Managing fallouts from rising oil prices

The last time oil prices breached the $42 per barrel level was in 1983, a time when Iran and Iraq were warring against each other. In fact, the cost of a barrel of oil almost breached the $60 mark, although on the average, prices hovered at the $35 to $45 price band. This triggered inflationary horrors in even the most industrialized countries.

After the Iran/Iraq crisis, though, oil prices settled down to within the $15 to $25 range, gifting humanity with an affordable and relatively stable-priced fuel that has been feeding the world’s economic growth during the last two decades. That is, it seems, until the end of last year.

Oil Price Increases Rip Economy

During the last six months, Philippine economy got hit by a double whammy. Rising crude prices combined with a peso weakened by political tension and a cash-strapped government were a merciless whip that shredded whatever else was left of our tattered economic state.

Not counting the increases in pump prices of gasoline last year, the latest P1 per liter hike is the seventh (and the highest adjustment made since October 2001) already. That’s more than once a month! No wonder Energy Secretary Vincent Perez as saying the country is almost in a "crisis" situation.

There’s every credible reason to be alarmed.

The government has set a GDP target of 4.9 to 5.8 percent this year, and the local economy’s first quarter performance hinted that we were very well on track to meeting the target. But the succession of oil price increases has effectively shattered this goal.

As crude prices rose to 25 percent of its 2003 average during the first five months of the year, the transportation sector could no longer be denied its petition to increase fares. A jeepney’s minimum four-kilometer ride is now at P5.50, up from P4.

Because both crude prices and the peso value are directly linked to power generation, electricity rates are likewise on the rise, especially now that the National Power Corp. (Napocor), Meralco and electric cooperatives are allowed to immediately pass on to consumers the effect of any currency devaluation or fuel price hike.

Prices of manufactured goods have already reflected upward changes. With imported components bought by approximately 20 percent more pesos for almost over a year now, manufacturers let go of any price temperance the minute the election polls closed last May 10.

And now comes the clamor to raise workers‚ wages. With the last wage hike way back in 2000 and real wages losing over 50 percent of its purchasing power compared to the mid 90s, this pressure would be difficult to contain.

Realities Of High Crude Cost

While the whole world contemplates on how long crude oil prices will remain on the upper $40 bar, badly hurting countries like the Philippines are looking for ways and means to curb runaway domestic petrol costs. At the recent ASEAN and APEC ministerial meetings that Manila hosted, energy security, supply stability and oil stockpiling became the favored words. All forms of suggestions and ideas, including volunteering the Subic Bay Freeport as possible oil stockpile facility for the region, were discussed.

The sad reality, though, is that we’re held hostage by OPEC’s self-imposed supply quotas. Even if Iraq returns to commercial operations, the rest of the oil producing world will just adjust their production volumes to achieve the price level they desire.

What is clear is that oil, being a finite source of energy, will continue to become more expensive – and scarce. Faced with this immutable fact, conservation, recycling and sustainable lifestyles must be buzzwords not tomorrow but starting today.

Long-Term Not Knee-Jerk Actions Needed

Mandating oil companies to fill up every available crude and petroleum product tank would be a costly exercise, and is really very much a knee-jerk myopic reaction to a long term concern.

There is oil in the Malampaya gas reservoir. If Shell is not interested to develop it as it will not meet their profit objectives (for most companies profit motivation is more powerful than country concern), then Sec. Perez should place in his priority list how to extract and develop this oil rim and reduce our oil importation even by a bit.

And yes, before I forget, let’s stop all this talk about revoking the oil deregulation law in favor of controlling the rise and fall of pump prices. It is good politics but economically not feasible.

The current government is already wobbly with the Napocor debt burden and cannot afford to subsidize gasoline, LPG and other petroleum prices. Unless of course, the oil companies are willing to contribute again to what is going to be a purely political exercise.

Watchful Eye On Price Changes

During these trying times, the DOE can still render service to the public by ensuring that oil companies do not try to pull one over the consuming public. It must keep close tabs with the cost of crude and product importations.

If the companies were fast on the draw to increase local prices citing upward movement in world oil price levels, then they should react as quickly in reducing prices if, for some unforeseen divine intervention, crude prices start to drop. Or, do we have to rely on the Oil Price Watch of Concepcion to ring the bell?

Is Mining Beyond Redemption?

"Isyung Kalakalan at iba pa" on IBC News (5:00 p.m. and 10:30 p.m., Monday to Friday) ends today with a discussion of issues that besets our mining industry.

After the Supreme Court (SC) declared null and void several key provisions of the 1995 Philippine Mining Act, many big mining projects with giant foreign mining companies had been put on hold. Is the Supreme Court decision the death knell of the mining industry? Or, can the industry still climb out of the pits? Watch it.

‘Breaking Barriers’ Tackles High Surgery Cost

‘Breaking Barriers’ on IBC (11 p.m. every Wednesday) will feature on Wednesday, 23rd June 2004, Dr. Juan P. Sanchez, a renowned Filipino surgeon with extensive experiences in rhinoplasty or reconstructive surgery.

One of the hidden fears of millions of Filipinos is to be sick. And worst of all to be sick that would require a major operation. The cost of most major operations is beyond the reach of more and more Filipinos. For this reason, any option or alternative procedures that will bring down cost is most welcome. One such technique being promoted is the use of local anesthesia and peripheral nerve blocks. What does this procedure involve? What is needed for the procedure to be widely adopted for the benefit of those suffering from ailments requiring costly surgery?

Join us break barriers with Dr. Sanchez as he provides answers to layman questions about local anesthesia, unsafe practices in reconstructive and cosmetic surgery, including nose lifts, nose fixing and the highly popular (and controversial) liposuction procedures.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.