated to conduct investigations and hearings on complaints of predatory pricing, cartelization, and price collusion.

"Having a permanent body tasked to ensure competition will create a pool of expertise as well as body of jurisprudence from which proper and credible anti-trust jurisprudence could be enacted," said the WSPC report which is co-authored by Roberto Galang and Chani Marie Solleza.

The report urged the "de-politicization" of oil prices, and increased transparency in pricing. It also investigated charges of price collusion among the three major oil companies in the country (Petron Corp., Pilipinas Shell Petroleum Corp., and Caltex Philippines Inc.).

Galang and Solleza said the FTC could provide the legal framework for anti-competitive behavior like cartels and collusion. That will offer both the consuming public and the oil industry a basis for recognizing what is uncompetitive and unfair behavior.

In the past two years, the oil majors were often accused of predatory pricing by the new oil players who formally sent their complaints to the DOE-DOJ task force. But due to the temporary character of the task force, resolution of the complaints always took longer than acceptable to the industry players as well as the public.

The study shows that the problem points to lack of manpower including prioritization by the members of the task force. Likewise, the lack of expertise in the area of anti-trust business behavior investigations and the absence of clear-cut legislation added to the difficulties of the task force to issue a decisive verdict on complaints.

"Finally, the body is limited by its inability to investigate cases outside the three anti-competitive violations of predatory pricing, cartelization, and unreasonable price increases," report stressed.

Meanwhile, the WSPC admitted that it could not conclusively declare that collusion existed between the three major players in determining price changes of petroleum products.

"Although the presence of collusion is neither proved nor disproved, simple economic analysis shows that the pump prices in the Philippines approximate what competitive prices should be," the report declared.

Galang said domestic prices are still determined principally by the movement of world crude prices and the foreign exchange market.

"For as long as the country is a net oil importer, it will continue to experience price hikes unless crude oil prices stabilize and the peso appreciates against the US dollar," he pointed out.

The oil majors are also the only refiners in the country, thus having better control of production costs leading to better control over pump prices. On the other hand, the new players are net importers of finished products thus subject to the caprices of world prices.

In fact, the new players are more inclined to regular price adjustments as they not only import all their products. They have shorter inventory periods which means frequent importation of finished petroleum products.